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Reviewing PayPal's Business Loan Charge-Off Rates

Facebook Marketing, PayPal/Bitcoin, Usury Part 2, WFH - Ep 46


Looking at PayPal’s Business Funding Charge-Offs

June 10, 2024
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paypalWhen PayPal announced a sudden and dramatic pullback on its MCA and business loan operations in the third quarter of 2023, it was surprising news. For instance, the company’s net charge-off rate had been trending downward for years, coming in 7.4% at year-end 2019 right before covid and going down to 4.7% in 2021 and down to 4.5% in 2022. By June 2023, however, that number had somehow soared to 13.3% and by September was 20.4%. At the time, PayPal attributed this shift to “the expansion of acceptable risk parameters in 2022, which resulted in a decline in the overall credit quality of loans outstanding.” Because of how they calculate charge-offs, reducing originations at the same time that charge-offs were peaking made that number look a bit worse than it was. But still…

Although many funding and lending companies have complained of an increase in fraudulent applications in the immediate post-covid era, PayPal’s figures can hardly be attributed to fraud. That’s because their charge-off rate doesn’t even include losses from fraud.

PayPal’s products are very short-term so it was able to rapidly scale back its balance sheet exposure. Total merchant advances and loans outstanding, net of participation interest sold, decreased from $2.1B in Q1 2023 down to $1.2B in Q1 2024. Of the active loans, 88.7% were considered current in Q1 and 4.4% were greater than 90 days beyond their projected payment pace. With the exception of 2020 (when the % > 90 days past expected hit 12.5%), 4.4% is among the worst PayPal has experienced since 2017.

PayPal Reiterates Tightening of Business Lending Originations

February 8, 2024
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paypal buildingAfter announcing a sudden pullback on business loans and MCAs in Q3 due to higher than expected charge-offs, PayPal maintained that the belt was still tightened in Q4.

“We have taken a prudent and active approach to managing our overall credit risk, tightening originations within our PayPal business loans portfolio,” said PayPal CFO Jamie Miller on the quarterly earnings call. “We are carrying lower credit receivables after tightening originations last year.”

Tightened originations has led to the company being dethroned as the top online unsecured small business lender. PayPal at the very least held that notable distinction in 2019 and 2020 but they’ve since been overtaken by Square Loans and Enova.

PayPal Pulls Back on MCAs and Business Loans

November 2, 2023
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PayPal’s merchant cash advance and small business loan originations in 2023 are down significantly from 2022. The company revealed that it had only purchased $1.3B in merchant receivables for the first 9 months of this year versus $2.3B over the same period last year.

In the earnings call, Acting CFO Gabrielle Rabinovitch said that the company is maintaining a “tightened origination strategy for the PayPal business loans portfolio.”

Charge-offs are up. “The increase in the charge-offs for the nine months ended September 30, 2023 compared to the same period of the prior year was due to the expansion of acceptable risk parameters in 2022, which resulted in a deterioration of the overall credit quality of loans outstanding,” the company disclosed.

Examining the Charge Off Rates on PayPal’s Business Loans

February 13, 2023
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Wondering how a competing small business lender with more than $17 billion in originations since inception has been doing lately with? Check out some of PayPal’s business loan and MCA stats:

Period % of Merchants Within Expected Timeframe % of Merchants > 90 Days Past Expected Net Charge-offs
2017 87.4% 5.5%
2018 91% 3.7%
2019 89.6% 4.2% 7.4%
2020 75.4% 12.5% 18.9%
2021 91.8% 3.1% 4.7%
2022 90.7% 3.7% 4.5%

PayPal, King of The Small Business Lenders?

August 3, 2022
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paypal buildingPayPal didn’t offer precise quarterly origination figures for its “Working Capital” loan product on Tuesday, but it did reveal total originations since 2013. The number? 1.3M loans for a total of $25.6B across the US, UK, Australia, and Germany. Though there is an international component, the totals are higher than rivals OnDeck and Square Capital over the same time period.

“PayPal Working Capital (PayPal Funding Pro) expanded to France and the Netherlands,” PayPal said in its Q2 announcement, “providing SMBs with simple and flexible funding in minutes.”

The company’s small business lending operations draw little attention given that its payment business, which includes Venmo, is so massive. The size of it first became known in 2019 when it offhandedly claimed $4 billion in annual business loan origination volume for the year. That number shrank to $2.6B in 2020 during the pandemic, which was still more than all of its competitors.

In the US, its loans are actually made possible through WebBank.

PayPal: “We are now one of the top 5 lenders to small businesses in the United States”

February 2, 2022
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paypalPayPal’s Q4 earnings report failed to mention its small business lending division, but an internal assessment of its Working Capital product was made known through a recent interview published by McKinsey.

“Through our PayPal Working Capital product, we are now one of the top five lenders to small businesses in the United States,” said Franz Paasche, PayPal’s SVP, Chief Corporate Affairs Officer at PayPal. “Seventy percent of those PayPal Working Capital loans are going into regions of the country where banks have pulled out, sometimes for good economic reasons,” he continued.

Despite the self-reported achievement, the company’s attention is now focused in a different sector of lending altogether, in the rapidly expanding consumer market known as Buy Now, Pay Later (BNPL).

“Buy Now, Pay Later is a perfect example of the type of investment we are making to give shoppers and retailers more reasons to engage with PayPal,” said CEO Dan Schulman during the company’s recent earnings call. “Buy Now, Pay Later is available in 8 markets, including with Paidy in Japan. We continue to see rapid consumer adoption, with $3.2 billion of Buy Now, Pay Later TPV in Q4 alone, a $13 billion run-rate, with Q4 growth of over 325% year-over-year. We have processed 54 million loans globally since launch, with 13 million unique consumers and 1.2 million merchants using our Buy Now, Pay Later services.”

PayPal’s stock plummeted by 20% after earnings were released that was connected to challenges unrelated to lending facing the company.

PayPal’s Lending Increases

November 8, 2021
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paypal buildingPayPal was mum about its working capital loan products in the latest quarterly earnings report, but clues lie in an important line item, Loans and interest receivable. The figure has historically been closely correlated with originations. PayPal reported $3.7B in those receivables at the end of Q3, up from $3.2B in Q2 and up from $2.77B at the end of Q4 2020.

The number was close to $4B at the end of 2019 so the figures represent a return to previous levels.

In the earnings call, PayPal CFO John Rainey said “growth in our short-term installment pay portfolio was the primary driver of this increase.” Rainey appeared to be referring to its Buy-Now-Pay-Later product.

Separately, PayPal announced that Venmo users should be able to pay for purchases on Amazon beginning next year.

This page has been updated to reflect the CFO’s statements that the increase was driven by short-term installment lending.

PayPal Originated ~$2.6B in Funding During 2020

May 10, 2021
Article by:

paypal buildingPayPal reported originating a total of about $2.6B in capital for U.S. SMBs in 2020, which doesn’t include the more than $2B in PPP loans it arranged.

“PayPal delivered record performance in 2020 as businesses of all sizes have digitized in the wake of the pandemic,” Dan Schulman, President and CEO, said.

Exact origination figures are hard to track through the firm’s quarterly reports. The Working Capital product is only mentioned in passing. At the outset of the pandemic, PayPal reported that they helped merchants by “Granting deferral of repayments on business loans and cash advances at no additional cost.”

Throughout the remainder of the year, PayPal was echoing the problems of the industry and slowed down funding as a whole. In the 2021 first quarter call, John Rainey the CFO Global Customer Operations, said that the firm “Tightened underwriting and strong repayment activity contributed to lower balances in our merchant loan portfolio.”

PayPal’s origination volume fell relative to their 2019 estimate.

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Fund a Paypal bank Account?...
paypal business as his primary bank account... anyone that will fund this kind of deal?...

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paypal. we are very particular about our staff and pay more to get a higher quality person with higher moral and ethic code. we are known for deal security. what gives you the idea?". i responded with how i came to the conclusion which was my salesman was on the phone with a merchant that we had an offer from greenbox on for i believe was 21k and were in the process of closing. suddenly the merchant says hold on i'm getting another call, he comes back on the phone after 30 seconds and says who the hell is elliot from greenbox and why are they saying that "brokers are shopping out their file to them because they couldnt get the deal done". keep in mind, contracts had not gone out yet so he had no idea who greenbox was yet. to my surprise (or his admission of guilt) i never heard back from him or anyone else there. i left it alone and gave them the benefit of the doubt hoping it wouldn't happen again once i brought it to their attention. , , fast forward to today.. i get a call from "true capital" number 949-200-1848 asking for my merchant by name thinking he had the merchants number and then i ask which one of my (the merchants) companies he was calling about and he gave the companies correct name (keep in mind i submitted the file to them tuesday). i checked which lenders i submitted that file to which was a total of 2 companies (other lender was in tx) and greenbox was the culprit. true capital has no online presence what so ever which means they are a entity they have just to backdoor which i'm sure they have a few of and true capital is based in fl according to the rep that called. i called back from from a diff numbe...

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paypal? , , zero security whatsoever....