* Following UK merchant financing program, PayPal plans U.S.
* Kabbage raises $75 mln in debt to fund online merchant
* Amazon launched merchant lending business last year
By Alistair Barr
SAN FRANCISCO, April 3 EBay Inc's
payments business, PayPal, already lends money to online
shoppers, but it is now starting to finance the merchants who
sell on the company's online marketplaces.
PayPal has already tested a financing program for eBay
sellers in the UK and it plans similar tests in the United
States this year, a company spokesman said on Tuesday.
"Marketplaces is a great innovation lab for us to test new
experiences," Gary Marino, senior vice president, global
financial services at PayPal, said at eBay's investor day last
week. "We've done it successfully with credit and we are
experimenting with many new capabilities which will drive share
like small business lending."
The UK program and the up-coming U.S. test focus on
merchants selling on eBay.com, which number in the millions. The
PayPal spokesman said the UK test was only available to a small
number of merchants who were pre-selected.
"The pilot program has now ended," he added. "We are working
on full rollout plans."
Banks and other providers of loans for merchants pulled back
after the 2008 financial crisis, leaving an opening for
alternative sources of financing. Factoring, a common source of
financing in the retail business that is provided by lenders
such as CIT Group and Wells Fargo, can be tough
to tap for smaller merchants.
The combination of fast-growing online shopping and a lack
of credit for smaller businesses has created strong demand for
new types of financing among sellers that ply their trade on
Amazon.com, eBay.com and other marketplaces.
KABBAGE RAISES DEBT
Internet firms have already stepped in to satisfy demand
from these merchants, who need financing to pay upfront for
inventory, buy supplies and even hire extra staff, especially
ahead of the annual holiday shopping rush.
Amazon.com Inc, the world's largest Internet
retailer, launched a merchant financing program before the
holidays last year called Amazon Lending.
On Wednesday, Kabbage Inc, a start-up focused on providing
financing to online merchants, said it closed a $75 million
credit facility, its largest to date, to fund more advances to
merchants selling via online marketplaces including Amazon.com
"There is a clear void in the market as traditional
financing sources remain reluctant to lend," said Tom Affolter,
principal at Victory Park Capital, an alternative
asset-management firm that led the Kabbage debt financing.
Existing equity investor Thomvest Ventures contributed a
significant amount to the $75 million debt financing. Kabbage
declined to say how much. Thomvest Chairman Peter J. Thomson is
a director of Thomson Reuters Corp, which owns the publisher of
Kabbage, which is also backed by BlueRun Ventures, United
Parcel Service Inc and TPG Capital Founder David
Bonderman, made 39,048 advances to merchants last year and
expects to make almost 100,000 in 2013, Co-Founder Marc Gorlin
said. Kabbage has not disclosed the dollar amount of money it
PAYPAL'S UK PROGRAM
PayPal's Marino founded Bill Me Later, an online consumer
credit business that eBay acquired in 2008. This business, which
lends money to shoppers on eBay.com and other websites, is one
of the company's fastest growing operations.
BML, as it is known, has helped boost sales on eBay.com,
while lowering PayPal's funding costs.
Advancing money to online merchants may increase sales on
eBay.com, according to R.J. Hottovy, an equity analyst at
"Allowing merchants to purchase additional inventory, or
increase advertising budgets, should theoretically lead to
additional eBay listings," he added.
In the UK, PayPal teamed with United Kapital, a
financial-service firm that specializes in merchant cash
The UK program offered merchants up to 25,000 pounds from
United Kapital to spend on anything related to their business,
including advertising, buying new products to sell, website
re-design, refurbishing physical stores and hiring staff.
Merchants applied online by entering their PayPal account
details. If approved, the size of the advance they got was based
on their past PayPal sales receipts. Merchants got a decision
within 72 hours of applying, according to PayPal.
The advances were paid into merchants' PayPal accounts. They
were charged a fee based on their credit risk.
In a working example provided by PayPal, a merchant got an
advance of 12,000 pounds. The fee for this was 3,240 pounds, or
27 percent of the amount advanced.
Merchants could then choose to re-pay the money as a
percentage of their daily PayPal sales receipts. In the example
provided, the merchant agreed to a 12 percent rate, meaning 12
percent of their daily sales were used to repay the advance.