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The US banking giant is in advanced talks with Amazon to offer small business loans through Amazon’s lending platform, per the Financial Times citing two people briefed on the discussions. Goldman, which has bet big on broadening its trading and investment banking business via a move into retail banking, has already started building technology to facilitate the lending. The proposed project could launch as soon as March, according to the individuals cited by the FT.
The news signals that Goldman is continuing its push to become an ally to big techs looking to broaden their financial services footprint.
- Goldman’s potential tie-up with Amazon comes less than a year after it tied up with Apple to launch Apple Card. Apple Card marked the tech company’s first proprietary card product, and Goldman was responsible for issuing it. And as of the end of September 2019, Goldman lent out around $10 billion to customers, and some of the bank’s executives described the product as the “most successful credit card launch ever,” per the FT. As Goldman bids to swell its retail business, which accounted for less than 3% of revenue last year, the product gives it direct access to Apple’s 100 million US customers — which is particularly valuable, considering the bank lacks the physical branch network its legacy bank rivals have. And the move to partner with Amazon is likely driven by the opportunity to similarly gain direct access to Amazon’s huge pool of small business merchants on its platform: For context, according to Amazon, more than 1.9 million small- and medium-sized businesses (SMBs), content creators, and developers in the US work with it.
- And by partnering with a banking incumbent equipped to handle the regulatory requirements around lending, the tie-up presents Amazon with limited risk and drain on its resources. Amazon already lends to small businesses that use its platform, with its balance sheet at the end of 2019 standing at over $863 million, per the FT. Yet, the further it pushes into lending, the greater the regulatory and compliance scrutiny — and associated costs — it’ll face. By outsourcing the loan origination to Goldman, Amazon can significantly extend its SMB lending without having to take care of the regulatory obligations such activities entail. And here’s the key for Amazon: Even if direct revenues from those loans were limited, it stands to gain substantially because those loans will be used by merchants to grow their Amazon sales.
Big tech’s push into financial services is often framed as a threat to incumbent financial institutions (FIs) — but fintechs are likely to be the biggest losers. Given the size of firms like Amazon — it’s around 12 times bigger than Goldman by market cap, for instance — their push into financial services is viewed as an existential threat to established FIs. Yet, the onerous regulatory regime overseeing financial services, coupled with existing regulatory pressures big techs face around competitive practices, makes wading into the industry directly an unattractive trade-off.
So, we’re likely to see a growth in partnerships between these firms and players like Goldman. And for fintechs, this spells trouble: The tech capabilities of Amazon and its peers combined with the regulatory know-how of incumbent FIs like Goldman is a powerful force. Such collaborations can allow these firms to offer digital financial products directly to millions of customers at price points that can significantly undercut their fintech peers, creating a huge competitive barrier for fintechs to navigate.
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