In a bid to get more sellers to sell via its platform, Amazon has come up with a strategy to attract the sellers and vendors who form a crucial part of whole online supply-chain model. Amazon Lending, subsidiary of Amazon Inc founded in 2012 has announced that it will provide short-term working capital loans in countries where it operates a third-party, seller- run marketplace business.
Till date, this service was available only in US and Japan. However, with today’s expansion, sellers from 8 more countries; Canada, China, France, Germany, India, Italy, Spain and the United Kingdom will be able to avail the lending services for their small businesses.
In India, Flipkart too has announced a nationwide campaign to educate sellers and vendors for online business in addition to their recently launched Seller Hub app targeted at various vendors who sell their products through Flipkart.
Initially Amazon’s lending service will be on an invite-only basis and the sellers will be selected by internal algorithms of Amazon which will take into account crucial seller factors such as frequency with which they run out of stock, the popularity of their products and their inventory cycles.
We know a lot about our sellers’ business and invite only those who we think are in the best position to take capital and grow,
said the head of Amazon Marketplace, Peter Faricy.
Currently Amazon offers three- to six-month loans of $1,000 to $600,000 to help merchants buy inventory and makes money on interest along with a cut on all sales via its marketplace, which now account for about 40 percent of total Amazon site sales.
Amazon said that it has offered hundreds of millions of dollars in loans since 2012, with more than half of its sellers opting for repeat loans. However, the e-commerce giant declined to provide specific figures and also did not say how much it plans to lend this year.
Amazon is not the only one and is in fact a late entrant into the lending strategy to attract sellers to its platform. For instance, PayPal has provided more than $500 million in capital since September 2013, with an average loan disbursement of $2 million per day. PayPal spokesman Josh Criscoe said eBay merchants who use PayPal are eligible for the working capital loans and credit is offered to only those customers that have a strong PayPal sales history.
Similarly Chinese giant Alibaba too offers credit to Taobao, Tmall merchants and other small business owners who meet certain conditions and also to customers in some countries like the United States and Britain. Since 2011, Alibaba financial services company, Ant Financials, through its Ant Micro Loan program, has issued a staggering 400 billion yuan ($64.42 billion) worth of loans, and the non-performing loan ratio is 1.5 percent, the spokeswoman added.
It is clear that in the cut throat online retail business, inclusion of local vendors and sellers has become very important for these online retailers to establish their foothold. In China, where Alibaba lends to small businesses, offering such loans is more of a business requirement, say numerous analysts.
Sellers and vendors too are inclined towards such credit facilities due to the easy and speedy process despite their interest rates ranging from 6 percent to 14 percent, which is in line with loans from banks and business credit cards.