In a recent interview with a company executive, Amazon.com reports lending over $1 billion in small loans to third-party sellers in the past year. This was a slight decrease compared to the $1.5 billion in loans from 2011 to 2015. These funds are lent to marketplace sellers on Amazon interested in expanding their business.
There are a few reasons why increasing sales for sellers is a good move for Amazon. First, they take a cut from all third-party sales on its website and second, it handles the logistics side of each business by shipping, selling and placing their products on their website. Increasing online exposure is another added benefit for sellers choosing to use Amazon as it shoots their products to the top of the search results—an effective way to grab the consumer’s attention.
More than 20,000 small marketplace sellers have received a loan from Amazon.
Approximately half of these businesses have made a request for another loan. Loans can range anywhere from $1,000 to $75,000, while interest rates vary from 6 per cent to 14 per cent every year.
Providing loans to marketplace sellers is a big selling point for Amazon. It guarantees that these sellers will return to Amazon to run their business. The company’s competition, eBay Inc and Walmart Stores Inc, are actively doubling down on their marketplace businesses.
“We do tell them it’s to help them grow on the Amazon Marketplace,” says Peeyush Nahar, vice president for Amazon Marketplace.
Following the aftermath of the 2008 financial crisis, many traditional lenders turned down the small merchants, which in turn created other opportunities and sources of financing. Amazon, however, does put itself in a potential credit risk by handing out these loans. To better judge the risk assessment involved in loan underwriting, the marketplace has access to the seller’s customer reviews and real-time data on their businesses. The loans are strictly invitation-only.
Sellers in the United States, United Kingdom and Japan have received loans from Amazon.
Amazon is one of the largest Internet-based retailers based in Seattle, Washington. Founded in 1994 by Jeff Bezos, the company initially began as an online bookstore and would later go on to sell electronics, video/MP3/audiobook downloads/streaming, software, books, games, apparel, furniture, food, toys and jewelry. Amazon has retail websites across the world including the United States, Canada, the United Kingdom, Ireland, France, Germany, Italy, Spain, Netherlands, Australia, Brazil, Japan, China, India and Mexico.
A wide variety of products and services are available on Amazon.com including AmazonFresh, Amazon Prime, Amazon Web Services, Alexa, Appstore, Amazon Drive, Echo, Kindle and many more.
Amazon is the ninth largest employer in the United States, and the fourth most valuable public company in the world. The company managed to surpass Walmart as the most valuable retailer in the United States in 2015 according to market capitalization.
The company plans to expand its services to other countries including Canada, France and China. Nahar says, “Stay tuned” for the rollout’s timing.
Aileen Ormoc | The Edge Blog