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How Swift Financial Could Impact PayPal’s Credit Business

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Nov. 20 2020, Updated 11:48 a.m. ET

Large lenders avoiding consumer credit

PayPal (PYPL) is betting on the acquisition of Swift Financial, a small business lender, to bolster its credit business as the alternative lending market is heating up. PayPal is battling Amazon (AMZN), Square (SQ), and LendingClub (LC) for revenues in the alternative lending market.

Large lenders like Citigroup (C) have shied away from the small business and consumer credit market due to the relatively risky nature of these lending segments. However, alternative lenders see an expanded business opportunity in the vacated lending space. 

PayPal, Amazon, and Square are not just in the alternative lending business for the interest and loan origination revenues—they also seek increased use of their other products and services.

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PayPal to provide larger loans

The acquisition of Swift Financial could enable PayPal to increase its loan amounts. PayPal has typically supplied loans up to $125,000, while Swift Financial writes loans up to $500,000. Acquiring Swift Financial would allow PayPal to write larger loan amounts, which could benefit large merchants. PayPal launched its credit business in 2013, and it has written more than $3.0 billion in loans since then.

The acquisition of Swift Financial would also allow PayPal to provide loans to borrowers that are not yet its customers. PayPal Credit typically lends to PayPal merchant customers, who use the credit for working capital.

Credit revenues up 18%

PayPal expects the acquisition of Swift Financial to expand its credit revenue opportunities. For 2Q17, the segment under which PayPal reports credit-related incomes posted revenues of $387 million, up 18% year-over-year, as shown in the chart above.

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