Google makes first foray into credit business

8 Oct, 2012

Google is getting into the credit business for the first time, with the launch on Monday of a programme in the UK to finance purchases of its online advertising by businesses.

The move marks the opening of a new front in the battle between the biggest internet companies, as they turn to their balance sheets as a source of competitive advantage. Amazon said last week that it had begun making loans to independent sellers that offer their products on its marketplace, marking the online retailer's first move into financial services.

Google's decision to issue its own credit card, which will also be made available in the US within weeks and other unspecified countries later, signals the company's first attempt to use its huge cash reserves to support its core search advertising business by subsidising low-interest rate credit lines.

It said it would offer customers credit of between $200 and $100,000 a month to pay for their use of Adwords, which places messages next to the results in its search engine and made up the bulk of its $37bn in advertising revenues last year.

"They weren't buying Adwords as much as they need to," said Brent Callinicos, Google's treasurer. A pilot lending programme begun in the US a year ago had led to customers advertising more, he added.

Amazon also indicated that its lending was aimed at credit-starved businesses that would otherwise struggle to finance initiatives such as expanding the inventory of products they sold on its site.

"We're providing a solution to a problem that is vexing many sellers," Amazon said. "A lack of access to cash can inhibit their growth."

Google said it set its initial interest rates considerably lower than prevailing market rates on credit cards for small and medium-sized businesses, with an 8.99 per cent rate in the US and 11.9 per cent in the UK.

"You can assume we're not doing this to lose money," Mr Callinicos said, though he added that Google was "not trying to run the financing business as a profit centre."

Google executives did not rule out going deeper into financial services with the provision of more lending products to the small and medium-sized businesses that make up the bulk of its 1m search advertising customers, though they said the company was not planning any moves at present.

"We are helping them, uniquely, with online marketing – we aren't going into a finance business as Google," said Francoise Brougher, vice-president of sales and operations for small and medium businesses at Google.

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