Not so fast with those Paypal online credit growth numbers


PayPal to Pay $25 Million to Settle Online Credit Claims

Back in 2013, PayPal conducted a pilot working capital program for its merchants. The pilot offered 90,000 of the company’s merchants the option of borrowing as much as 8% of their annual PayPal volume up to a maximum of $20,000.   PayPal charges a set fee that is repaid automatically as a deduction of 10-30% of incoming receipts until the balance is paid. For more information, see PayPay’s Working Capital pilot program,

For those that are not familiar, increasingly digital marketplaces such as eBay or Amazon are offering credit (since these institutions are not regulated banks, they have to partner with one).In PayPal’s case, the program is being administered through Salt Lake, Utah-based WebBank. To be clear, PayPal Working Capital is not a cash advance. It is a regulated bank loan through their partner, WebBank.

PayPal also has a credit business called PayPal Credit. PayPal Credit is a line of credit from Comenity Capital Bank that gives customers the flexibility to pay for their purchase over time. The Annual Percentage Rate for standard purchases and cash advances on a PayPal Credit line is 19.99%, although some special offers have a lower, promotional APR.

According the Consumer Financial Protection Bureau, it appears that Paypal Credit was alleged to have signed up customers for unwanted online credit. PayPal will pay $25 million to settle allegations it illegally signed up tens of thousands of customers for unwanted credit.

In a lawsuit and proposed settlement filed in federal court on Tuesday, the Consumer Financial Protection Bureau said PayPal advertised benefits of its PayPal Credit online credit product that it failed to honor, signed up customers for the credit without their permission, and mishandled billing disputes when they arose.

Paypal did over $8 billion in revenues last year, a figure that would make them a Fortune 500 company. And with their revenue growth and sheer customer size (PayPal’s 165 million users, availability in over 200 markets) and now divestment from eBay, they will be very interesting to watch.

Dan Schulman, president of Paypal, believes the difference between online commerce and offline commerce is basically blurring and disappearing and online commerce will be replaced by mobile commerce while online is moving to in-app and in-app is moving to in-store.

All in all, should be interesting times for those of us in trade credit.

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