Alternative Finances

PayPal Working Capital Arm Ups the Ante

Online lending

PayPal’s been making its SMB risk management list and checking it twice. And has found a lot of new insights behind the $2B and 90k SMBs that have been on the other side of its Working Capital program, including the role that mobile plays in getting access to those all-important cash advances. Darrell Esch, GM of PayPal’s SMB Lending group shares the impact to PayPal’s business and its SMB lending thresholds.

Darrell Esch, PayPal’s GM of its business financing unit, says that the company is so pleased with the progress of its Working Capital program that PayPal will now boost the amounts it will lend to SMBs.

Having crossed a few Rubicons in size and scale, Esch said yesterday (July 7) that the PayPal Working Capital platform has logged $2 billion in originations and served more than 90,000 merchants across the globe since its inception three years ago. Those numbers also come against the backdrop of Oct. 2015’s tally, reporting a respective $1 billion and 60,000 merchants.

In tandem with the numbers released on Thursday, PayPal said it has launched a mobile-centric website, allowing applicants to grab working capital loans on the fly, from the field and as needed.

In an interview conducted by PYMNTS’ Karen Webster, Esch noted that the maximum funding limits have been increased to 18 percent of the firm’s annual PayPal processing volume, or $97,000 in the U.S., with an eye on further boosting those ceilings on the heels of burgeoning demand. This is up from $20,000 or, alternatively, 8 percent of annual PayPal volume and stems from what he termed PayPal’s core competencies in risk modeling and data analytics to help establish creditworthiness. Past history with the firm, tied to sales, is a determining factor rather than the snapshot of a credit score.

PayPal “members” — those who have been with the payments firm via a business or Premier account for at least 90 days — are eligible to apply for a loan. Repayment is tied to a percentage of the borrower’s daily sales, taking less, for example, in the event that sales are slow and more in headier times. This, Esch said, blunts PayPal’s risk of loan losses, which he says “are in line with expectations.”

As for the typical borrower that the firm sees, the range extends broadly in terms of top line, with the firm that does anywhere from $100,000 to $1 million in sales annually, running the gamut from retail, especially clothing, to electronics.

As for the loans themselves (SMBs can hold only one loan at a time), said Esch, roughly one half of the loans taken out for working capital are slated toward inventory procurement.

Esch noted that the firms that typically sign up for the working capital loans are ones that have been with PayPal for several years, and the process results in a sticky relationship. The ability to get loans in order to get the right inventory in place then leads to repeat business, as Esch estimated 90 percent of those customers procuring short-term working capital loans return to PayPal for subsequent loans. The financial relationship between the lender and borrower also helps cut down on merchant attrition from PayPal in general, he added.

Esch also confirmed that PayPal now enables SMBs to apply for loans “on the go,” with the mindset that you “must go where your customers are going,” literally. The loan process no longer should be tied to the face-to-face meetings, say, at a bank branch, with “several trips back and forth,” but can be done “wherever the merchant wants to take out a loan — they might be on vacation or they might be servicing a client.” Through the mobile application, once user credentials are authenticated, PayPal is able to populate the application with existing account information. The data entry process, continued Esch, encompasses about a dozen fields and takes about three to five minutes. Noting that the data and analytics in place help decide on worthy creditors, Esch said the information employed by PayPal helps ease “the hardest part of lending money, which is getting paid back.”


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