Amazon has entered the U.S. Healthcare industry by acquiring PillPack, the online pharmacy, for $1 billion, which sent six healthcare-related stocks plunging a collective $14.5 billion in market valuation on announcement day as fear of industry disruption by Amazon set in. Is mortgage lending next?
A few months back, rumors that Amazon was searching for someone to lead their “newly-formed mortgage lending division" began circulating, which sent chills down the spine of every mortgage company in the country. The $1.6 trillion residential mortgage industry has historically struggled with innovating and delivering an excellent customer experience at scale, both of which Amazon excels in, leaving the industry ripe for disruption. Could these rumors hold merit? Would Amazon want to enter the highly regulated and labor-intensive mortgage industry, which is constantly under the government spotlight? Don’t count on it.
The Mortgage Industry Today
Getting a mortgage is a long, arduous process requiring multiple layers of employees and vendors to coordinate and execute harmoniously: loan officers, credit managers, appraisal coordinators, junior processors, senior processors, underwriters, doc drawers, funders, closing agents, appraisers, home inspectors, title companies, escrow companies, realtors and, last but certainly not least, the borrower. It’s not an easy task to keep all involved in sync and moving forward to close mortgage loans quickly, efficiently, smoothly and consistently.
Amazon’s Strategy
With various Wall Street analysts estimating that 40-60% of U.S. households are Amazon Prime members, coupled with Amazon’s existing lending infrastructure housed in their business division, Amazon Lending, the rumor that Amazon Mortgage could launch appears credible. However, looking a little deeper reveals that such a business could actually distract from Amazon’s core businesses and mission. Amazon has proven to be a strategic company focused on growing their core (Amazon Web Services, Marketplace and Prime) and not channeling time, energy and capital to industries that merely would be profitable to their bottom line but would not complement their overall business and strategy. Let’s review some of the areas of focus for Amazon:
• PillPack, an online pharmacy that provides consumers with prescription medication in prepackaged doses, fits into their marketplace business.
• Amazon Lending offers loans to merchants selling on the Amazon Marketplace to help them sell more products, which in turn fuels Amazon growth.
• Ring, the video doorbell service, was acquired for $1.1 billion to complement Alexa in an effort to control the smart home and serve as a deterrent to porch thieves. This complements Amazon’s core business, as the company spends a substantial amount of money in replacing lost and stolen items.
• The massive $13.7 billion acquisition of Whole Foods gives Amazon access to over 400 locations nationwide to support AmazonFresh and PrimeNow, as well as access to an affluent customer base.
• Cloud9 was acquired to build out services for Amazon Web Services.
Risk To The Amazon Brand
An Amazon Mortgage does not appear to fit into Amazon’s strategy and could pose a great risk to the Amazon brand. Amazon prides itself on efficient buying processes and stellar customer service. Both are difficult to attain in the mortgage industry, even for a company with a proven track record of both, such as Amazon. Consumers who complete an application and are denied are not likely to walk away saying they had a positive experience, no matter the unique data sets and innovative technology mortgage lenders leverage to deliver a seamless digital experience. Conversely, consumers who were approved and had a great experience are not likely to become repeat customers because it is a transaction that may only occur once every five years or more, when they decide to refinance or move into a new home. Also, every lender that services mortgage loans encounters consumers making late payments and defaulting on their mortgages, which results in foreclosures and damaged credit reports -- surely not something Amazon wants to take part in. The risk/reward simply does not fit; it is not worth damaging their brand.
