Since Amazon announced its intentions to launch into the Australian market in April, share prices for its most obvious and direct competitors have been in free-fall. Some commentators and analysts estimate around $4 billion in value has been wiped from some of Australia’s largest retailers and grocers.
And while many believe the Amazon ‘Armageddon’ fear gripping local investors is exaggerated, there is no question the global behemoth will force local businesses to up their game.
But Amazon, being Amazon, isn’t just about books and bananas. Amazon touches everything – including small business lending. And while the hysteria around Amazon’s imminent Australia arrival hasn’t enveloped the banking system yet, perhaps it should.
According to the Financial Times, Amazon’s small business financing arm, Amazon Lending, has originated around $3B worth of loans on its platform since it launched 6 years ago.
The company is now expanding in the UK, US and Japan. Why wouldn’t it make a crack for Australia, in what is currently a massively underserviced small business loans market?
Differentiated competition from fintech is also low. While global companies like Square have launched their payment facilities in the Australian market, there is no sign Square Capital is going to be available to merchants any time soon. PayPal’s working capital product has been the most well-known working capital solution on the market, originating just over $100M in loans, while Tyro’s working capital solution for bricks and mortar stores is in the early stages of it’s release.
That’s not to say fintech’s and the alternative lending sector haven’t made an impact over the past few years. Between 2015 and 2016 the share of business lending for the big four banks was estimated to have dropped 0.44 percentage points.
While the numbers are hard to pin down, some estimate the demand for small business lending market in Australia sits at around $150B per year. Demand outstrips supply, at $77B, a ‘prime’ opportunity for Amazon indeed.
With bank levies, a cooling property market and the spectre of a Royal Commission hanging over local Australian banks heads, the Amazon effect won’t be welcome. But the savvy investor should seriously consider this when thinking about where to park their hard earned cash. The good news is, small businesses can only win, whatever the outcome.