UPS: Shipper or Bank?
Both UPS and FedEx are launching finance businesses to "boost customer demand by loaning money to small businessess." This financing would provide working capital, often secured by the underlying inventory. See story here.
Most companies provide financing to customers in the form of payment terms. If I offer you payment terms on a good or service that you purchased from me, say 30 days, then I am financing your purchase. I am taking the risk that you pay or not. By taking credit cards, I remove this risk and shift it to the credit card issuer, who now bears the risk of the customer paying.
What UPS and FedEx are doing is different — they are financing the underlying business of the customer, not just the services they sell. The main question here is whether they have the appropriate expertise to underwrite this risk and what kind of risk it creates for the company overall. Will they make bad loans to companies in order to get their shipping business?
