For the first time since launch in late 2011, Amazon has shared some news on the Amazon Lending service. Amazon has reported that since launch they have issued more than $3 billion in loans to 20,000 marketplace sellers in the US, UK, and Japan. Loan sums range from $1,000 to $750,000, and are invite-only - Amazon's systems decide which sellers are worthy by analyzing their sales data.

In the last 12 months alone, Amazon has loaned more than $1 billion.

Peyush Nahar, VP for Amazon Marketplace, released a statement on the milestone:

“We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success. Small businesses are in our DNA. Amazon is providing capital to small businesses to help them expand inventory and operations at a critical period of their growth. We understand that a small loan can go a long way.”

With the marketplace sales at over $50 billion a year, Amazon is a retail economy by itself. Amazon, and a few other financial companies like SellersFunding, are able to offer financial products to sellers by relying on data banks don't have or trust. It's known that sellers often have a hard time getting funding from traditional sources like banks. Amazon itself has such a deep insight into every seller's performance, that the bad-debt ratio must be very low.

While Amazon loans incentivize sellers to continue to focus on Amazon the most, which is not without risks, they are a win-win for both parties. Amazon gets to fund their own growth without much risk, while sellers get to expand through extra capital which is often not available otherwise. It's a very powerful combination.

We expect the lending volume to continue to rise, because Alibaba has been doing similar work since 2004 and has reached scale way beyond Amazon Lending.

According to various reports since Alibaba launched their lending service in 2004, it has issued over $100 billion in loans to more than four million small businesses. The lender's bad-debt ratio stands at less than 1.5 percent, low for the banking industry.

Core idea powering their lending was building of their own credit score. Called Sesame Credit ("Zhima Xinyong" in Chinese) it uses data from Alibaba's marketplaces and social networks to build a social credit score. It also measures loyalty to the Chinese government, which is one of the reasons why it has received criticism as being a mass surveillance tool. Yet it has allowed Alibaba to offer loans to small companies who wouldn't otherwise be trusted by banks.

Ant Financial

Alibaba spun off Ant Financial in 2004, to operate Alipay a third-party online payment platform like PayPal, and other financial services. Thanks to the growth of Alibaba's marketplaces, the transaction volume on Alipay has increased too $1.7 trillion last year. As a whole Ant Financial is valued at over $70 billion, expected to reach $100 billion soon. To understand the scale of it this is more than the market cap of Goldman Sachs.

Amazon wants to do the same. Their Amazon Payments service, which allows customers to pay on thousands of merchant websites using the information already stored in their Amazon account, has doubled payment volume in 2016 (no exact figures reported). They have recently launched Amazon Cash, a service allowing to add to Amazon.com balance by showing a barcode at a brick-and-mortar retailer. All of those services, plus the lending, combine into a financial products business. It's not at the scale of Ant Financial yet, but it's growing.

What makes leading marketplaces grow is the ability to offer additional services which both incentivize new sellers to join, and help existing ones to scale. On Amazon those are fulfillment, advertising, and lending services. That combined with the growth of Amazon as a website means that they work together as an ecosystem to grow Amazon the company and third-party sellers.

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