Amazon is getting into new territory by entering the lending business. It is clearly hoping that by advancing money to its merchants to increase their sales, Amazon will also increase the amount of money they get from those sales.
Amazon is launching a new service, called Amazon Lending, to provide loans to its merchants, Reuters reported Friday.
Channel Advisor posted a copy of a letter sent to merchants, in which it explains how the program works.
Merchants are encouraged to apply for the loan and then “use these funds to purchase inventory and increase your sales on Amazon.com.” If the merchant is approved for the loan, the funds will be advanced to their Amazon Seller Account within five days. After that, a monthly payment will be automatically taken out of their account until the loan is paid off.
Channel Advisor, which assists merchants with how to sell their items on marketplaces like Amazon and eBay, reports that the interest rate on the loans seems to be around 13%.
Independent merchants on Amazon give 99 cents of every sale to the retail giant, as well as a percentage of every thing it sells if it has less than 40 items listed, or $40 a month and a revenue share if they list more than 40 items. All of that is for the privilege of having their merchandise get more visibility by showing up on the Amazon website.
By lending money to its merchants, Amazon will be giving them the upfront cash so that they can buy their inventory for the upcoming holiday season, hoping to increase sales and, in turn, their own profits.
Amazon will be competing against other services that do the same thing, most notably Kabbage, which has developed a financial platform that picks up where traditional banks leave off when it comes to e-commerce.
Online merchants who want to expand their businesses but can’t get a loan through a traditional bank can look to Kabbage, which will run a credit check and look at activity levels on an applicant’s channel, as well as his or her online transaction volume, to determine whether or not that person qualifies.
Currently, Kabbage only supports merchants selling on eBay, Amazon, and Yahoo, but over the next six months it will expand to support merchants on Facebook, Etsy, Shopify, and the Marketplace at Sears.com.
Atlanta-based Kabbage recently announced that it raised $30 million from Thomvest Ventures, the venture capital arm of Peter Thomson, as well as previous investors UPS Strategic Enterprise Fund, Mohr Davidow Ventures, BlueRun Ventures, Warren Stephens and David Bonderman, bringing its total raised to $56 million. Kabbage also recently hired disgraced former Yahoo CEO Scott Thompson to be on its board of directors.
Here is the letter that was sent to Amazon merchants in full:
Dear <large amazon seller>,
Amazon is always looking for ways to help our sellers grow. We are excited to announce a new service: Amazon Lending by Amazon Capital Services, Inc.
Based on your Amazon selling performance you are pre-qualified for a loan up to <XXX see below>. Use these funds to purchase inventory and increase your sales on Amazon.com.
How the Amazon Lending loan works:
- Register for a loan. Sign in with your Selling on Amazon Primary Account holder user id and password.
- If approved, the funds will be advanced to your Amazon Seller Account within approximately five business days, and we will initiate a disbursement to your bank account on file.
- Your Amazon Lending monthly payment will be automatically deducted from your Amazon Seller Account.
Go to Amazon Lending to complete your loan registration. You will need to sign in with your Selling on Amazon Primary Account holder user id and password. You may also sign into your Seller Central Account, look for the Amazon Lending offer in the right hand column of the home page and follow the links to “Learn more” and “Register.”
If you have any questions, please contact us at email@example.com.
This offer expires on <30 days after email received>. Registration for Amazon Lending is by invitation only.
Amazon could not be reached for comment.
(Image source: http://www.executivegov.com)