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This Horse Ain't Dead Yet

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By albaby1
November 2, 2001

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First if all I want to thank Jeff for engaging us all in such a lively topic and sharing his views. Secondly, I want to apologize to the Amazon board for taking up so much bandwidth on such an unrelated (albeit interesting) topic.

Ditto on the engaging subject, but I must beg to differ on your second point. Are you feeling down about being off-topic? Here, on the Amazon board? There are few topics of discussion so remote, so obscure that it can't be related to Amazon somehow - and this is an easy one.

One question which we have addressed during the Great Credit Threads is whether subprime lending promotes or detracts from societal utility. One important part of that question is whether subprime borrowers themselves are helped, or hurt, by the availability of credit.

The great news is that we can look at that question in terms of Amazon, and what the entire Internet revolution (how quaint that looks now!) promised in the way of e-commerce. Early on, it was thought that e-tail and similar e-commerce activities would be significantly more efficient than their brick and mortar analogs. Presumably, this would translate into wider selection, greater availability, and better prices for products than those available in the real world.

Lower e-tail prices in the heady days of e-commerce helped support this argument, although the jury is still out on whether those greater efficiencies will ever manifest. For the moment, let's simply assume that the on-line world (including Amazon) is a very worthwhile place to shop.

Now then, the key is to remember that nowadays credit is both a financing arrangement and a method of payment. Since the preferred method of payment for most e-commerce transactions is by credit card, those who are without credit are somewhat shut out from the benefits of on-line retail. The use of a debit card for on-line transactions is risky and inadvisable. Sure, some on-line retailers will allow you to pay by check or money order (Amazon included). However, many do not - and that type of payment can more than double your delivery times, making e-tail considerably less attractive. It is not easy to go on-line without a credit card, and it probably won't get any easier.

The whole premise of Amazon, and much of the bubble, was that the on-line marketplace would become an extremely important part of our economy. It still might. And a credit card is an almost indispensable requirement to participating in that new segment of the economy. A poor credit risk borrower (if s/he cannot obtain a credit card) thus lacks the ability to easily purchase goods and services on-line, even when those goods or services are more attractive than their brick and mortar counterparts. It has grown progressively more important to have access to a credit card, and if the i-dreamers are to be believed, it is likely to grow even more important in the future. That dynamic will not just be limited to retail, but also for content sites (as more switch to a pay basis or simply require a credit card number for identity verification, like Ebay).

Thus, our favorite sub prime lender Providian (which has significant consumer loan and bankcard activity) is providing something of more than nominal value - regardless of whether you agree with the purchasing decisions of its customers. It is true that the online marketplace may not be as significant as once thought. However, a credit card is nearly as crucial for true on-line access as a computer itself.

Much has been made of the "digital divide," the gap in on-line access between rich and poor. Ultimately, the root causes of our future digital divide may not stem from lack of access to computers or i-terminals. Those may become as ubiquitous as phones. The true digital divide may come down, in the end, to those who have a credit card number and those who do not.

Thus, we've been on-topic all along. Extension of credit to even the more risky borrowers serves at least one function - it promotes greater access to the new economy, including Amazon. This is beneficial both to the borrower and the on-line companies that service them, including Amazon.

Albaby

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