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 Until now, the e-retailer has offered the service only in the United
States and Japan. Amazon Lending, founded in 2012, plans to offer
short-term working capital loans in other countries where it
operates a third-party, seller-run marketplace business, the head of
Amazon Marketplace, Peter Faricy, told Reuters.
The countries are Canada, France, Germany, India, Italy, Spain and
China, where credit is becoming a key factor in competing for new
vendors and grabbing market share.
The service is on an invite-only basis and is not open to all
sellers on Amazon's platform.
Other large retailers including eBay Inc's PayPal and Alibaba Group
<BABA.K> which run third-party marketplaces, are also turning to
credit to boost their vendor base.
Some lending industry officials who help lenders assess credit risk
say these retailers are taking on risky loans because they do not
know the credit markets in which the sellers are operating.
Small businesses have high failure rates, especially in China and
India, added William Black, a former U.S. banking regulator and
professor at the University of Missouri.
Amazon said it can safely offer loans based on internal data and
because it takes loan payments out of the sales proceeds it pays
sellers.
Amazon offers three- to six-month loans of $1,000 to $600,000 to
help merchants buy inventory. It makes money on interest and takes a
cut of all sales on its marketplace, which now account for about 40
percent of total Amazon site sales.
Amazon said it has offered hundreds of millions of dollars in loans
since 2012, with more than half of its sellers opting for a repeat
loan. The company declined to provide specific figures and also did
not say how much it plans to lend this year.
Amazon's Faricy said the company has become better at understanding
the inflection points in a small or medium business where capital
can make a difference.
"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
said.
In China, where Alibaba lends to small businesses, offering such
loans is more of a business requirement, analysts said.
"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 with Wedbush
Securities in Los Angeles.
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In other countries including India, where there is a scramble to
expand the online shopping market, small business loans could offer
a distinct competitive advantage, Luria said.
MITIGATING RISK
Online lending accounts form about 3 percent of the roughly $1
trillion of outstanding personal and small business loans in the
United States.
The default rate for small businesses with credit under a $1 million
stood at 1 percent in 2014 but is seen rising to 1.6 percent in
2015, as new lenders with varying ability to assess risk increase
lending, according to small business credit ratings provider PayNet.
Retailers like Amazon do not have data from sellers about some
markets in which they operate, and relying on internal seller
company data is not enough, said William Phelan, president of PayNet.
Sellers interviewed by Reuters and writing on Amazon forums cited
interest rates on Amazon loans ranging from 6 percent to 14 percent,
in line with loans from banks and business credit cards.
Stephan Aarstol, chief executive of Tower Paddle Boards, an Amazon
seller, said he has taken four loans from the company starting in
March 2014 because of the speed and simplicity of the process. It
took him five days to get his first loan.
"The problem for a small business owner is not the interest rate,
it's the availability of credit ... I can't grow fast enough," he
said.
(Editing by Matthew Lewis and Cynthia Osterman)
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