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  • Alexa, could Amazon change the UK vendor finance market? Posted on 13 June 2017

    It was reported last week that Amazon is planning to expand its lending to small businesses in the UK as well as in the USA and Japan. Currently Amazon provides loans for periods from 6 to 12 months to Amazon third-party sellers. Security comes in part from sellers’ stock held in its warehouses but credit decisions are also based on the suppliers' sales performance data that Amazon holds. Across the three geographical markets, Amazon lent over US$1 billion to sellers in the last year.


    Amazon’s smart finance solution aimed at sellers might not particularly relevant to the UK’s vendor asset finance sector. But it soon could be. Here’s why: Amazon Business.


    Amazon Business launched in the UK in April. It’s Amazon’s B2B portal offering everything from paper clips to industrial machines. For now, it must be said, it’s not terribly impressive. It seems the same as regular Amazon, just with prices stated excluding VAT. Search for a tractor on Amazon Business UK and you’ll find the Tractor Ultimate Sticker Book, but not the real thing.  But it’s early days, with Amazon Business in the US adding thousands of new customers each week.

    The existing Amazon business finance offer in the UK is aimed at sellers, but Amazon has already ventured into finance for buyers of assets. On the main Amazon UK site, Amazon partnered with Hitachi Personal Finance to offer pay monthly options. That programme was, however, discontinued last month.  Amazon Business in the US offers a choice of zero per cent fixed-sum credit for up to 55% days, or a 13% revolving credit line provided by a bank.

    Will Amazon fill the gap it its finance offers by launching new vendor finance options to UK business customers?

    One possibility is that Amazon launches pay monthly installment finance on Amazon Business using its own funds. Amazon may know a lot more about its sellers than its buyers, but it could still develop important insights into customers signing up for Amazon Business. Like its existing finance solution, Amazon could offer finance selectively rather than advertise it as available to all.

    An alternative route open to Amazon is to operate a broker platform, matching customers to one of a panel of lenders, possibly including itself. Such broker platforms are a fast-growing part of the consumer point of sale finance market, with fintech sites such as Pay4Later and Divido capturing a lot of the consumer online POS finance market (for more on this, see my report for Apex Insight here).

    Solutions could look and feel a lot different from today’s business vendor finance, where sellers receive the full purchase price upfront. In the retail POS market for items such as jewellery, furniture and bikes, subsidised finance rates are common often with interest-free credit for the first year and standard fixed rates for longer periods. 

    The retail POS finance customer is signing up for an unsecured loan, but there’s a touch of asset finance about it - default levels are low, apparently because consumers perceive they must pay to keep the asset (perhaps blame Channel 5's ‘Can’t Pay, We’ll Take It Away’). Meanwhile the supplier is signing for something looking more like invoice discounting. The finance company pays upfront the value of the equipment less a chunky discount to cover any finance subsidy and other costs not covered by the customer.

    This crossover of installment credit and invoice discounting isn’t common today in small business vendor finance sector, but it brings some advantages over the traditional leasing model. It’s simple and transparent, and working through a third-party retail site such as Amazon Business removes the need for FCA authorisation for suppliers wanting to offer finance options to regulated small business customers.

    Could Amazon Business, or alternatives including Paypal credit, develop competitive new vendor finance options for small business customers? It may be at least a year away but it’s looking more and more likely Amazon will launch a solution. Alexa may not have all of the answers (how many B2B vendors be willing to pay Amazon listing fees mainly to facilitate having a finance solution?) but lessors might do well to look at recent fintech innovation in the retail POS market for pointers on future change in the business vendor finance market.

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