Last week the Wall Street Journal reported that Amazon is in communication with JP Morgan Chase and other large banks on plans to offer pseudo-checking accounts to consumers. While this news is sending the media into a frenzy about whether Amazon is going to take over the banking industry, it is really just another step in their ongoing trend of offering bank products that help grow the traditional Amazon business.  So where will Amazon go next?  There is a real possibility of Amazon expanding further into lending – specifically auto finance.  Think a “One-Click” car purchase.
  
On the surface it appears that Amazon does not want to be a bank. For a company that is seeing strong returns in multiple industries, funneling money into compliance costs associated with running a bank does not seem to be an effective return on capital. On the other hand, partnering with an FI is well within their wheelhouse. Since 2011 they have been offering small to medium size business loans to merchants through their partnership with Bank of America1.  Amazon has also partnered with the likes of JP Morgan Chase and Synchrony Financial to offer co-branded credit cards2.  The key is that any financial product offering has always been in support of the greater Amazon business of becoming the world’s dominant retailer. For instance their small business loans are only offered to their own merchants. So with that in mind could we see Amazon partnering with a bank to offer an auto loan in the near future?

Selling cars in digital channels is not always an easy thing. Just ask Elon Musk, who has struggled to overcome regulations preventing Tesla from selling their cars online. His issues have stemmed from regulations on direct to consumer sales, which restrict car companies from bypassing dealers by selling their vehicles directly to the consumer. But what if Amazon worked with licensed dealers in local markets, such as through a partnership with (or maybe even an acquisition of) a company like AutoNation? The result would be that they might be able to get around many of the regulatory challenges that Tesla is facing. Note that Amazon is already selling some Chrysler models in Italy so we know that they have an appetite for car sales3.  

This approach would also allow them to address the thorny issues of providing service on vehicles sold through their platform, as well as leveraging dealers to facilitate the test drives that are important to many – but not all – buyers. At that point the question becomes: “How do buyers pay for their purchase?” This will open up an opportunity for a large bank to again partner with Amazon to help the behemoth grow further.
 
So it seems possible that in the next few years you could buy and finance your new car through Amazon. But what about mortgages, certainly that couldn’t  be a product of the future as Amazon doesn’t sell homes (other than trailers). Well, Housingwire reported that Amazon is looking to hire someone to lead their newly formed mortgage lending division4. If Amazon wants to offer mortgage loans that could mean they also want be a marketplace for traditional homes or even sell them directly! I wonder if I’ll be able to get one next day with my Prime membership?

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1. https://www.cnbc.com/2018/02/14/amazon-and-bank-of-america-partner-for-lending-program-but-growth-has-stalled.html 

2. https://www.bloomberg.com/news/articles/2018-03-05/amazon-in-talks-with-jpmorgan-over-checking-accounts-wsj-says  

3.https://gizmodo.com/amazon-now-sells-cars-1789150152 

4.https://www.housingwire.com/blogs/1-rewired/post/42706-amazon-hiring-head-of-newly-formed-mortgage-lending-division

Author

About James Wilson

James is an analyst on our new Digital Lending team. His work examines the challenges and opportunities in a market that is still struggling to provide an end-to-end digital experience. He specializes in both quantitative and qualitative analyses of consumer survey data to identify new and emerging market trends.

Before joining Javelin, James worked at a Greenwich Advisors, a boutique consulting firm, performing insurance risk assessment valuation. He also spent several years in retail banking in Tennessee as a Branch Manager at Bank of Bartlett where he managed branch operations including consumer lending. 

James holds a Bachelor of Arts degree in Economics from Rhodes College.


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