Merchant Innovation

PayPal Crosses $1 Billion Lending Mark

Spending milestones can sometimes be deceiving, but when the numbers involved get as high as the latest news regarding PayPal, it can be hard to ignore.

At a presentation at the 2015 Money 20/20 conference in Las Vegas, CNBC reported that PayPal CEO Dan Schulman explained the company’s Working Capital loan division had disbursed more than $1 billion in loans to 60,000 small businesses in the U.S., U.K. and Australia since its launch in 2013. This represents roughly double the loan growth of PayPal Working Capital compared to preliminary data captured around launch.

Schulman attributed some of the growth to PayPal’s uncoupling from longtime parent company eBay earlier in 2015. He noted that gaining operational independence has allowed PayPal to diversify itself with the concerns of a payments processor first and foremost.

According to Reuters, the company reported that it is processing about $3 million in personal loans every single day. And with a consumer-friendly loan repayment system, small businesses can choose to deduct a percentage of daily sales to act as incremental loan repayments. PayPal VP and general manager Steve Allocca explained that 90 percent of all debtors who take out a loan from PayPal return for a repeat loan eventually.

Zakiyyah Yasin, owner of the child-centric spa Sassy Princess in Virginia, told The Washington Post that PayPal Working Capital appealed to her because of its simplicity compared to traditional options.

“Going to a bank just sounded too complicated,” Yasin said. “There would have been too many details involved.”

“If it’s a slow month, I know I won’t be struggling to pay [PayPal] back,” Yasin added. “But if I have a good month, I know I’m that much closer to paying off my loan.”

If PayPal can keep winning over small businesses, it might be hard for competitors to dislodge them from this crucial market.

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The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.