Later this year, Amazon.com will launch its business loan programs in eight countries, which include China, where credit is turning out to be a key factor in grabbing market share and competing for new vendors. Until now, the service has only been offered in Japan and the United States. According to Peter Faricy, the head of Amazon Marketplace said that Amazon Lending, which was formed in 2012, will now offer short-term loans for working capital in other countries where it operates a seller-run third party marketplace business. The countries where this facility will be provided include are France, China, the United Kingdom, Spain, India, Canada, Germany and Italy.
However, this service is not available to all sellers using the Amazon platform and is invite-only. Other large retailers such as Alibaba Group Holdings and eBay’s PayPal are attempting to boost their vendor base by turning to credit as they also run third-party marketplaces. Some officials of the lending industry who aid lenders in assessing credit risk said that these loans will be risky for the retailers because they aren’t aware of the credit market where the sellers are operating. The failure rates of small businesses are high, especially in India and China as per the information quoted by analysts.
Amazon said that it can take advantage of internal data for offering loans safely because it deducts loan payments from the sale proceeds that are given to the sellers. Josh Criscoe, a PayPal spokesman said that working capital loans are available to those eBay merchants who use PayPal and credit is only given to those customers who have a strong sales history. Since September 2013, about $500 million has been provided by PayPal in terms of capital, which is around $2 million average loan disbursement a day.
A spokeswoman of Ant Financial, the financial services arm of Alibaba that offers these loans, said that certain conditions have to be fulfilled by small business owners, Tmall merchants and Taobao to qualify for credit. Such loans are also offered by the company to customers in some countries such as Britain and the United States. Three to six months loans are offered by Amazon of $1000 to $600,000 for helping merchants in buying inventory. It earns money through interest and also takes a cut of sales that are made through its marketplace. This now contributes about 40% of the total sales of Amazon.
Amazon said that since 2012, it has offered about hundreds of millions of dollars and more than half of the sellers applied for a repeat loan. Specific figures weren’t provided by the company and it didn’t say how much amount it would be loaning this year. Faricy said that Amazon has become better in comprehending the inflection points of medium or small businesses where capital can make a huge difference. He said that internal algorithms are used by Amazon for selecting sellers based on their inventory cycles, the popularity of their stock and the frequency with which they run out of it.