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Selling products online can be a lucrative business, but it's typically not an easy one, particularly for small merchants. While the internet helps address some challenges, like finding customers, margins can be tight and merchants often struggle with cash flow.
Enter Amazon, the 800-pound gorilla of ecommerce. Already a significant source of sales for some merchants through its Amazon Marketplace, the Seattle-based company is now positioning itself to be an even larger fixture in the lives of many businesses with the launch of a service called Amazon Lending.
Run by an Amazon subsidiary called Amazon Capital Services, Amazon Lending, as the name suggests, will provide loans to merchants. As detailed by Reuters' Alistair Barr, Amazon Capital Services has already started contacting companies, offering up to $800,000 in credit. According to Barr, "Amazon is pre-qualifying some sellers based on their performance on the company's online marketplace. The money can be used by sellers to buy more inventory and increase sales on Amazon.com."
Filling a void
For some merchants, Amazon's offer will be hard to refuse. Acquiring a loan from a bank is difficult for many companies today, and those with cash flow challenges often find expanding their businesses difficult.
That can have a direct impact on Amazon. It relies on third party merchants to stock the shelves of its Amazon Marketplace, which is a not insignificant part of Amazon's business today. When financial constraints limit the number of products those third party merchants can offer, and how much inventory they can keep in stock, Amazon, in theory, has less to offer.
With this in mind, providing a lending facility to merchants makes perfect sense for Amazon. The fact that the company has a trove of sales data on which to base lending decisions, and can secure interest payments with sales that take place through the Amazon Marketplace is just icing on the cake.
A cost too great?
None of this, however, means that a loan from Amazon is a no-lose proposition for merchants. For one, Amazon isn't engaged in charity, and some merchants are being offered interest rates of as much as 13%. But more important is the fact that Amazon Lending could make merchants more dependent on Amazon.
Several months ago, reports surfaced suggesting that Amazon was using sales data from the Amazon Marketplace to push into new markets in which it could make easy gains. In other words, it was turning its own merchants' sales data against them.
While the launch of Amazon Capital Services implies that Amazon recognizes it won't entirely displace third party merchants any time soon, it does raise an important question for merchants: if Amazon delivers most of our customers, and finances much of our inventory, what exactly do we do? For many businesses, the answer may be somewhat disconcerting.