Bankers Beware of Amazon
I know we have said this for a long time, but it is more true now than ever.
A few threads are leading to today’s B2B Buzz on SMB lending.
- CB Insights put out a deep dive into Amazon Payments
- PPP Lending has been headline news lately
- I am shifting my business focus in 2021 away from big banks to community banks.
I love community banks, they are so American and wholesome and local, they really represent everything great in financial services. They have traditionally been part of the community in which they operate. You would find your local banker as the sponsor of the little league team, on the board of the Kiwanis Club and serving on the city council too. The ideal example of this is the fabulous Jill Castilla of Citizens Bank of Edmond, she really stepped up to help her customers with PPP lending recently.
I want to help save them, from themselves and their competitors. Here is some easy, low-hanging fruit. SMBs are finding all sorts of ways to get the working capital they need to operate. Community banks have a chance to use their “localness” to deliver lending that maybe the big techs and Fintechs can not match.
A bright spot for Community Banks recently is PPP lending. Data from the SBA shows that community banks punched above their weight on this dynamic program. It should be noted that some of the banks delivered the capital via a Fintech partnership, so those numbers could be off by a bit.
More good news on this front comes from the Federal Reserve where they surveyed lending customers and found that community bank SMB loan customers were more satisfied. And by quite a margin over online lenders.
Let’s temper our excitement as we all know the tech first lenders are going to keep improving and iterating to close this gap.
Now the bad news….
Amazon is not the only platform coming for SMB loans, Square Capital, Shopify among others. Note I am not even covering the Fintechs that want to provide SMBs their capital needs. I am only talking about platforms that have other business with SMBs.
From the Shopify Capital Website:
“I just didn’t want to deal with the whole process of going through a bank — I wanted to focus on the business. A bank loan felt cumbersome and more restrictive. Shopify Capital has a different mentality to it. It’s so easy.”
Tracey Hicks, Founder | All Things Real Estate
Wow, that is some statement about how banks treat their SMB customers.
I led off with Amazon so here is more bad news they have now issued over $5 Billion in SMB loans. The ease at which they do this for their merchants is stunning. But they do not go it alone, they partnered with GS Marcus for the most recent push thereby reducing their risk.
And on top of lending they partnered with American Express to give their SMBs a Corporate Card. According to CB Insights analysis:
“The card serves as a way to attract customers that have been turned down by traditional banks due to limited business credit history.”
So you can’t even say that Amazon is stealing customers, they are picking up business that banks didn’t want. But remember Amazon pushes the risk of the lending off to their bank partners. It is good to be Amazon.
We are not done with Amazon yet…also from the excellent CB Insights report:
“Amazon also offers services such as Pay by Invoice, which allows selected small businesses to buy now and pay within 30 days — or 45–60 days, if the customer has an Amazon Prime Business account. In addition, it offers SMBs a revolving credit line and a pay-in-full credit line, in partnership with Synchrony Bank.”
Another core bank offering from Amazon and another partnership to ensure they don’t assume too much risk.
I am exhausted writing about Amazon’s SMB offerings, but I barely touched on Shopify or Paypal.
Paypal did over $10 Billion in SMB loans in 2019 and is now considered the largest non-bank SMB lender in the world.
Shopify shows nearly $2 Billion in capital lent in 2020, with a mix of SMB loans and MCA (Merchant Cash Advances). Either way, they are eating away at the reason to have a bank relationship.
Square has executed flawlessly on a strategy I years ago called the MOS, Merchant Operating System.
If you are a Merchant you can do almost everything on the Square platform and look at how they view the market for merchants.
Square Capital is a $12B opportunity for Square and Financial Services is a $5B opportunity.
What can a community bank do to wrestle back their valuable SMB customers?
Be digital, it is as simple as that.
Remember your SMB customers chose your bank for personal service, it is NOT Digital OR Personal, your bank can do both. Amazon can not.
Lending is an analytics business and that requires data.
For the type of products we’re discussing, lending is much more of a data and design business, than a “credit risk” business.”
Charlie Deutsch, Former Head of OnDeck Product
Integrate to your SMB’s business
Don’t wait for them to send you their information. Use products like Codat (https://www.codat.io/) to proactively get their data. See how their business is doing, use the data to quickly evaluate or even predict their working capital requirements.
Community banks can be the partner that an SMB needs, Amazon, Shopify and Square can not. Be the Digital but Local resource you would want for your business.
