Amazon's fintech flywheel widens its orbit
Big consumer-facing punts are great for grabbing headlines. But often, it's the other kind of deals that build a business. Amazon's fintech playbook shows how to do it.
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Arti Singh
27 Apr 2018
Its battle with Walmart for control over Flipkart sent the sparks flying.
Meanwhile, in a relatively ho-hum manner, Amazon made a different move to tighten its grasp over India’s e-commerce sector.
Earlier this week, it invested USD22 million (Rs144 crore) in Bengaluru-based online SME lending platform Capital Float — its fourth fintech deal in the country in as many years.
Here are its three earlier deals:
2014: Acquired e-gifting and loyalty-rewards firm Quikcilver for USD10 million and merged it with Amazon Pay
2015: Led a USD60million round in financial marketplace BankBazaar
2016: Acquired online-payments firm Emvantage for undisclosed amount and integrated with Amazon Pay
The trajectory of the deals shows Amazon is bang on trend, covering all the bases in the fintech ecosystem one after another, with Amazon Pay, its flagship payments-processing product, at the centre.
Amazon Pay’s India head Mahendra Nerurkar says its goal is to eliminate the three pain points of the online buyer. “We want to simplify the online payments journey through our wallet, UPI, and other options; offer next-generation financing solutions such as 'No Cost EMI' and 'Buy Now and Pay Later' products … and convert the cash economy into digital through cash on delivery."
But Amazon doesn’t want to stop at the customer-facing payments business. With Capital Float, it is setting its sight on lending to small businesses — think the three lakh-plus sellers who hawk their wares on its platform.
“Capital Float is a strategic fit," says Anil Joshi, managing partner at Unicorn India Ventures. “If you look at payments, orders can only be fulfilled when transactions are successful. No wonder Amazon bought the payment-gateway company Emvantage. Then comes the vendor base. Again, Amazon can only fulfil orders if its vendors are able to supply the goods. If vendors can’t do that because of lack of capital, it will lose out on business.”
Amazon’s lending foray in India is in sync with its global strategy. According to a Bloomberg report dated June 2017, Amazon has lent USD3 billion to more than 20,000 small businesses in the US, UK, and Japan. The company uses algorithms to identify merchants with good selling histories, who are offered loans ranging from USD1,000 to USD750,000 payable within one year. Those taking loans repay the company through sales made on its platform.
From customers to sellers
India’s digital-payments market is estimated to reach USD1 trillion by 2023, according to a Credit Suisse report. Anil Kumar, CEO of market-research firm Redseer Consulting, says it’s vital for every online-commerce player to be close to the flow of money both at the seller and the customer side to maximise their share of this bounty.
"Those who manage and have access to the wallets of both customers and vendors — their control on the market is much better," Kumar says. Here, he sees parallels between Amazon and Alibaba's Alipay (now Ant Financial): both want to dominate the online commerce chain from end to end.
Lately, Amazon has also been in the news for becoming a growing threat to banks. Last month, the Wall Street Journal reported that the company is exploring a partnership with JPMorgan Chase to offer its customers bank accounts.
"Amazon is thinking of becoming a certain kind of bank in the US. Fintech is definitely a play for them [globally as well as in India],” says the co-founder of a Gurugram-based payments firm on the condition of anonymity. “With payments, you get new customers to whom you can cross-sell and up-sell retail products.”
Kumar of Redseer says India is different from the US — the cash economy going online for the first time is a huge opportunity here. "That journey will define who controls e-commerce, [and Amazon has] the opportunity to build this ecosystem in India. That’s not the case in the US where most of the money is already online," he says.
Different entities, same true north
Both in the US and India, Amazon has separate teams for its payments and other fintech businesses. According to the company's website, while Amazon Pay "creates and develops experiences that make it simple for hundreds of millions of customers around the globe to shop using the information already stored in their Amazon accounts," Amazon FinTech "works with every part of Amazon to capture, compute, transact, and report their financial events".
But at the heart of both entities is precious user data — the fuel that keeps Amazon’s famed flywheel churning and connects its armada of discrete businesses to the mother ship.
"Everything starts with a strategic fit to the main business,” says the payments-firm co-founder. “If that strategic fit starts to become bigger and bigger, it becomes a new revenue stream. For instance, Amazon Web Services was started for Amazon.com and they created a separate business out of it,”—a multibillion dollar one, and the shining jewel of Amazon’s empire.
Fintech could be next.
1 CONTRIBUTOR COMMENT
• FEATURED
68 days ago
Sunil Nair
Product Management , Retail Banker
Yes, fintech is evolving and a host of big players will be interested in picking up the minnows and building a more viable ecosystem. Our country is at the cusp of digital transformation with the digitisation of cash flows and jiofication of connectivity. Also there is a host of new customers entering who are digitally savvy and willing to experiment and anyone who catches them young has the potential to become a powerhouse.
Like 3 likes
o
Arti Singh
Assistant Editor - Fintech , ET Prime
Hi Sunil, Thank you so much for taking out your time for this story. Indeed, all the major e-commerce players are upping their fintech game...however, it would be interesting to see how our banks would react to this trend. Till sometime back, mobile wallets posed threat to banks and now these e-commerce players. With Amazon's global intentions known and Flipkart getting stronger with Walmart deal, do you think these players (with their massive reach and the money muscle) will disrupt the traditional banking space in the country?
Big consumer-facing punts are great for grabbing headlines. But often, it's the other kind of deals that build a business. Amazon's fintech playbook shows how to do it.
Share Gift this article
Arti Singh
27 Apr 2018
Its battle with Walmart for control over Flipkart sent the sparks flying.
Meanwhile, in a relatively ho-hum manner, Amazon made a different move to tighten its grasp over India’s e-commerce sector.
Earlier this week, it invested USD22 million (Rs144 crore) in Bengaluru-based online SME lending platform Capital Float — its fourth fintech deal in the country in as many years.
Here are its three earlier deals:
2014: Acquired e-gifting and loyalty-rewards firm Quikcilver for USD10 million and merged it with Amazon Pay
2015: Led a USD60million round in financial marketplace BankBazaar
2016: Acquired online-payments firm Emvantage for undisclosed amount and integrated with Amazon Pay
The trajectory of the deals shows Amazon is bang on trend, covering all the bases in the fintech ecosystem one after another, with Amazon Pay, its flagship payments-processing product, at the centre.
Amazon Pay’s India head Mahendra Nerurkar says its goal is to eliminate the three pain points of the online buyer. “We want to simplify the online payments journey through our wallet, UPI, and other options; offer next-generation financing solutions such as 'No Cost EMI' and 'Buy Now and Pay Later' products … and convert the cash economy into digital through cash on delivery."
But Amazon doesn’t want to stop at the customer-facing payments business. With Capital Float, it is setting its sight on lending to small businesses — think the three lakh-plus sellers who hawk their wares on its platform.
“Capital Float is a strategic fit," says Anil Joshi, managing partner at Unicorn India Ventures. “If you look at payments, orders can only be fulfilled when transactions are successful. No wonder Amazon bought the payment-gateway company Emvantage. Then comes the vendor base. Again, Amazon can only fulfil orders if its vendors are able to supply the goods. If vendors can’t do that because of lack of capital, it will lose out on business.”
Amazon’s lending foray in India is in sync with its global strategy. According to a Bloomberg report dated June 2017, Amazon has lent USD3 billion to more than 20,000 small businesses in the US, UK, and Japan. The company uses algorithms to identify merchants with good selling histories, who are offered loans ranging from USD1,000 to USD750,000 payable within one year. Those taking loans repay the company through sales made on its platform.
From customers to sellers
India’s digital-payments market is estimated to reach USD1 trillion by 2023, according to a Credit Suisse report. Anil Kumar, CEO of market-research firm Redseer Consulting, says it’s vital for every online-commerce player to be close to the flow of money both at the seller and the customer side to maximise their share of this bounty.
"Those who manage and have access to the wallets of both customers and vendors — their control on the market is much better," Kumar says. Here, he sees parallels between Amazon and Alibaba's Alipay (now Ant Financial): both want to dominate the online commerce chain from end to end.
Lately, Amazon has also been in the news for becoming a growing threat to banks. Last month, the Wall Street Journal reported that the company is exploring a partnership with JPMorgan Chase to offer its customers bank accounts.
"Amazon is thinking of becoming a certain kind of bank in the US. Fintech is definitely a play for them [globally as well as in India],” says the co-founder of a Gurugram-based payments firm on the condition of anonymity. “With payments, you get new customers to whom you can cross-sell and up-sell retail products.”
Kumar of Redseer says India is different from the US — the cash economy going online for the first time is a huge opportunity here. "That journey will define who controls e-commerce, [and Amazon has] the opportunity to build this ecosystem in India. That’s not the case in the US where most of the money is already online," he says.
Different entities, same true north
Both in the US and India, Amazon has separate teams for its payments and other fintech businesses. According to the company's website, while Amazon Pay "creates and develops experiences that make it simple for hundreds of millions of customers around the globe to shop using the information already stored in their Amazon accounts," Amazon FinTech "works with every part of Amazon to capture, compute, transact, and report their financial events".
But at the heart of both entities is precious user data — the fuel that keeps Amazon’s famed flywheel churning and connects its armada of discrete businesses to the mother ship.
"Everything starts with a strategic fit to the main business,” says the payments-firm co-founder. “If that strategic fit starts to become bigger and bigger, it becomes a new revenue stream. For instance, Amazon Web Services was started for Amazon.com and they created a separate business out of it,”—a multibillion dollar one, and the shining jewel of Amazon’s empire.
Fintech could be next.
1 CONTRIBUTOR COMMENT
• FEATURED
68 days ago
Sunil Nair
Product Management , Retail Banker
Yes, fintech is evolving and a host of big players will be interested in picking up the minnows and building a more viable ecosystem. Our country is at the cusp of digital transformation with the digitisation of cash flows and jiofication of connectivity. Also there is a host of new customers entering who are digitally savvy and willing to experiment and anyone who catches them young has the potential to become a powerhouse.
Like 3 likes
o
Arti Singh
Assistant Editor - Fintech , ET Prime
Hi Sunil, Thank you so much for taking out your time for this story. Indeed, all the major e-commerce players are upping their fintech game...however, it would be interesting to see how our banks would react to this trend. Till sometime back, mobile wallets posed threat to banks and now these e-commerce players. With Amazon's global intentions known and Flipkart getting stronger with Walmart deal, do you think these players (with their massive reach and the money muscle) will disrupt the traditional banking space in the country?
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