PayPal chief executive officer Jeff Clementz says the payment provider may partner with local banks to offer bigger loans to small businesses through its new working capital facility.
Clementz told Fairfax PayPal is “actively exploring” the idea in the US and “has had discussions” with banks in Australia.
“PayPal does not have the balance sheet to make a massive dent in small business loans,” Clementz said.
“[But] there is a great opportunity for a PayPal-plus-bank partnership. PayPal could provide the online experience and the banks could provide the capital through their balance sheets.”
PayPal has recently begun making a transition from a business primarily reliant on eBay buyers and sellers to a financial institution more closely resembling a bank.
PayPal’s small-business arm, PayPal Working Capital, announced in August it will expand to Australia as part of PayPal’s global move outside the US.
But SmartCompany understands the new bank partnership idea is considered to be an “on the horizon” move for the payment provider, not likely to come to pass in the near future.
Neil Slonim, business banking advisor and founder of TheBankDoctor, told SmartCompany if such a partnership did occur, PayPal would bring its customer knowledge to the table.
“The banks don’t seem to have the time or technology to closely analyse the cash flow trading patterns of all of their customers,” says Slonim.
“PayPal have a better knowledge of how customer cash flow works and as a result they are in better position to understand the likelihood of a small business’ capacity to repay the loan.”
He says the current SME lending environment means small business customers are often turned away by the banks or finding themselves stretching their suppliers, offering customer discounts to pay early or borrowing from family or friends in order to facilitate loans.
Currently, the loans offered by PayPal are relatively small, but it is believed it will expand into more significant small business loans that are the traditional bread and butter of the banks.
Clementz indicated PayPal would look at loans in the vicinity of $6000 to $20,000.
Slonim says while banks are historically protective of their customer base and are not normally inclined to open up to competitors, any partnership may be beneficial for all parties.
“This could be a win-win-win situation. A win for the banks, for PayPal and for the customers,” says Slonim.
“But will it happen?” Well, we will see.”