Amazon.com Inc. (AMZN) is taking a huge step in efforts to build out its lending business by teaming up with a major Wall Street bank.
Amazon Lending, which launched in 2011, has partnered with Bank of America Merrill Lynch (BAC) in order to provide small business loans for merchants that sell on its online retail platform, according to CNBC. (See also: Would 'Shipping with Amazon' Kill UPS and FedEx?)
Amazon's Chief Executive Officer Jeff Bezos first spoke about plans to team up with a bank in a shareholder letter two years ago. The partnership will allow the e-commerce and cloud computing giant to reduce its risk and access capital specifically to offer credit to a greater pool of merchants so that they can buy more inventory.
Amazon's lending arm is an invitation-only program that makes loans of $1,000 to $750,000, with terms up to one year to businesses that may have otherwise found it hard to get a loan via the traditional route. The lending program, in which Amazon's key initiative is to help sellers move more inventory rather than turn a profit on interest payments from loans, doled out more than $1 billion during the 12-month period ended June 2017. In the four years prior, the retail behemoth had given out a collective $1.5 billion in loans. Compared to Amazon's other high-flying businesses, however, the lending arm has simmered down in the recent period, just barely growing from $661 million in loans in 2016 to $692 million last year, according to the company's annual report released this month.
While in 2016, Amazon managed to double the amount of loans it provided to merchants, the slowed expansion in 2017 was reportedly a deliberate move by the Seattle-based retail giant as it sought to take a more measured approach to growth and get a better understand the large-scale lending business.
Amazon Lending, which typically offers rates in the range between 6% to 14%, heads off against players such as Jack Dorsey's fintech platform Square Inc. (SQ), digital payments pioneer PayPal Holdings Inc. (PYPL) and automated lending platform Kabbage, among others in the high-growth business. (See also: Three Big Tech Stocks We Still ‘Love’: Susquehanna.)