PayPal now marketing Buyer Credit directly to buyers

 

Ebay’s PayPal unit already offers transaction accounts, interest
and non-interest bearing, debit cards, credit cards (through First USA),
online bill payment, person-to-person payments, interbank transfers,
merchant transaction processing, investment accounts, insurance, and
indirect lending. About the only thing missing from their line-up, revolving
credit and mortgage lending (see Timeline, Table 4, opposite).
Correction, make that just mortgage lending.  This summer the auction
payments giant added a revolving credit option called PayPal Buyer Credit
(see screenshot below). Until recently, it’s been mostly targeted to
sellers who are encouraged to offer it as a financing alternative on their
auction listings. Depending on the program sellers pay 0.50% to 3.75% of the
selling price to fund the financing. The most common offer on eBay during
the pre-holiday rush is no payments/no interest until April 2005 (see
screenshot opposite). If the buyer takes advantage of the offer, it will
cost the seller 0.50% of the purchase price, and the seller will receive the
entire purchase price, less PayPal fees, immediately (see Table 5, for
more seller costs).

Users are encouraged to apply for Buyer Credit in advance.
Assuming they are approved PayPal users can select Buyers Credit as their
funding source when checking out or sending money from PayPal. Buyer Credit
can be used to pay anywhere that accepts PayPal, it could even be used to
send money to an individual, but they must be a Premier or Business member.
Buyer Credit is provided by GE Capital Consumer Card Co. at an annual
percentage rate of 20.8%, which increases to 24.75% if the user becomes
delinquent (late twice during a six-month period). The rate is variable at
prime plus 15.5%, with a 20.8% minimum. Late fees vary from $15 to $35
depending on outstanding balance.

 

Table 4

Product Timeline

PayPal’s moves into banking

 

Table 5

Seller’s Cost to Offer Special Financing

Minimum
Cost*     Purchase              Offer

0.50%      $199                     No payments for 3 months and no
interest if paid in 3 months

1.75%      $199                     No interest if paid in 6 months

3.75%      $199                     No interest if paid in 12 months

0.60%      $999                     12 fixed monthly payments at 12.9%
APR

1.50%      $1999                  24 fixed monthly payments at 12.9% APR

Source: PayPal, 12/13/04             *Percent of purchase price

 

 

 

For more information

• Beware the Doves? Reflections on the PayPal/GE Consumer Finance
  Alliance, by Scott Loftesness, Glenbrook Partners, June 2004,  http://www.glenbrook.com/opinions/beware-the-doves.html
   
• PayPal Buyer Credit info for buyers,  www.pages.ebay.com/paypal/buyercredit/buyer
  
• PayPal Buyer Credit info for sellers  www.pages.ebay.com/paypal/buyercredit/seller
   
• PayPal/Providian Visa card  https://www.paypalcreditcard.com/
     

 

Table 6

Recent PayPal Stats

million unless otherwise stated

Source: Ebay financial statements, Online Banking Report, 11/04