Every big e-commerce player is now working as hard it can for increasing its market share. Be it Amazon, or eBay, or even Alibaba. They are doing everything in their power starting from giving attractive loans to cashback for attracting more buyers.
We had earlier reported how Alibaba had partnered with ICICI Bank in India for providing credit, and other financial services to its sellers in India. And now Amazon plans to do the same.
Amazon has been offering loans to its sellers in countries like U.S. and Japan, but it now plans to expand this service to select sellers across India, China, Canada, France, Italy, Germany, U.K., and Spain.
In India, companies like Snapdeal and Flipkart too offer business loans to their sellers through their own programs and or through various tie-ups. Snapdeal had announced last year that it had enabled over 150 of its sellers to raise over Rs 50 crores through their flagship Capital Assist initiative.
Business Loans Only For Select Sellers
Amazon will be offering business loans only to a select few sellers having excellent track records. Amazon Lending which was founded in 2012 will power this service and will offer short-term working capital loans to the sellers in the regions where Amazon acts as a third-party marketplace.
The business loan service will be on invite-only basis and hence will not be available to all Amazon sellers.
“Small businesses have high failure rates, especially in China and India,” said William Black, a former US banking regulator and Professor of Economics and Law at the University of Missouri.
Amazon on the other hand said that it can safely offer loans based on its internal seller data and will take loans payments out of the sales proceeds of the sellers.
Amazon currently offers six-month loans of $1,000 to $600,000 to merchants for buying inventory. It then makes money on the interest of this loan, and also takes its cut on all sales of that sellers. This type of revenue now accounts for 40% of sales on Amazon.
The company also mentioned that it has offered loans worth hundreds of millions of dollars since 2012. It also mentioned that more than half of its sellers opted for repeat loans, but refused to divulge further details on specific amount it plans to offer as loans in 2015.
Peter Faricy, VP and GM at Amazon marketplace said that Amazon is now better at understanding seller needs. It uses advanced algorithms for choosing the best sellers based on the frequency with which they run of out of stock, their product popularity, 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,” he added.
This was a very much required step for Amazon to boost the sales on its marketplace in China, which is dominated by Alibaba.
“Amazon has very little share in China and they haven’t been able to break out of that, so this is a very important necessary step for them to be able to grow,” said Gil Luria, analyst at Wedbush Securities, Los Angeles.
What Are eBay And Alibaba Doing?
eBay and Alibaba which also run 3rd party marketplaces are also taking similar steps for stealing more market share.
PayPal also offers loans to merchants on eBay, but only to those who have a strong PayPal sales history. Since PayPal is doing it for a while now, it has offered more than $500 million in capital loans since September 2013, with its average loan disbursement per day close to $2 million.
Alibaba’s own Financial Services arm; Ant Financial also offers loans to those sellers on Taobao (run by Alibaba Group) who meet a certain set of conditions. It also offers loans to its customers in other countries like U.S. and U.K.
Ant Financial which has been offering loans since 2011, has offered more than $64.42 billion worth of business loans.
In a country like India, where the e-commerce business is still at a nascent state, decisions like offering business loans to online merchants can result in a significant increase in product varieties and available options on any platform having a huge merchant base. Amazon.in has also recently taken over Flipkart and Snapdeal in terms of unique monthly visitors, and by offering business loans to its sellers, Amazon plans to maintain this lead for a long period of time.
