As payments platforms look for more ways to grow their margins and usage among businesses, they continue to push into a wider and deeper range of financial services. In one of the latest moves, eBay’s PayPal is expanding its Working Capital service to the UK. This is its first market for PayPal’s lending platform outside of the U.S., where it first launched the service in September 2013 and has provided $140 million in capital to businesses to date.
James Barrese, the CTO of PayPal, says that the creation and expansion of Working Capital is part of how the company is trying to reinvent itself and return to its tech roots to grow its platform, essential as it matures in some markets and pushes into completely new ones (PayPal’s now live in 203 markets/regions, he says, and is looking to add more specifically in emerging countries. That in itself poses its own challenges and also points to why PayPal may be looking to expand beyond e-commerce payments and into services that would be used more by cash-only merchants.)
“All of our customer experiences are new or will soon be new,” he told me in an interview. “The checkout experience is modern and clean. We are also redoing wallet. And we have a new way to offer merchant reporting and analytics,” is how he described other projects on PayPal’s agenda.
(And, since David Marcus departed for Facebook from his role as PayPal president, I also asked what the latest was on that front:
“We’re not in a rush to find a new head,” he says. “[eBay CEO John Donahoe] has a process, and we’ve had a clear strategy and are in the middle of executing that. I loved working with David but we’re not missing a beat.”)
By moving into working capital lending, PayPal is going head to head with other online services that are targeting the same kind of business and the same kind of customer and the same pain point: expensive banks that move too slow in the lending process. For example, companies like Kabbage, which advances online merchants money and even uses merchants’ PayPal histories, among other things, as part of its credit profiling algorithm. In the U.S. it also competes against the likes of Square, another payments platform that has moved into cash advances recently.
PayPal, too, has an algorithm to decide how much to offer users: decisions are based on PayPal sales history, essentially. Since the merchants already have all their details in the platform, processing takes literally minutes.
PayPal’s U.S. and European services, while operating under the same brand, are actually not the same under the hood.
Specifically, the original launch was focused around business loans, which PayPal offered in partnership with a third party lender, WebBank. In Europe, however, PayPal has a banking license in Luxembourg, so the company will run things a bit differently by offering advances rather than loans. The key difference here is how the money can be lended and also repaid: you pay back PayPal as you earn money — and you don’t pay when you are not.
When PayPal starts the program later this year, it will open it only to merchants who use the PayPal platform already — although over time that may be extended to other services.  The company says it will lend up to 8% of what a merchant typically makes on the PayPal platform.
