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From social media platforms to e-commerce giants, every business is entrenching itself in the world of financial services. With the world becoming increasingly digital and consumers demanding seamless shopping and payments experience, more platforms are embedding financial products into their service offerings. In November 2022, Twitter, now owned by Elon Musk, announced a potential launch of a payment solution on the micro-blogging platform. This time it is Amazon, the global giant in the e-commerce industry, that has announced another step into the world of embedded finance.
Notably, merchants, small and large, can access credit between US$500 to US$10 million to scale and grow their businesses. For merchants, access to credit comes without fixed terms, stringent credit checks, zero ate fees, or any dreaded paperwork. The e-commerce giant is offering cash advances to sellers on a flexible payment schedule which is based on a fixed percentage of gross merchandise sales until the entire credit is repaid.
While the merchants are not required to make any minimum payments, pay interest, or offer collateral, they do have to pay a fixed capital fee on the cash advance received from Amazon. In the initial stage, the firm has made the financing solution available for select businesses, Amazon is expected to roll out the service to hundreds of thousands of sellers in the country by early 2023. However, for merchants to benefit from the cash advance program launched by Amazon, they must be selling on the e-commerce marketplace for at least three months.
For a long time now, the e-commerce behemoth is pursuing business outside the retail category to accelerate the growth of its business, and embedded finance has thus become a major part of its business model. Besides the cash advance program, Amazon also announced a collaboration with Venmo in the United States and the launch of an Insurance Store for its customers in the United Kingdom.
Notably, the firm also developed an Amazon Standard of Cover. It provides consumers with coverage for the most common home insurance claims. Going forward, the firm is also expected to partner with more insurance providers in the United Kingdom, thereby offering customers a complete insurance service on the e-commerce platform.
Amazon is banking on various sets of financial services, lending, payment, and insurance, to drive its revenue growth. Among all the different aspects of financial services, lending is a bigger play for the e-commerce behemoth, and the cash advances program is the perfect match for its lending play.
Along with its cash advance program for merchants, Amazon also offers term loans for sellers, which are non-revolving loans offered in a lump sum. Under the program, sellers are required to make monthly principal and interest repayments. In the other program, the interest-only loan service, offered by Amazon sellers is required to make interest payments until an agreed-upon date. Furthermore, a business line of credit is another service offered by Amazon, which is provided in partnership with Marcus by Goldman Sachs.
Notably, the growth in its third-party sellers, who accounted for 58% of the total sales on Amazon in Q3 2022, means that the lending play can be a huge growth driver for the e-commerce behemoth over the next three to four years. Offering working capital to sellers on flexible terms will not only drive growth for merchants but for Amazon as well, as merchants will be able to drive more order volume for the e-commerce giant. Consequently, PayNXT360 expects Amazon to keep launching such innovative lending programs for its merchant base from the short to medium-term perspective, while also expanding its footprint into other areas of embedded finance, such as payments and insurance.
To know more and gain a deeper understanding of the United States Embedded Finance market, click here.
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