PayPal is rolling out financing for online retailers. The eBay (NASDAQ:EBAY) payments unit, which has been offering financing to online shoppers for years through its Bill Me Later service, has completed a pilot for financing eBay sellers in the U.K. and is working on rollout plans there, as well as tests in the U.S., according to Reuters.
In the U.K. tests, eBay sellers could be approved for up to £25,000 to spend on advertising, inventory, new staff, website redesign, improving physical stores or anything else business related, based on their past PayPal sales receipts. The advance was paid into a merchant's PayPal account, then repaid as a percentage of the merchant's daily PayPal sales receipts, along with a fee based on the merchant's credit risk.
In an example provided by PayPal and cited by Reuters, a merchant got a £12,000 advance, and the fee was £3,240, or 27 percent of the amount advanced. The merchant agreed to a 12 percent repayment rate, meaning 12 percent of daily sales were used to repay the advance.
Amazon.com (NASDAQ:AMZN) launched its own merchant financing program last fall called Amazon Lending, which offered advances up to $38,000 and typically charged a 14 percent fee, according to the Wall Street Journal. An online-merchant financing startup called Kabbage offers advances to both eBay and Amazon merchants, with typical financing fees ranging from 10 to 18 percent.
Like Amazon, PayPal can take its repayments out of the merchant account, which reduces risk for PayPal. It also makes the model of PayPal as a financial business look a lot more like Visa and MasterCard, which can take penalties out of merchants' accounts seemingly at will.
That may make online sellers who can take payment cards on their own feel a bit like they're between a rock and a hard place. But many may not have other options. As Reuters notes, banks pulled back from merchant loans after the 2008 financial crisis, and factoring — in which a merchant sells its accounts receivable to a third party at a discount — can be tough to tap for smaller merchants.
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