PayPal launched into the credit battle in France

loan Made in PayPal arrives in France. Not just any credit, but a professional credit intended for VSE facilities / SMEs, users of the online payment service PayPal, and above all, granted according to the future income earned by online borrowers. “Our goal is to help SMEs and SMEs finance their growth, anywhere in the region, including in ‘banking deserts’ where access to the traditional credit supply has become more difficult,” Summarizes Francis Barrell, Director of PayPal France.

The amount of funding can be up to 160 thousand euros, with the promise of a response in almost real time and the release of funds in a few minutes. Being already a Paypal customer, the borrower benefits from a very simplified signup process, without additional documentation.

This PayPal option is not new. It has been in the US since 2013, a service that has gradually expanded to the UK (2015), Germany and Australia (2018). Thus France is the fifth country launched, tied with the Netherlands. Since 2013, PayPal has already granted more than 1.1 million credits worth $22 billion.

The natural extension of the model

The credit isn’t surprising either: it presents itself as a natural extension of the PayPal model that makes use of the mass of data it owns and knows, like any good financial technology (Paypal is often presented as “Financial Tech #1”), making it more of their technology. In this spirit, on top of that, PayPal also offers split payment solutions, with a commercial offering that its competitors consider aggressive.

So credit is seen primarily as a service to its e-commerce customers, even if the margins on credit are much higher than those obtained at checkout. “Our primary business is payment and will remain so. It is our DNA. SME credit, such as split payment or even savings offerings, are additional services aimed at facilitating financial inclusion for our users, whether they are individuals or professionals. ‘, explains Frances Burrell. In 2021, split payment represents less than 1% of the volume of transactions processed by PayPal.

However, PayPal has always been venturing a bit more into the historical territory of banks – credit – based on its ability to analyze customer data and also on its reputation with online merchants and consumers. PayPal is a strong brand that inspires trust. Other payment giants, such as Sweden’s Adyen, offer credit solutions to e-merchants using a similar approach.

A new generation of credit

The principle developed by PayPal, under the term ” manpower “, In fact, it embraces the idea that fintech company Kabbage started in 2010 by offering online merchants cash advance according to a score based on sales history and all information available on the platform and web, including customer reviews on social media. The algorithms did the rest.

Since then, this approach has been adopted and refined by payment operators but also for a new generation of fintech companies offering funding to online startups based on an “update” of their data. This technology is being developed in the United States, but also in France, under the general term for Revenue based financing (RBF).

“What makes the big difference compared to a traditional loan is the possibility to offer a customized solution according to the needs of the company, at a fixed cost that is known in advance, without hidden costs. Thus, it is the company that will set its own repayment rate, in particular, between 10% and 30% of the the size of their business. In other words, companies reimburse costs when they pay”Francis Barrell explains.

“We are at the dawn of a third generation in business finance, after traditional bank lending and, since the 1980s, asset-based finance, such as leasing or factoring. Today, data-driven finance is emerging, which is more representative of the company’s performance. We no longer look at the company’s past but rather We look to her future.”For his part, Nima Karimi, co-founder of the French startup Silvr, leads.

Beautiful flower from fintech

The latter raised a funding round of 130 million euros (including 112 million in debt) last February, and is one of the largest in Europe, acquiring the French fintech flower (the founders of Qonto, Alma, Libeo or Luko…). Even Bpifrance is an investor, and it’s a sign of the traditional sector’s interest in RBF. Moreover, Societe Generale is testing a similar financing solution for mobile applications.

Silvr aims at all digital business models (e-commerce, SaaS software, subscription models…), in short, at all activities that generate a lot of data, via their platforms or all the analysis tools provided by web operators (Google Analytics, etc.).

“A company that conducts customer acquisition online naturally produces a lot of data, across a lot of software. This data, cross-checked with that of open banking, allows us to build a complete history and project for future growth,” Summarizes Naama Karimi. So it all depends on the efficiency of the algorithm that will process this data.

Today, a whole new wave of funding platforms is being launched in the RBF niche. Thus, they finance acquisitions and marketing campaigns, shares, salesmen’s commissions, all these expenses promising future receipts, but no cash in the near future to reassure their bankers.

A wave of enthusiasm for RBF

In fact, there is a real enthusiasm for the kind of financing that we’re seeing. Last month, in Germany, a similar fintech firm, Mubadala Capital, raised 115 million euros, and Spain’s Ritmo raised nearly $200 million (mostly debt). According to data from Dealroom, approximately $2 billion was raised in 2021 by about thirty RBF startups around the world. And some began to make a name for themselves, such as Silvr and Karmen in France, Ritmo in Spain or Vitt in the UK, to speak only of Europe.

The principle of reward is always the same: repayment on the basis of a turnover ratio, a fixed commission or a variable interest depending on the income (higher when the volume of business increases …). A system that can therefore raise the rate to high levels … up to 20%!

But it is the nature of credit, adapting to the needs of digital companies, and quick response with a smooth ride that wins people over. This alternative financing method could benefit from higher interest rates and a tightening of the current context, with tighter credit terms and less generous financing mobilization.