Why Amazon Is A Threat To Your Credit Union

The announcement earlier this week that Amazon will be joining forces with Goldman Sachs’ consumer bank, Marcus, to offer small business lines of credit to its platform users is an inevitable evolution in the nascent competition that is taking place between banks, credit unions and fintech’s  that will only grow in intensity in the coming years.  It’s time for the industry to start taking a stand against this potentially monopolistic behavior if it hopes to compete on a level playing field in the brave new world of fintech finance.

According to CNBC, small business owners who use Amazon’s platform will be invited to apply for small business lines of credit with interest rates ranging from 6.99% to 20.99%.  The collaboration has been rumored for months. Apparently, Amazon decided not to go it alone because it discovered that being a first class tech company doesn’t qualify you to run a bank.

The announcement comes at a time when Congress an Attorneys General have begun investigating anti-trust issues related to Amazon, Facebook and Google.  This agreement is a classic example of how network affects are increasingly going to make it impossible for all but the largest institutions to offer competitive services.

Some of the issues that need to be addressed aren’t new to credit unions.  For example, a two years ago the supreme court expounded on what constitutes a two sided platform when it dismissed an anti-trust claim that merchants had brought against American Express.

Amazon Marketplace arguably meets the four elements of a transaction platform that the dissent identified were present in the majority opinion, i.e., the platform“(1) offer[s] different products or services, (2) to different groups of customers, (3) whom the ‘platform’ connects, (4) in simultaneous transactions.” (PLATFORM CONDUCT: NAVIGATING NEW GROUNDS; Eric Hochstadt, Yehudah Buchweitz, Eric A. Rivas)

Simply put, the more data Amazon has, the more consumers are attracted to its platform.  The more consumers that are attracted to its platform, the more businesses are compelled to sell on its platform and the more Goldman Sachs has a captive audience to offer its own products.  Today its small business loans, tomorrow similar deals will be struck for a broad array of financial products.

This is a classic anti-trust case conundrum.  Unless regulators step, in lenders of all shapes and sizes will face almost insurmountable barriers to entry.  It won’t be enough to offer good loans at fair prices, because they won’t have the data available to refine their offerings or access to the marketplace where consumers will increasingly turn to shop for financial products.

Can this admittedly apocalyptic view of the future be avoided?  Yes it can, but only if the industries that have a stake in fair competition support measures to create a level playing field.