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Is Lending Good Business for PayPal?

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Jan. 2 2019, Published 11:11 a.m. ET

Lending segment’s revenue fell

PayPal (PYPL) runs both consumer and business lending operations. The company doesn’t break out the income of its lending operations as a separate item in its financial reports, but it reports the revenue it earns from loan interest under a segment called Other Value-Added Services.

In the third quarter, PayPal reported Other Value-Added Services revenue of $340 million, representing a fall of 11% YoY (year-over-year) and marking the first decline in the segment’s revenue in over two years. The fall happened after PayPal sold its consumer lending operation in the United States to Synchrony Financial (SYF).

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Lending business accounted for less than 10% of total revenue

Lending currently makes up a tiny part of PayPal’s business, with the segment that houses its lending operations accounting for less than 10% of its total revenue in the third quarter. But the company sees more growth opportunity in the lending market, particularly in the business lending space, as it rolls out the service to more countries. Last month, PayPal launched its business lending service in Germany, getting a head start on its rival Square (SQ), which also offers small business loans and currently doesn’t operate in Germany.

The rise of alternative lenders

PayPal has disbursed more than $6.0 billion in loans since 2013, while Square has disbursed more than $3.0 billion in small business loans since 2014. Amazon (AMZN) also extends small loans to its marketplace sellers and has disbursed more than $3.0 billion in such loan facilities. 

Shopify (SHOP) extends cash advances to its merchant customers. At the end of the third quarter, it had disbursed more than $375 million in cash advances since 2016, according to its earnings report.

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