PayPal Is Chasing Australia's Small Business Market, Offering Working Capital Loans

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The banks better watch out, tech companies look like they’re are gearing up to take market share.

Today it’s payments company PayPal which has launched its Working Capital loan product which allows small businesses to access cash loans through their PayPal account.

The company currently has about 110,000 merchants using its payments platform in Australia and gages the current market opportunity to be about 30% of its small business customers, or about 33,000.

Small businesses will be able to borrow up to 8% of the sum of their yearly PayPal transactions up to $20,000 and repayments are decided upon by the business owner when they make a sale but are between 10% and 30% of the loan size.

The launch comes after it was reported this week Paypal Australia CEO Jeff Clementz had a number of strategic conversations with banks around working together. More on that here.

Australia, one of PayPal’s largest small business markets, is one of the first countries outside the US to get the new product.

Kareem Al-Bassam, PayPal Australia’s director of customer experience and delivery said allowing small businesses to gain access to capital fast will make them more agile.

“What we’re seeing through greater digitalisation and elaboration of the digital economy is the ability to get that moving faster, cleaner and more efficiently and for the end users whether it’s the consumer or the merchant, less costly as well,” Al-Bassam told Business Insider.

“We’re using data and technology to provide a tailored credit solution that meets the needs of small businesses today.”

Al-Bassam said Australia’s small business market hasn’t been properly serviced to date which means the company sees the segment as brimming with opportunity and this new offering is one way PayPal is hoping to fill that gap.

However he said it’s not about taking market share from the banks.

“In Australia there’s 2.2 million small to medium businesses. It’s an under-served segment,” he told Business Insider.

“There needs to be better solutions to help small to medium businesses access capital as a business and at reasonable and transparent terms.

“PayPal’s investment in Working Capital is another demonstration of our commitment to support and encourage Australian SMBs, which make such an essential contribution to the Australian economy, by providing them with innovative solutions and technology to expand their businesses.”

Giving PayPal merchants the flexibility to pay when they get paid, Working Capital uses a business’ transaction history and performance to determine lending eligibility before allowing small businesses to access capital.

It’s not a startup facility. To access the loans, merchants need to be a PayPal user with a solid trading history for about a year which is part of what the company sees as its advantage.

“We’re able to look at the data history that we have,” Al-Bassam said, adding that access helps the company make more informed decisions because PayPal can see, amongst other things, what kind of stock a merchant has up on eBay and the volume of monthly trading history which traditional lenders cannot.

“That data is critical to good credit underwriting policy,” he said.

“What it helps us all to do is make more balanced decisions with a larger, more representative data set so you’re not having to make a blind choice on a consumer or a merchant.”

Having that information also lowers business risk and costs but there’s a point where a company can have too much information, Al-Bassam said.

“I think we have too much information already,” he said.

“It’s not about how many terabytes we all have in our databases, it’s about how effectively we’re mining it and obtaining good insights based on that data.”

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