Amazon Unlikely to Disrupt Mortgage Lending

Blog posted On August 14, 2018

Ecommerce giant Amazon is known for disrupting a broad spectrum of industries from book publishing to grocery shopping.  Its most recent acquisition of PillPack, the online pharmacy, marks its first significant reach into the healthcare industry and resulted in a collective loss of $14.5 billion in market valuation of six major healthcare-related stocks.  With Amazon tapping into so many industries, it’s not surprising that a rumor has started about a possible mortgage lending division.  Forbes contributor, Mike Eshelman, explained why the formation of an Amazon mortgage bank is unlikely.

Lending for Business

Amazon does in fact have a lending division, Amazon Lending, that offers loans to merchants selling through Amazon Marketplace.  While the existence of a business lending division could mean the infrastructure for mortgage lending is there, lending to home buyers lacks strategic advantage.  Amazon Lending is a reinvestment back into merchants that have already pledged loyalty to the Amazon Marketplace.  The loans allow the merchants to produce more products and grow their individual businesses and thus grows Amazon’s core business.  Investing in mortgage loans does not have an immediate return for Amazon.

The Mortgage Process

Buying a home is not as straightforward as buying a consumer product online.  There are many professionals involved in the home buying process working the front lines, like the loan officer, realtor, and closing agent, and even more behind the scenes, like the underwriter, processor, appraiser, home inspector, and others.  Although mortgage companies are taking steps to digitize or streamline parts of the mortgage process, like the prequalification or preapproval application, much of the legwork depends on a highly skilled team of professionals.  For Amazon to dive into mortgage lending, they would need to increase their staff sizably.   

Brand Risk

Most Amazon users, especially the 40-60% of US households who are Amazon Prime members, use Amazon because of its convenience.  Products arrive within days, or in some cases within hours.  It’s easy to reorder bulk items like household cleaners and groceries.  It’s known for providing a seamless, timely, digital experience.  Mortgage financing is not a seamless experience.  It requires an ongoing exchange of personal financial information and even when the transaction is smooth, a loan closing can take two-to-three weeks minimum.  Additionally, not everyone who applies for a mortgage loan gets approved for financing.  Denied loans, or worse missed payments or foreclosure would create an influx of customer service related concerns and again the need for staffing up.

Eshelman concludes that the “risk/reward simply does not fit.”  While the convenience of a one-click mortgage is alluring the mechanics of it are not yet in place.  You might choose Amazon for your electronics and streaming services, but you’ll still need to finance your home with a mortgage lender. 

Source: Forbes