Member Exclusive

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.
close

Email a Friend

Lending Briefing: PayPal – one of the top 5 small business lenders in the US

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 

0 comments on “Lending Briefing: PayPal – one of the top 5 small business lenders in the US”

10-Q, Member Exclusive

The debt ceiling deal may have saved the US from defaulting on its debt, but where does this leave the stock market?

  • The passing of the bill may have saved the immediate trouble of defaulting but it could be months before investors and the stock market regain their stability.
  • SoFi stock rose nearly 31% in the past week because of the new debt ceiling deal.
Sara Khairi | June 05, 2023
10-Q, Member Exclusive

Who will succeed James Gorman at Morgan Stanley?

  • Morgan Stanley's James Gorman is calling it a day. “No plans to go out like Logan Roy,” the fictional CEO from HBO’s Succession, he says.
  • Wise shares dropped nearly 7% Thursday after the firm announced this week that its CFO, Matt Briers will be stepping down in March 2024.
Sara Khairi | May 30, 2023
10-Q, Member Exclusive

Guilty or not guilty: Deutsche Bank is ready to pay $75 million in Epstein settlement

  • Deutsche Bank hasn’t come clean about its involvement with the Epstein crime. However, the bank addressed the situation by saying that it has strengthened and invested in its anti-financial crime controls.
  • Upstart is up almost 80% in 2023 so far. The news of multiple funding agreements being worked on by the company rebounded the stock nearly 47% in a week.
Sara Khairi | May 22, 2023
Banking, Lending, Member Exclusive

Unlicensed lending, misleading practices, and legal actions: Is SoLo Funds in trouble?

  • Attorney General for the District of Columbia and the California DFPI have penalized SoLo Funds for breaching a number of consumer protection laws.
  • The DFPI also issued a consent order for the Black-owned firm, which is raising eyebrows and more questions.
Sara Khairi | May 17, 2023
10-Q, Member Exclusive

Robinhood’s losses override revenue, PayPal’s stock dips, while Dave delivers more than expected in Q1

  • Everything investors need to know about Robinhood, PayPal, and Dave’s Q1 2023 earnings.
  • Some important fintech stocks are on the path to recovery, while others crashed on Q1 earnings.
Sara Khairi | May 15, 2023
More Articles