Lending Briefing: PayPal – one of the top 5 small business lenders in the US
- PayPal says it's one of the top five small business lenders in the US, gaining ground in areas where traditional banks retreated.
- Crypto lending is on the rise, with the industry's leading broker reporting over $50 billion in originations for Q4 2021.

PayPal was in the headlines quite a bit this past week, mostly thanks to news of its 4.5 million “illegitimately created” accounts, highlighting the banking/fintech industry’s fraud problem.
John Rainey, PayPal’s CFO, gave this number to the public on the company’s fourth quarter earnings call, adding that the company “leaned into incentivized customer acquisition tactics to a much greater extent than we ever have in our history.”
PayPal now wants to change its strategy from marketing campaigns offering a couple of bucks for a new account opening, which incentivized the fraud, and focus more on engagement and sustainable growth.
The issue of financial services fraud is systemic and not isolated to PayPal (stay tuned for an article dedicated to this later this week), but this is not what I want to focus on today.
It’s another statement from a PayPal exec that caught my attention, one that generated less fuss in the media. Turns out that PayPal’s small business lending division is rising through the industry’s ranks, as the fintech now self proclaims to be one of the nation’s top five small business lenders, with the vast majority of business coming from areas deserted by banks.
“Through our PayPal Working Capital product, we are now one of the top five lenders to small businesses in the United States, and 70 percent of those PayPal Working Capital loans are going into regions of the country where banks have pulled out, sometimes for good economic reasons,” said Franz Paasche, senior vice president and chief corporate affairs officer at PayPal in a McKinsey interview.
So fintechs are gaining more ground in areas where banks didn’t survive, and small businesses are increasingly engaging with online lenders. PayPal is probably hanging out with the likes of Square and Amazon in the top five list, although it’s hard to quantify properly.
According to S&P Global data, PayPal is definitely a top five digital lender, alongside OnDeck, Kabbage, Square, Credibly and Bluevine, in terms of cumulative originations.
US digital lenders
Meanwhile, deBanked’s list of small businesses origination figures puts PayPal at the top of the list with $2.6 billion generated in 2020, but the half-completed table just shows the lack of data and transparency in the industry servicing this market.
Another complicating aspect is that the SMB lending industry has also experienced quite a bit of consolidation. Two of the largest SMB-focused digital lenders sold in 2020, with Kabbage going to American Express and OnDeck Capital sold to Enova after struggling with complications during the pandemic.
In any case, PayPal's executives didn’t talk about SMB lending on the earnings call, focusing more on the consumer side of the business. It wasn’t an easy results season for the company, as PayPal’s stock lost a quarter of its value after the company missed Wall Street consensus estimates and reported that it anticipated slower growth in 2022 than previously expected.
Analysts reacted to the company’s revised guidance on its yearly revenues, lowered from the initial target given three months before, by downgrading the stock.
But some kept some optimism, noting that this moment could indicate the next phase in PayPal’s journey - “a slow transition to a mature company that can likely bring some aging pains,” wrote Bernstein analyst Harshita Rawat.
Chart of the week
Crypto lending is definitely solidifying as an industry. Genesis, a digital asset prime broker serving institutional investors with assets over $10 million, just reported some record-breaking numbers.
The firm recorded its strongest quarter in Q4 2021, with over $50 billion in loan originations – up nearly 7 times more year-on-year and 40% over the previous quarter, according to its most recent report.
Genesis claims it’s the largest crypto lender in the industry, and the numbers are pretty staggering – since its launch in March 2018, Genesis has originated over $150 billion in loans.
Within its lending portfolio, bitcoin accounted for around 30% of its lending mix, while USD and other fiat-linked loans increased to almost 40% by the end of the year, as clients looked for more flexibility going into year end, the lender said.
Source: Genesis
Quote of the week
And since we’ve been talking about small business lending, here’s another quick bit on fintechs looking to serve this consumer category. Fundbox, a small business financial services provider, reported record growth levels and raised $100 million in a Series D round, valuing the company at over a billion dollars.
The lender is seeing a lot of traction, both in direct customer acquisition and on the partnership side. Roughly half of its business comes through partners, CEO Prashant Fuloria told Tearsheet’s Zack Miller in a recent podcast.
“We are also seeing some really interesting early traction with banks, where banks whom you might think of as being competitive to Fundbox, are actually coming to us and saying, Hey, you do a really good job of serving small businesses. For us, small businesses are stuck between our consumer business and our commercial business. Can you provide the technology and the user experience and the product experience for our customers? We can bring our customers and our balance sheet.”
Read/listen to the podcast here
What we’re reading
- PayPal admits 4.5 million accounts were illegitimate as fintech’s fraud problem grows (Forbes)
- Facebook pummeling pulls down fintech earnings (Lend Academy)
- FDIC Chair says community banks are the backbone of SMB lending (deBanked)
- Lending platform Happy Money valued at $1.1B (PYMNTS)
- How LendTechs are transforming loan access for SMEs (Fintech Global)
- American Express launches consumer checking with rewards (American Banker)
What we’re writing
- It’s really expensive to build a new core: Fiserv acquires Finxact
- Green financing is flooding climate-focused sectors
- How banks can tackle sustainable lending, in 4 charts
- ‘This year, banks will strive to balance two opposing forces’: The state of AI in banking 2022
- From one idea to 2 million applications: TomoCredit wants to change the credit score game
- How fintechs like Aquaoso help banks assess climate risks in their lending portfolios