Amazon made it easier to order toilet paper and baby clothes without ever leaving your home. Will the behemoth online retailer provide you with your next mortgage?
There’s kind of perpetual sensitivity to Amazon entering the financial industry space in a real way. Analysts muse on Amazon buying a bank, or at least partnering with one to launch a current account.
For good reason. With Amazon Cash and Amazon Pay, along with its credit cards, Amazon has established itself in the world of payments.
Amazon enjoys a $700 billion market cap, larger than Bank of America and JPMorgan Chase combined, even though investors haven’t seen much in the way of profits. Its forward price-to-earnings ratio is nearly 10 times larger than the S&P 500, which means investors expect Amazon to keep growing.
That’s why grocery store stocks dropped like a ton of bricks after Amazon announced it purchased Whole Foods, and health care companies suffered after a joint project was finalised with Berkshire Hathaway and JPMorgan. Conventional wisdom says it’s a matter of when, not if, Amazon seriously disrupts consumer banking.
A recent report from HousingWire suggested that Amazon would start to dip its toe in the mortgage waters. But what would that mean for you?
If Amazon jumps into the fray, will it revolutionise the business, like it did with retail, or flop, like with the quickly forgotten Amazon Fire smartphone?
The problem with mortgages
A few years ago, Fannie Mae, the quasi-governmental US agency, wanted to get a sense of the “behaviours and experiences” of homebuyers applying for and getting a mortgage.
One of the questions it asked was: “What, if anything, would have made the process of getting a mortgage easier?”
More than 1 in 3 (34 percent) repeat homebuyers said “less paperwork,” by far the most popular answer.
That’s a good thing – lenders shouldn’t dole out money that you can’t reasonably pay back. But the process of delivering those documents can be cumbersome and time-consuming.
Enter Rocket Mortgage by Quicken Loans. (Note: Rocket Mortgage doesn’t operate in the UK, but Trussle offers some similar functionality.)
A relatively new product, Rocket Mortgage was designed so that consumers could apply for a mortgage online, or with a smartphone, and leveraged technology to make the process more seamless.
You sign up for the same types of basic mortgages that you would at your neighbourhood bank, but everything can be done from the palm of your hand with push notifications helping you along the way.
In the 2017 J.D. Power Mortgage Origination Satisfaction Survey, Quicken Loans tied for top marks and even replaced Wells Fargo as the top mortgage lender in the last three months of 2017.
More digital mortgage businesses, such as Better Mortgage, are gaining customers, putting pressure on traditional players to ramp up their technological capabilities.
Where does that leave Amazon?
This means Amazon would enter a crowded mortgage space with companies that are already doing what Amazon would aim to do.
“They can create a mortgage company, but the question is can they make it easier — make it less stressful — to fill out the application and get you the documents needed to apply for the mortgage, deliver all the require disclosures along the way?” says David Stevens, president and CEO of the US Mortgage Bankers Association. “Can they change the paradigm of what consumers experience today?”
Amazon, of course, has a powerful brand that millions of Brits trust. But that doesn’t mean consumers will just buy whatever Amazon sells.
The Amazon Fire Phone, for instance, was discontinued just a year after it was released, ultimately causing the company to bear a $170 million write-down.
If Amazon could overcome the huge regulatory hurdles to get into the mortgage business across the country, it would still have to actually come up with a product that’s meaningfully better.
Perhaps Amazon could leverage open banking to pull all of your relevant documentation — from paychecks to bank statements to existing credit commitments — and perform automatic mortgage appraisals. Maybe they’ll simply partner with a big bank and leverage their good name with consumers.
Whatever ends up happening, if anything occurs at all, Amazon better come up with something truly innovative.
A mortgage ain’t toilet paper.