Yahoo Finance PayPal Follows Suit with Venture into Small Business Lending
Lending: Technology Companies' New Focus
Using businesses’ transaction data
Besides Intuit (INTU), PayPal(PYPL) also has plans to enter the small business lending space. The payment service provider plans to use its customers’ resourceful transaction data to offer finances to its small business customers.
Darrell Esch, PayPal’s general manager of small business lending, said “we are seeing sales patterns week by week, month by month, year by year.” By looking at this data, service providers plan to offer smarter loans and deduct loan payments daily, which in turn reduces the risk to default.
On a daily basis, PayPal grants on average $2 million in loans to small US businesses. In May this year, PayPal increased its loan limit to $85,000 from the prior limit of $65,000.
Aggressive approach to the payments industry
After its separation from eBay (EBAY), PayPal has become aggressive in its approach to the payments industry. This will impact other payment providers. How PayPal grows over time remains to be seen. Although card companies like MasterCard or Visa compete with PayPal, they may also act as its customers or partners.
For example, PayPal’s digital wallet links all cards, including Visa (V) and MasterCard (MA), acting as PayPal’s partners. However, PayPal also allows its customers to transfer money directly from their bank accounts. In this case, it acts as a competitor. Funding a PayPal account through a bank transfer eliminates MasterCard or Visa’s involvement. This affects their revenue.
The above graph shows the growth in PayPal’s volume over the years. In the graph, PayPal’s volume includes volumes funded by other payment cards. Visa forms ~2.50% of the SPDR Dow Jones Industrial Average ETF (DIA).
Browse this series on Market Realist:
