FINTECH: Amazon and Bank of America

  Source: Amazon

Source: Amazon

Remember how Amazon has a lending business line that makes loans to merchants on its platform for up to $750,000, competing with OnDeck, Kabbage, Square and Paypal? We've discussed before how the online retailer has proprietary data that indicates company revenues before those revenues even materialize -- the traffic on product pages by consumers on the Amazon website. The key advantage in underwriting is the reach of your data and the quality of your algorithm, so having a data set broader than payments and an AI smarter than one built by a bank should allow the company to drive a wedge into financial services.

Except it doesn't really want to. CNBC reports that Amazon's lending activity has been purposefully capped at an annual $600 million, and that the firm has partnered with Bank of America for future capital. My colleague Brian Foran at Autonomous Research put this in context. Even if Bank of America doubles the Amazon program to $1-2 billion, it will not be material for the bank in the context of a total loan book for $930 billion. And second, by outsourcing the capital to a bank, the tech giant is (1) side-stepping regulatory financial oversight, and (2) is using capital more efficiently in higher-growth businesses than just lending. Like robo-retailing and augmented commerce.

Compare this with China. Alibaba's commercial bank MYbank, Tencent's WeBank, and 6 other private lenders that were started in 2015 now have a loan book at over 80 billion yuan ($12 billion). Still a drop in the bucket for BAML, but quick expansion for a technology-first financial institution that faces more favorable regulation.

Or take the even more interesting example of Microsoft and Bitcoin. The tech firm is building an off-chain layer on top of the public blockchains to re-invent identity services, and find a way to give at least some data back to the user. Solving an old problem with a solution on new infrastructure (paper > database > chain) gives room for the solution to breathe. A $1 billion in loans may be peanuts for Bank of America as part of a $1 trillion business. But in Crypto, $1 billion in loans through something like SALT could be a market leader. Combine that with the Microsoft user base, and why do we need banks?

  Source: SALT

Source: SALT