There has been much speculation about whether or not Amazon will try to get in on the real estate finance business. However, as time passes, it’s not so much a question of “if,” as it is of “when” and “how.”
Although there are many barriers to overcome, Amazon has one of the biggest strengths required: technology.
Although Amazon will have to go through a long and drawn out process, steeped in examination by state regulators and red tape, it is probably not a big challenge for them. They already went through a similar process when they looked to improve employee health care. They entered into a joint venture with Berkshire Hathaway and JPMorgan Chase to find cost reductions and other improvements in the distribution of health care for their employees.
Not far behind this initiative, Amazon was reportedly looking for banks interested in partnering for an Amazon-branded checking account while also offering credit cards with Chase and Synchrony Financial and American Express. This gives them experience in both red tape and dealing with the financial industry.
Many consumers would welcome a new way to access funding for home buying, according to Fannie Mae. They found that 16% of those surveyed said they would trust their favorite financial technology company with the job of handling their mortgage needs. Where the trust fails is with companies such as Amazon, with two-thirds saying they would not trust a large technology firm to handle their mortgage. Why? Privacy and data breach concerns. This might explain Google’s two failed attempts to launch Google Advisor Mortgage. It might also cause issues for Amazon, a company that has experienced a lot of bad reviews based on customer service.
Interestingly, in 2012, Carlisle & Gallagher found that close to half of those surveyed said they would consider PayPal for an online mortgage. As well, existing lenders that offer online options are doing well, according to J.D. Power. This gives existing lenders an edge over companies such as Amazon—or does it?
Although customers would lean towards existing financial services and tech companies to handle their online mortgages, the challenge lies in creating an acceptable customer experience. The development project is a daunting one for many lending companies to take on. This is where tech firms have the advantage, as they can create a user experience that will appeal to the largest demographic of homebuyers: millennials.
All of Amazon’s financial partnerships open many opportunities for further projects. This means they could take the same approach the highly successful Quicken Loans took, partnering tech company Intuit with Rock Financial.
However, they might also try to become a direct lender like Zillow by purchasing an existing lender. They could also choose a membership-only model like Amazon Prime, using mortgages as an incentive to join. Last but not least, there’s the mortgage brokerage franchise route, following the example of Remax Holdings’ Motto Mortgage. This approach puts the onus of licensing and other regulatory issues on the shoulders of the franchisee.
No doubt Amazon has the digital prowess to develop a mortgage platform that would be ideal for the tech-savvy millennial. However, the question remains, can they overcome the barrier of consumer mistrust and dissatisfaction?
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