PayPal’s Embedded Finance Vision: Michelle Gill reveals how cash flow lending is reshaping SMB access to capital

As General Manager of PayPal’s Small Business and Financial Services Group, Michelle Gill is responsible for bringing together the products and services that help small business owners run and grow their business. She is my guest for this episode of the Tearsheet Podcast.

Michelle brings deep financial expertise and experience building platforms and tools that help customers manage their finances to her role on PayPal’s Senior Leadership Team. Michelle was previously Senior Vice President of Intuit’s business money management, payment, and banking service, QuickBooks Money Platform. Prior to Intuit, Michelle successfully integrated and expanded SoFi’s lending business as General Manager and Executive Vice President of Consumer Lending and Capital Markets.

Drawing on her early career experience as a Managing Director and Partner at Goldman Sachs, Michelle also served as SoFi’s Chief Financial Officer before moving into the product leadership role. Before that, Michelle spent a decade leading the U.S. Assets business for global investment firm Sixth Street Partners.

Given her career and experiences, Michelle brings a broad view of fintech innovation. She focuses on user-centered solutions. At PayPal, she leads efforts to help entrepreneurs navigate the complicated web of financial tools they often depend on.

“The preponderance of [small businesses] use greater than 15 tools to run their business,” she shares. “What they got into business for is the passion… and yet they end up spending more time on things that are not what they love.”

Our conversation explores how PayPal is actively trying to reduce that complexity. It does so not by offering more tools, but by making the ones they already use work better together. Gill outlines the strategy behind PayPal’s cash flow-based lending model and how it fits within their open ecosystem, whether it’s digital lending, embedded finance, or leveraging open banking.

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How PayPal for Small Business solutions addresses complexity

For many small business owners, managing finances often means juggling over a dozen platforms. PayPal is stepping into this chaos with the goal of integration.  “It’s not the adoption of the new tool in and of itself that’s the problem. It’s how it feeds back into your broader ecosystem,” says Gill. PayPal’s strategy focuses on streamlining tools through a single integration. It aims to reduce friction and give entrepreneurs more time to focus on their craft.

How PayPal cash flow lending works

PayPal’s approach to cash flow-based lending matches repayments with earnings. It is unlike traditional fixed-schedule lending. “Repayment is predicated on the receipt of those earnings,” says Gill. She describes the flexibility of the PayPal Working Capital product. This flexibility makes the loan more manageable for merchants with fluctuating revenue.

But, until recently, merchants couldn’t access more funds until fully repaid the loan. That’s changing. “We are changing our product to allow for the ability to redraw,” she notes. She signals towards an update that will help entrepreneurs recycle capital more efficiently.

Leveraging Open Banking for better lending models

Previously, PayPal could only lend based on what it processed. But open banking now enables them to assess a holistic view of merchant cash flow. “We now can have visibility into the entire merchant account, both on and off PayPal,” says Gill. This broader perspective supports more accurate underwriting. It offers larger loan sizes without expanding the credit risk.

PayPal is embedding finance into merchant workflows

PayPal isn’t just offering loans—they’re embedding them into the workflows merchants already use. Through the PayPal dashboard, users are notified of pre-approved loan amounts as they manage daily tasks. These are like refunds and chargebacks. “We are planning to add the amount that merchants have been pre-approved for, so they know going in,” Gill shares. PayPal is also collaborating with vertical SaaS providers, as well as with marketplaces, to bring financing directly into partner platforms.

Growing with merchants in the Open PayPal ecosystem

Through its open ecosystem, PayPal aims to grow alongside its customers. “We do things from point of sale to lending to online payments for e-commerce… we’ve tried to grow with our customers as they’ve grown,” says Gill. That includes helping businesses navigate newer challenges, like Generative AI and complex commerce models. “We do that through education, tools, and end-to-end services,” she adds.

The Big Ideas

1. Small Businesses Face Tool Overload. “The preponderance of them use more than 15 tools to run their business.” This overload creates inefficiencies—PayPal’s integrated platform is intended to reduce that friction.
2. Cash Flow Lending Matches Business Realities. “Repayment is predicated on the receipt of those earnings.” This model reflects how small businesses operate, especially in unpredictable markets.
3. Access to Capital Expands with Open Banking. “We now have visibility into the entire merchant account… not only borrow against your PayPal receivables, but also your off-US receivables.” This broader access supports more accurate and inclusive lending.
4. Embedded Finance Increases Accessibility. “Merchants who use PayPal come into their dashboard generally at least once a week… We let them know they have access to capital.” In-app lending notifications simplify the financing journey.
5. Loyalty Grows with Product Adoption. “If you borrow once from us, you tend to borrow five or six times.” This repeated usage signals that the lending tools are resonating with merchants.

Read the transcript (for TS Pro subscribers)

A unique perspective on financial services

I’ve always loved serving the customer, as you mentioned, be it at the enterprise level, the consumer level and the small business. When you think about the number of companies that serve enterprises, it’s pretty meaningful. Similarly, the number of companies who serve consumers, it’s also pretty meaningful.

When you look at the number of companies that seek to serve small businesses, it’s actually a smaller number. And the complexion of small business is much more complicated in that they vary dramatically. And so far as the types of businesses that they are, both online and in store, both, you know, they have a pretty global reach and footprint their sophistication level varies all the way down from solopreneur up to small and medium sized small businesses.

It’s a really complex group of businesses to serve with single point solutions. And so what you find is there is a much smaller set of companies that serve them. And so the thing that I’ve loved about the ability to serve them is really getting to know them a lot better, understanding the complex needs that they have.

The preponderance of them use greater than 15 tools to run their business, and yet, the last thing that they have time for is managing that complexity. What they really got into business for is the passion that drives the particular thing that they built or are selling.

They end up spending more of their time on things that are not what they are core to them or what they love, and so our goal is really to reduce that complexity and really try to allow them to have that time back to pursue their passion.

Reducing complexity for small businesses

I think the complexity comes from, as you expand your business, or you think about doing new and different things, you often need to adopt an incremental tool through which to do that.

Whether PayPal offers that directly or through partners, the notion of being able to ingest it in a singular integration and not have to integrate with the new solution make it work with your reporting, having everything sync, right?

It’s not the adoption of the new tool in and unto itself, that’s the problem. It’s how does that feed back into your broader ecosystem, from a small business perspective, and making sure it all ties together.

That’s the place where it would be nice to have a single place to actually undertake many of these tasks, rather than having them distributed through a very broad ecosystem that doesn’t always necessarily work seamlessly together.

The challenge of scaling FinTech solutions

That’s right. As companies develop, they become incredibly specialized in one particular thing. And when I look at what I have loved about the portfolio that we have at PayPal is, we do things from point of sale, which is an in store solution, to lending, to online payments for E commerce.

We allow merchants to transact in over 200 currencies. And so the ability to migrate from geography to geography or online to in store, or complexity of the level of payments and how you’d like to accept payments, we’ve really tried to grow with our customers as they’ve grown.

Balancing growth with simplicity

At Investor Day, we talked about PayPal Open, which was bringing to bear all of our capabilities under one umbrella. One of the things I mentioned at our investor day was, you know, it’s one thing to come out with a brand. It’s another thing to come out with simplicity, and those two things are very different.

You can tell everyone, oh, everything is now housed under one umbrella, but as I described earlier, if that necessitates the merchant to have to actually do incredibly hard and challenging work to do the integration themselves, rather than having it all pre integrated on the back end and having just switches that you’re able to turn on and off as you’d like to actually utilize a particular part of a product.

In one instance, you’re asking the merchant to take on the complexity, and the second, you’re taking on the complexity. And so we’ve spent the last couple of years really taking on that complexity and ensuring that our products actually do work together under a single integration.

We came to market with that. We’ve now rolled that out in 200 countries. And we’re really excited about the ability for merchants around the globe to be able to adopt that single integration, which includes both getting the branded button, being able to accept credit card payments, being able to accept local, different types of payments, methods, locally in each geography, etc.

We’ve really tried to take all of the acquisitions that we undertook and all of the capabilities that we now have, and house them into one thing that makes it much easier for merchants to adopt.

The evolution of small business lending

Obviously, one of the things we’ve been tracking over the past few years, particularly with COVID, is like small business lending really changed dramatically, and has been doing so really over the past decade. And I’m kind of curious where you see the biggest gaps in the current market that PayPal is uniquely positioned to address.

A recent Goldman Sachs study came out and said that more than three quarters of small businesses are concerned about access to capital as they maintain or grow their businesses this year.

What we continue to see is the appetite for the simplicity of the product that we offer, and the way that that manifests itself to us is a very high net promoter score from the merchants who do take out that product. It is incredibly easy to use in that it is entirely a digitally native product.

The PayPal working capital product in particular, aligns incredibly well with the way in which a business earns. One of the concerns as a small business, particularly in a changing environment, and the current macro being amongst that, is, how do I know that predictability of the cash flow that I’m going to have coming in, such that I feel comfortable taking a loan on a fixed repayment schedule?

The reality is that businesses are cyclical, and there is a changing macro, and so you may be deciding to buy inventory to grow, and yet it may take you longer than you initially expected to sell out of that inventory. If that happens to be the case, then you’re on a fixed repayment schedule, as was the case with traditional lending, and now you’re in a situation where you have to repay the loan before you’re getting proceeds from the sale of that inventory.

The thing that we love about PayPal working capital, which our customers love as well, is it is the repayment is predicated on the receipt of those earnings and proceeds. Hence, the merchant can feel very comfortable when they take out a loan that they are not going to be in a situation where they’re forced to repay ahead of the receipt of proceeds.

Now, the downside of that structure, in current form is you could have paid down substantially faster than expected, and actually want to re up that inventory. And in today’s environment, which we are looking to change, we haven’t given you the ability to redraw on that loan ahead of the full repayment.

What ends up happening is, let’s just say that you have a small tail out there that you haven’t repaid. You’re in a position where you can’t redraw, and if you would like to recycle that capital and really put it back into inventory, you have to wait. And so we are changing our product to allow for the ability to redraw such that merchants can have the flexibility as repayments may come in faster than expected, to actually have access to that capital, to continue to double down on the growth of their business.

Product evolution and underwriting

It won’t be a difference in credit, right? Because realistically, it’s the same merchant that one is underwriting and you’re underrating again the ability to repay those proceeds. And so the underwriting box actually remains quite similar.

It’s really more of both a policy change as well as a technology change, a policy change. In the context of today, you cannot re borrow unless and until you’ve repaid. So you cannot have two PayPal working capital loans outstanding at the same time.

In the future, in order to allow this to happen, we would want to be able to have you have two PayPal working capital loans outstanding at the same time, which requires, again, like I said, both a technology change on our side as well as a policy change.

Advancements in underwriting technology

It used to be the case that we relied almost exclusively on PayPal data.

What I mean by that is, if you’re a merchant and you sell whatever your goods are that you sell and you receive X percent of your payments through PayPal, you could only borrow against that portion of your receivables, because that’s what you had visibility into.

Now, with the advent of open banking, we have visibility into the entire merchant account, both the receivables that they receive on PayPal as well as those that they receive off PayPal. And so we’ve recently introduced the ability to not only borrow against your paypal receivables, but also your off us receivables, because we now have the ability to have visibility into your entire business and the receivables, and the ability to collect against both of those.

That has been a very meaningful change. We’ve seen our customers that really have gotten to take advantage of this be very happy with that change.

The other change is, as I mentioned before, by consolidating all of the properties within PayPal, some of the receivables that were coming in at the physical point of sale, you couldn’t re borrow against, or you couldn’t borrow against, and now you have the ability to borrow against those as well.

What we’ve really done, again, with that single integration point is allowed all of that data to flow for both the PayPal receivables and then again, the ability to ingest that third party data and make credit decisions based on the holistic picture.

Embedding financial solutions into business workflows

The way in which we do it today is one way, and then we intend to actually expand on that pretty meaningfully.

The way in which we do it today is merchants who use PayPal come into their dashboard, generally, at least once a week, if not greater than that, and they review their outstanding receivables, whether they’ve had any disputes, refunds, chargebacks, etc.

As part of that, on that dashboard, we actually let them know that they could actually have access to capital. And we see a lot of that through the dashboard, both on the app and on the web.

We are planning to add to that, the amount that merchants have been pre approved for, so that they know going in. Here’s how much you’ve been pre approved for. And again, one of the biggest complaints has been loan size. But now, again, as I mentioned, with the advent of open banking and the ability to lend against a broader swath of receivables, there really should be the capability to achieve the loan size that merchants are looking for. So that’s one way.

Then you mentioned embedded finance. The other thing that we are working on with some of our larger partners is also embedding it into their experience, and making sure that as merchants log on to their experience, which may be something that is more persistent. You know, they also have access through that experience.

Lending is one of those things because of licensing is a little bit harder to white label. However, trying to make sure that it really fits into their experience, we’ve done a couple of tests with some partners where partners were looking for their merchants to upgrade the integration on the partner, and we’ve financed that integration, and really given a discount, actually on the amount charged to the merchant to borrow for that integration.

We’ve really enjoyed working with our partners to help them grow, and using lending as really an ability for them to help create the growth solutions that they want for both their merchants and themselves.

The changing landscape of small business finance

I think that when you look at small business lending, it really, despite the fact that everybody understands the need, I wouldn’t say there’s been a massive expansion of the amount of lending that is being done globally relative to the need in the market.

It is a very wide open space with a much bigger need than there is supply of capital. And I think the really interesting thing is, when we talk to investors who are interested in the asset side of this, there’s a lot of appetite for this asset.

I think people understand that it’s an incredibly interesting asset, particularly because it’s tied to cash flow. Investors really like cash flow based lending. It’s incredibly tangible. And so it feels as though there continues to be a dearth of supply of capital relative to the amount of lenders that are out there.

One of the things that’s been really interesting when we’ve talked to third party investors, is the reason they like someone like us lending relative to a third party is the access to data, a proprietary access to data that we have that allows us to do that lending responsibly, and allows us to do it in a way that doesn’t put merchants into a cycle of debt, that doesn’t actually hurt businesses, but instead helps them grow, is what they really like.

They like being part of that story. They like the history that we’ve had in the business, and they like the incredibly measured growth that we’ve had.

Interestingly, as we look at expanding, we’re not really meaningfully expanding the credit box. We’re expanding in the ways I just talked about, right, bringing in third party data that allows us to better underwrite the customer and be able to underwrite them for larger loans, serving segments of the market that we haven’t served historically, because we haven’t done loan sizes that are lower or higher.

I talked about that a little bit at our investor day. Is really a focus for this year of trying to ensure that we can really grow the base that we can provide capital to.

We are incredibly excited about all of these things, because we do think that businesses have and will continue to have a need for capital to facilitate growth, and the ability to do so at such an early stage in a company’s life is what can be a real difference maker in their ability to compete.

One of the things that we hear from our merchants all the time is, yeah, sure, everyone will lend to me once I’m successful and at large, it’s when I am starting out and I really need the capital. That’s when PayPal was there for me. And I will never forget that.

I think that’s something that really shows true. As I mentioned earlier, the Net Promoter Score and it again, it is much easier for a company like us, with the data that we have and the insights that we have into these small businesses, to be able to be there for them when they are smaller, and then to stay with them as they are growing, because we can uniquely meet their needs, because we understand their cash flow.

Creating a virtuous cycle

[Growth in the product has been almost exclusively organic. We really haven’t done much outside the ecosystem to inform and so we’ve started testing really trying to get to our merchants, not just through internal channels, but also external.

I 100% agree with you. I think what we see is, if you borrow ones from us, you tend to borrow five or six times, which is evidence of the fact that you like the product and that it is working for you.

I think the other thing that we see is, as you are borrowing, we do see meaningful growth in the businesses that do borrow, which is amazing. And then lastly, we also see that the more products you adopt, the greater your persistence and longevity is on the platform.

The things that we get excited about are the notion that the more PayPal receivables that you have, the greater amount that you can borrow. Obviously, the receivables that are off us are quote, unquote riskier to us in terms of the ability to collect against them, etc.

Yes, it 100% creates a virtual cycle of the more merchants do with us, the more like they grow, both for themselves and on us, and we really want to help facilitate that growth. That’s what we’re all about.

The future of small business financial services

So I think you’re one of a handful of people that sort of been at the epicenter of this convergence around serving small businesses. And I’m curious what your perspective is, looking ahead a few years, like, how do you envision the relationship between like, payment processors, banking services and lending platforms evolving for small businesses?

I think that small businesses will continue to face increasing complexity with the advent of agentic tools, agentic commerce, etc.

I think being able to be a place that can help them continue to navigate a changing landscape is really critical, and we do that through education. We do that through new tools. We do that through end to end services, and we try to take on the things that drive the greatest complexity, generally in their financial lives.

Because nobody is excited about doing their finances at the end of the month, but everyone is excited about seeing their bottom line grow. And so how do we take the stressful part of that out, and how do we bring the joyful part of that back and let small business owners spend the time doing the things that they really love doing, which is creating their product, speaking to their customers, growing their businesses in new ways.

And how can we be an agent for growth rather than that point of stress?