FINTECH: If Amazon Did It -- Entry into Mortgage Finance and Wealth Management

Ah, the constant specter of BigTech gobbling up finance. In this installment, rumors are circulating that Amazon may be interested in acquiring LoanDepot, a non-bank lender founded in 2010 with over 6,000 employees and 180 locations in the United States. The asset in this case is geographic reach, loan underwriting software, and the human presence that is still necessary to deliver financial products to the long tail of the American population. But such rumors are most likely false, especially since the CEO of LoanDepot sarcastically shot them down. Also, imagining such an acquisition betrays a lack of understanding of Amazon's platform strategy, which optimizes around users within the Amazon ecosystem, and not sales of financial product. 

So we want to point you to two resources to help anchor that platform strategy. The first is a comprehensive analysis by CB Insights on the financial services moves that Amazon has made to date. Highlighted below are a few of the key graphics. Amazon's product strategy has been around growing payments and lending -- in order to facilitate commerce in their core offering. Meaning, if underbanked customers can use Amazon's cash products or consumer credit to purchase goods, that's great! If merchants can get an SME loan via Amazon that helps them offer more products on Amazon's platform, that's great! If purchased products are insured via Amazon's partners, that's great! You can see why re-financing a mortgage doesn't quite make sense in this context, until Amazon sells residential real estate that is.


And second, we spent some time with the 2018 World Wealth Report from Capgemini. It surveys the growth in global HNW investors, their preferences and asset allocations. And this year, they also asked whether investors would hire a BigTech firm as a wealth manager. About 40% of the respondents said they would give such a firm 10-50% of their share of wallet, with Asian and Latin American millionaires showing the highest appetite. Further, the report suggests that most likely outcomes for BigTech entry into finance are: (1) partnering with manufacturers of asset management product, (2) unbundling the financial services industry through competitive payments and banking products that are priced below industry levels, (3) providing services and software into incumbents, and (4) partnerships via messaging platforms. Least likely outcomes are (a) no market entry at all, and (b) acquiring a wealth management firm. Google, Apple, Amazon, Alibaba and Tencent are all desired entrants into the wealth space. So if you're a financial incumbent, time to accept your fate and get into a pole position for partnership.


Source: CBInsights (Amazon summary), Inside Mortgage Finance (Loan Depot), Capgemini (World Wealth Report