Amex develops online financing platform for SMEs
American Express, the credit card group, has broken new ground with the launch of "Working Capital Terms", its new online financing platform for SMEs.
This is a short term loan service for the use of AmEx’s small business cardholders, with funds of between US$1,000 and US$750,000 transferred directly to the payment counterparty’s account in less than two days.
The service carries attractive low interest rates: 0.5% for a 30-day loan, 1.5 % for a 90-day loan.
The move by multinational companies such American Express into this type of next-generation financing business is highly welcome from consumers’ point of view.
However, it could be a fatal blow for new startups that are looking to exploit gaps in the market where large companies have not delved into thus far.
Using short term financing solutions for business expansion
American Express currently offers 11 types of business credit card for SME’s (Gold, SimplyCash, Platinum, Plum etc), with interest rates ranging from 12.49% to 19.49% per annum; and they have shown strong growth.
Customers choose a card according to the size and objectives of their business, and receive benefits such as zero interest, points and cash back for the first nine months.
"Working Capital Terms" is a next-generation loan service that was created to provide card members with a means for easier and faster financing.
Unlike conventional loans, funds are remitted directly to the payee, rather than to the borrower’s account, with safeguards in place to prevent the repayment funds from being used for any other purposes.
The annual fee is waived (with the rare exception for some cards) so borrowers can choose their repayment amount and period (maximum 90 days), making this an ideal and easy loan platform for small and medium-sized enterprises that are seeking short-term financing solutions.
American Express already offers the "Working Capital Solution" business tool for its business customers.
However, using this in combination with "Working Capital Terms" and the Amex business card is an effective way for SME’s to expand their business.
American Express disrupts its business to stay relevant
American Express is widely recognized for its success and innovation, but the business has struggled recently, with the company’s market capitalization falling sharply from $90 billion to $62 billion over the past year. Analysts at UBS and Goldman Sachs have downgraded the stock.
The company has been under pressure to turn itself around quickly. One of the measures undertaken has been its entry into fintech and SME financing, via Working Capital Terms.
This launch was a necessary step to counter competition from start-ups. Certainly, from these fledgling companies’ point of view, the Working Capital Terms initiative will be a serious threat to their business prospects.
For business customers, the attractions of startups are their low interest rates, their speed and ease of use.
They have attracted new customers by offering services which have not been offered by large companies before.
A competitive landscape
However, with American Express now expanding into this new business area, competing start-ups have themselves been forced to step up their competitive response.
Competitors include Square, the mobile payments business, which enables instant payment processing as soon the sale is made, or OnDeck Capital, a lending company for small businesses, which uses big data to drive its financing services.
Working Capital Terms beats its competitors hands down in terms of loan limits and low interest rates. Square Capital lends amounts from US$7,500 to US$10,000 with interest rates between 9% and 13%.
OnDeck, on the other hand, offers business loans at 9% interest, from US$5,000 dollars to US$500,000. Working Capital Terms clearly offers the broadest range of loans and the lowest interest rates.
In terms of their business growth prospects, large companies are in a much stronger position than start-ups, particularly with regard to their wealth of experience, their knowledge and their extensive networks.
Loan financing is a new area of intense competition between corporations and start-ups, but it looks like the large companies have the upper hand here.