Wednesday, May 01, 2019
Depending on who you talk to, PayPal is either the top of the heap in small business lending or just fairly near to it. That’s an unusual discrepancy, and one that recently emerged as part of the flood of news that comes out quarterly as part of earnings season. So what’s behind this discrepancy, and what does it mean for PayPal overall?
As part of a recent earnings call with PayPal CEO Dan Schulman, the details emerged that PayPal had made fully $10 billion in small business loans. That by itself is no mean feat, but it gets better: with that kind of number, deBanked analysts have examined the market and discovered that that passes the previous leader in small business lending, OnDeck.
OnDeck had loaned $7.5 billion between Fall 2015 and the fourth quarter of 2018, deBanked’s analysts figure. But with PayPal now reporting $10 billion in loans, that means the company had likely loaned about $9 billion out in that same interval, handily beating OnDeck’s figures. Credit for the win, in part, went to PayPal’s 2017 acquisition of Swift Capital, a move that gave it plenty of extra room to operate in the small business market.
Meanwhile, PayPal wasn’t the only mobile payments processor that found surprising benefit as a small business lender. Square’s Square Capital arm had originated $1.6 billion in loans for 2018, deBanked notes, which was sufficient to make it the fourth largest small business lender around.
What’s amazing is how fast PayPal went from virtual unknown in this sector to potentially top of the heap. Leave aside the debates about the impact of more accessible credit for small businesses here; PayPal was virtually unknown in the small business lending sector when it got started back in fall 2013. Now, it’s a major operation, illustrating not only the value of diversification but also the value of the right acquisition. Anyone concerned about PayPal’s futures now will likely be so no longer.
A payments processor stepping into business lending isn’t so far out of line, and PayPal here has demonstrated how big a chunk of business can be added with a little diversification. It’s a big deal in mobile payments, and it’s now huge in small business lending as well.