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Why Lending to Chinese Merchants Is Important for Amazon

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China is home to the top Amazon merchants

The decision by Amazon (AMZN) to introduce its business-lending service in China shows a company that’s keen to whip up merchant loyalty in one of its most important merchant source markets. According to a report by Marketplace Pulse, 40% of Amazon’s worldwide merchants are based in China. China is also home to 41% of Amazon’s top merchants.

Making loans to China-based merchants could help Amazon groom more successful merchants in the country to further broaden the product selection for its global consumers.

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Loans could also help Amazon make its China-based merchants more loyal to its platform, thereby securing its revenue sources. Amazon takes a cut of the sales that merchants make through its marketplace. It also makes money by allowing merchants to advertise their products on its marketplace. Advertising is one of Amazon’s fastest-growing businesses, so the company needs to make its marketplace attractive for merchants to keep the benefits flowing.

Catching up with Alibaba in China

Because Alibaba (BABA) already extended small business loans to its marketplace sellers, Amazon needed to match that to guard against losing merchants to its competitor.

Loans have become a major strategy for marketplace operators to try to boost merchant loyalty. Last year, eBay (EBAY) partnered with Square (SQ) to make loans available to its marketplace sellers. Shopify (SHOP) also extends cash advances to its merchants.

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