Amazon Tip-Toes Into Banking Business
July 21 2016 - 5:59AM
Dow Jones News
By AnnaMaria Andriotis
Amazon.com Inc. is stepping into the student-loan
marketplace.
The online retailer has entered into a partnership with San
Francisco lender Wells Fargo & Co. in which the bank's
student-lending arm will offer interest-rate discounts to select
Amazon shoppers.
An Amazon spokeswoman said this is the first time members of the
company's "Prime Student" service are receiving a student-loan
offer by a lender through its site since that service was launched
in 2010. The discount will be offered both to students who want
loans to attend college and those who want to refinance existing
loans.
The offer also represents the latest effort among private
student lenders to stand out by discounting in an increasingly
competitive market. Many offer discounts to customers who set up
recurring payments to pay back their loans automatically or for
loan refinancings by graduates who are members of professional
associations.
Wells Fargo, the largest U.S. bank by market value and the
second-largest private student lender by origination volume, will
shave a half a percentage point off the interest rate on student
loans it extends to applicants who are members of Amazon's Prime
Student. The subscription-based service charges $49 a year, half
the cost of Amazon Prime, and offers free two-day shipping and
unlimited instant streaming of movies, among other perks.
Wells Fargo and Amazon have been in discussions for more than a
year about the partnership, which is set to be announced and made
available Thursday. The discount could be used to encourage more
students to sign up for the Prime service. Prime Student members
will receive information about the loan discount through several
channels that the companies aren't disclosing yet.
The companies aren't compensating each other for what Wells
Fargo describes as a multiyear agreement that will reach millions
of potential borrowers. The Amazon spokeswoman said Wells Fargo is
currently the only student lender that will provide loan offers to
Prime Student members.
Private student lending, which plummeted during the recession,
is rising again. Five of the largest private student lenders,
including SLM Corp., better known as Sallie Mae, Wells Fargo and
Discover Financial Services Inc., distributed $6.46 billion in
loans between July 2015 and March 2016, up 7% from the same period
a year earlier--and the fifth consecutive year of increases,
according to data released this month by MeasureOne, a San
Francisco firm that tracks the market.
Wells Fargo has remained in second place for a number of years,
behind Sallie Mae, which leads by a wide margin. The bank has also
been refinancing loans for more than a decade, but that market is
increasingly composed of online lenders, led by Social Finance
Inc.
The discount could give Wells Fargo a competitive advantage to
other lenders. Its interest rates are close to the interest-rate
ranges Discover and Citizens Financial Group, which has been
rapidly expanding into student loans over the last couple of years,
charge. A half-percentage-point discount could make its loans more
affordable than competitors for some borrowers.
Unlike federal student loans where borrowers receive the same
interest rates regardless of their credit scores, private student
loan interest rates can vary significantly by borrower. Lenders
determine whether to approve borrowers and what rates to charge
them based on their credit scores and other underwriting
criteria.
(END) Dow Jones Newswires
July 21, 2016 05:44 ET (09:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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