Slideshow Which businesses will Amazon threaten next?

  • March 26 2018, 2:40pm EDT
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Who needs a banking charter, anyway? Not Amazon.

The most feared company in America keeps finding new ways to eat into banks’ revenues, even though it is supposedly on the wrong side of the industry’s regulatory moat.

The ecommerce giant is already making small-business loans, finding ways to cut into banks’ swipe-fee revenue and competing against prepaid card issuers.

Indeed, several recent developments suggest that Amazon has substantially broader ambitions. Checking accounts, small business credit cards and even mortgages all appear to be in the company’s sights.

While some banks stand to benefit from partnerships with Amazon, many more will have to reckon with the competitive threat that Jeff Bezos' company poses.

In a report last fall, the consulting firm McKinsey calculated that the sales and origination side of banking, or what the report calls distribution, accounted for 65% of the industry’s profits. Meanwhile, the use of bank balance sheets to provide financing comprised just 35% of profits.

The larger of those two categories presents a big opportunity for the likes of Amazon, according to the report.

“With their superior customer experience, they can sell an ever-wider range of products to their loyal customers," the report stated. "The manufacturing end of many businesses is fading from view, as the platform companies increasingly dominate the distribution end of multiple businesses, providing a wide range of products and services from a single platform.”

Here is a look at parts of the banking business where Amazon is either already competing or is reportedly considering a foray.

Small-business lending

Amazon began making loans to its small-business clients in 2011, using transaction data from the e-commerce site to underwrite 12-month loans of up to $750,000.

Amazon said last June that it had originated $3 billion in loans, including $1 billion over the previous 12 months.

Amazon Lending is open only to companies that sell products through Amazon, which limits its competitive impact on the banking industry. But there are signs that Amazon would like to grow its footprint in small-business lending.

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Swipe fees

Last summer, Amazon announced that members of its Prime program — tens of millions of households — can receive 2% cash back on funds they spend from a gift card linked to their bank account.

When customers take advantage of the offer, known as Amazon Reload, the retail behemoth can avoid paying swipe fees to banks. Amazon Reload offers substantial value to consumers, since 2% cash back is a better deal than what is available on virtually any credit card.

Prepaid cards

Amazon is also targeting the 7% of U.S. households that do not have bank accounts, many of which currently rely on prepaid cards.

Amazon Cash, which was launched last year, enables consumers to load their Amazon accounts using cash. Shoppers download a bar code onto their phones and take it to a participating store, which scans the bar code and collects the cash.

Unlike some of its competitors, Amazon Cash does not include a physical card, and it does not charge any fees to consumers.

Checking accounts

The Seattle company is reportedly in talks with JPMorgan Chase and Capital One Financial about creating a product similar to a checking account.

The potential threats that this move poses to traditional financial institutions include the loss of young customers who embrace the idea of banking at a tech company and the loss of control of customer relationships.

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Small-business credit cards

JPMorgan Chase is reportedly in talks with Amazon about developing a new cobranded credit card for U.S. small businesses.

For Amazon, a small-business credit card that offers rewards could provide a way to attract more of the large purchases that companies make on office supplies.

Amazon currently partners with both Chase and Synchrony Financial to offer credit cards to consumers.

Mortgage lending

Is Amazon looking to make inroads into residential mortgage lending?

Earlier this month, HousingWire reported that the company has been looking to hire a mortgage industry veteran to head a newly formed home lending division.

If Amazon does start offering mortgages, it will join the ranks of nonbank lenders that, since the financial crisis, have taken significant market share away from banks. Nonbanks represented nearly half of all mortgage originations in 2016, up from around 20% nine years earlier.

Amazon could use mortgages as a way to develop even deeper relationships with millennials, many of whom are looking to purchase their first home.