According to Insider, Amazon plans to approximately treble the number of loans it gives to sellers by 2023, though the underwriting standards may tighten.
The larger business-to-business payments and loans team, known internally as ABPL, includes Amazon’s lending program. The company also provides co-branded credit cards and other services, such as merchant invoice financing.
According to an internal document that Insider could access, the company’s economists anticipate that over $2 billion will be owed to them by third-party sellers during the upcoming year. That is an increase of over 80% from the $1.1 billion outstanding loans in the previous year’s first quarter. At the end of 2021, when it first hit $1.0 billion in total outstanding loans, Amazon recorded a balance that was more than twice as high as the current figure.
However, as it anticipates further macroeconomic headwinds until 2023, Amazon wants to tighten its underwriting and credit management rules, according to the letter. Amazon anticipates a 1.34% loss rate on the $2 billion or more in outstanding loans this year.
The memo states that “the rising ambiguity of business payback capabilities” by sellers “requires more examination of our on-balance sheet credit/lending products.”
Loan volume might increase, which would indicate that Amazon’s lending business is continuing to improve. According to corporate papers, Amazon’s invite-only financing program for sellers, which debuted in 2011, had a considerable scaleback during COVID, bringing the total amount of outstanding loans down to around $400 million by the end of 2020.
The loan division of Amazon served over 1 million buyers and users
But during the last two years, loan activity has picked up again, and the balance sheet ended the most recent quarter with $1.4 billion. According to the records, Amazon’s loan division served over 1 million buyers and sellers in 2022, achieving a total transaction volume of $50 billion, which resulted in more than $1 billion in “economic profit.” How it defines, economic profit is uncertain.
The loan increase also shows a cautiously positive economic outlook for Amazon. As previously reported by Insider, Amazon’s experts predicted that the US economy would have a soft landing in 2023 and that there would be little possibility of a recession. The internal macroeconomic research by Amazon’s science, economics, and finance departments included the assessment from November as part of a 12-page report. Amazon’s perspective on the overall economy and the impact of inflationary pressures on its pricing policy are two subjects it touches on.
Amazon’s spokesman declined to comment on the mechanics of the loan program in an email to Insider. Instead, the representative said that the company’s executive management did not concur with the predictions made by its economists.
“The disputed document does not accurately represent the company’s economic outlook. At our most recent earnings conference, our CFO Brian Olsavsky discussed our thinking, and on December 6, during an interview with Dealbook, our CEO discussed his views. Simply put, this document represents the opinions of several of our economists, “explained the spokeswoman.