PayPal has had a small business lending offering since 2013, but its announcement today that it would acquire Swift Financial shows that the online payment business has plans to expand the offering even further.
Swift provides working capital for small businesses and the acquisition is said to be for two reasons – obviously to expand the underwriting capability of PayPal, but also to exploit Swift’s platform to more effectively assess the credit-worthiness of customers. This has been a major barrier for PayPal with regards to expanding its lending products, even though the business has chosen to take a relatively liberal approach to approvals. This will obviously make the process itself far more robust, without going down the dangerous road of forcing potential customers to fill in long and laborious online forms that will inevitably mean they will reach the halfway point and then walk down to the local bank.
Of course to say that PayPal has faced any significant barriers is almost laughable. Swift has existed since 2006 and over that time managed to provide funding to over 20,000 small businesses which is a pretty impressive effort for a growing start-up. PayPal, without putting any real focus into it, has provided funding to over 100,000 small businesses, which equates to more than $3 billion.
The deal will have other working capital and small business finance organisation salivating. PayPal will undoubtedly be acquiring other businesses, and as a result, its competitors will be eagerly looking around at potential acquisitions. Acquisitions teams will be tasked with identifying businesses that are ripe for the picking, and small business chief executives and shareholders will begin preparing due diligence documents to finally cash in on their years of hard work.
How will this impact on small business owners?
There is a likelihood that after an aggressive acquisition cycle competitiveness will increase exponentially. Having splurged on acquisitions, it will be up to chief executives to make a new and less manoeuvrable organisation profitable. The impact of this could well be an increased availability of working capital, and the opportunity for small organisations to become more aggressive with regards to their growth plans. The flipside of course, is the danger that a majority of acquisitions are completed by larger organisations, and the smaller players get swallowed up. This means that lending can be controlled more easily, and the level of competition will be stifled due to the fact that larger organisations have a vested interest in maintaining high interest rates. For example, Large Company 1 isn’t going to undercut Large Company Two if it doesn’t have to. A competitive ceasefire means conservative lending and that wouldn’t bode well for start-ups. However the industry is large enough, and there are enough smaller players present to keep the big boys honest.