Thursday, June 8, 2017

Amazon Lends $3 billion to Business Peddling Merchandise

Amazon.com Inc. said it has lent more than $3 billion to small businesses peddling merchandise, which want to grow their business, on its website through a program called Amazon Lending. Amazon plans specifically to expand its lending to the businesses in the U.S, U.K and Japan, in a direct challenge to the big banks which have historically dominated.

The Seattle-based company launched Amazon Lending last 2011 with little fanfare, giving select sellers on its website instant loans for up to 12 months at annual interest rates ranging from about 6 to 17%. This program is intended to help businesses expand their inventory.

The e-market giant has bestowed out more than $1 billion in small loans to sellers last year, compared with more than $1.5 billion it lent from 2011 through 2015, said Peeyush Nahar, Vice President for Amazon Marketplace. Such independent sellers, many of which pay Amazon to store, package and transport merchandise to customers on their behalf, account for about half of the total units that Amazon sold worldwide.

Amazon, which takes a cut from each item sold on its website by third parties, benefits from seeing more businesses change hands under its tent. On one hand, customers could also gain benefits; the loan from Amazon might permit a merchant not only to expand its sales inventory, but also exchanges huge discounts with suppliers and pass those savings on.

The company has many up-to-the-minute information about sellers that helps it identify how well the sellers are serving the customers and whether they have a sales trend that is directed to “the right direction”, Nahar said.

More than 20,000 small businesses have received a loan from Amazon and more than half of those have taken a second loan from the company. Loan range from $1,000 to $750, 000. Sellers have said interest rates are between 6% and 14%.

Moreover, Amazon had $166 million in seller loans outstanding, according to a securities filing. The company said its allowance for losses on these receivables were not material at the end of last year. Only a “very, very small percentage” of Amazon’s loan default, Nahar said.

 “It’s a ‘can’t lose’ proposition for Amazon,” said Jordan Malik, a Las Vegas-based publisher, noting that the company has a near perfect scene of any sellers’s cash flows.

“It is a very clever thing they’ve done”, he added.

The push into lending is an indication of Amazon’s ambition, whose New York-listed shares broke through the $1,000 barrier for the first time last week, just over on form its first public offering at $18 a share.

Amazon’s rivals like eBay Inc. and Wal-Mart Stores Inc., now are doubling down on their marketplace’s businesses, but loans may keep sellers close near to Amazon’s orbit.

“We do tell them it’s to help them grow in the Amazon Marketplace,” Nahar said.
The company said that it would expand to other countries where it operates marketplaces, such as Canada, France and China. “Stay tuned,” Nahar said, on the rollout’s timing.

Meanwhile, by 7:58PM GMT-4, Amazon.com Inc., traded 0.70%, to 7.07, to $1,010.07. It has opened with $1,005.95, with a session high of $1,010.25, and a session low of $1,002. Its market capitalization was 478.81 billion and its P/E ratio was 189.25.

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