With Amazon lending $1bn over the past 12 months to sellers on its platform, banks need to overhaul their SME and trade finance operations or face losing the business, writes Brian Caplen.

Internet giants such as eBay, Amazon and Alibaba are transforming trade.

Whereas once exporting was off limits to many small and micro-enterprises – especially those from emerging markets – online commercial platforms can link a handicraft seller in rural Africa with customers in major developed markets. Or, for that matter, a Manhattan dressmaker with a potential buyer in California. 

Jack Ma, the founder of Chinese e-commerce giant Alibaba, has announced plans for an e-World Trade Organisation to boost small company trade by offering help with logistics and managing customs – two bugbears for SMEs wanting to export. He advocates lowering tariff barriers too, although this is a much trickier political question. 

E-commerce platforms are shrinking the world. Research by eBay estimates that whereas a 10% increase in distance between two trading partners reduced conventional trade by 18%, this number reduces to only 3% over the eBay marketplace. 

But the biggest barrier to a large-scale uptick in SME cross-border trade is lack of finance, a situation made worse by bank derisking since the financial crisis. The WTO puts this trade financing gap at $1600bn, which is roughly 10% of total trade finance. A substantial part of this gap occurs in emerging markets. Fixing it would give a huge boost to world GDP growth and help reduce inequality. 

The news that the internet giants themselves are starting to recognise and address the problem is heartening. It should push the banks to review their own SME and trade finance models and make more funds available. 

Currently Amazon’s lending is to 20,000 sellers in the US, UK and Japan with plans to roll out the programme to Canada, France and China. Loans are by invitation only and are designed to boost trade across the Amazon network so access is limited. 

At the same time this plants firmly on the map the model of e-commerce platforms using the unique data they have on their users to enable them to do prudent lending. It is only a matter of time before it is rolled out to a wider range of SMEs in both developed and emerging markets. 

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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In concluding Sibos 2017 in Toronto, Brian Caplen and Joy Macknight talk about the hot topics at the conference: technology, Swift gpi, blockchain and greater collaboration.

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