PayPal, Square and other tech companies are disrupting banks as they move aggressively into small-business lending

A handful of payments companies including Square and PayPal are moving beyond their core market in payments to take advantage of an opportunity to help small businesses grow.

Following the 2008 financial crisis, banks severely restricted access to capital, disproportionately affecting fledgling and medium-sized businesses. Annual loan originations to businesses with $US1 million or less in revenue fell dramatically between 2007 and 2013.

For payments companies like Square and PayPal this created an opportunity. They are now offering loans and advances to their small-business clients and charging a fixed fee for the capital advance. It’s a way to develop a new revenue stream and help their merchants grow (which in turn, means more money from credit card transaction fees). In a new BI Intelligence report, we explain how these digital-lending programs work, how they stack up to alternatives, and why banks should be worried about these programs taking off.

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Here are some of the key points from the report:

In full, the report:

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