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PayPal launches into the credit battle in France

Credit made in PayPal arrives in France. Not just any credit, but a professional credit, intended for VSEs/SMEs, users of the PayPal online payment service, and above all, granted according to the future income made online by the borrowers. “Our objective is to help VSEs and SMEs to finance their growth, anywhere in the territory, including in the “banking deserts” where the traditional credit offer is becoming more and more difficult to access”, summarizes Francis Barel, director of PayPal France.

The amount of financing can reach 160,000 euros, with the promise of a response in near real time and the release of funds in a few minutes. Being already a Paypal customer, the borrower benefits from an ultra-simplified subscription process, without additional documentation.

This PayPal option is not new. It exists in the United States since 2013, a service gradually extended to the United Kingdom (2015), Germany and Australia (2018). France is therefore the fifth launch country, tied with the Netherlands. Since 2013, PayPal has already granted more than 1.1 million credits for an amount of 22 billion dollars.

Natural extension of the model

Credit is not a surprise either: it presents itself as a natural extension of the PayPal model which capitalizes on the mass of data it has and knows, like any good fintech (PayPal is often presented as “the” first fintech), making the most of their technology. It is in this spirit, moreover, that PayPal also offers split payment solutions, with a commercial offer deemed aggressive by its competitors.

Credit is therefore perceived above all as a service for its e-commerce customers, even if the margins on credit are much higher than those obtained on payment. “Our core business is and will remain payment. It’s our DNA. SME credit, such as split payment, or even savings offers, are additional services aimed at facilitating the financial inclusion of our users, whether individuals or professionals. », explains Francis Barel. In 2021, split payment thus represents less than 1% of the volume of transactions processed by PayPal.

Still, PayPal is always venturing a little 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, also offer credit solutions for e-merchants using a similar approach.

A new generation of credit

The principle developed by PayPal, under the term ” working capital “, in fact takes up the idea initiated, in 2010, by the fintech Kabbage by offering a cash advance for online merchants according to a score based on sales history and all the information available on the platform and the web, including customer reviews on social media. The algorithms did the rest.

This approach has since been taken up and honed by payment players but also for a new generation of fintechs that offer online startups financing based on an “update” of their data. This technique is developing in the United States, but also in France, under the generic term of “revenue-based financing (RBF).

“What makes the big difference compared to a traditional loan is the possibility of offering a tailor-made solution according to the needs of the company, and this, for a fixed cost known in advance, without hidden costs. . It is therefore the company that will set its reimbursement rate, in particular, between 10% and 30% of its turnover. In other words, companies reimburse when they are paid”explains Francis Barel.

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

Fine flower of fintech

The latter brought together a funding round of 130 million euros (including 112 million in debt) last February, one of the largest operations in Europe, taking on board the fine flower of French fintech (the founders of Qonto, Alma, Libeo or Luko…). Even Bpifrance is one of the investors, a sign of the interest that the traditional sector has in RBF. Moreover, Societe Generale is testing a similar financing solution for mobile applications.

Silvr is aimed 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 analysis tools made available by web players (Google Analytics, etc.).

“A company that conducts its customer acquisition online naturally produces a lot of data, via a lot of software. This data, cross-referenced with that of open banking, allows us to build a complete history and project future growth,” summarizes Nima Karimi. Everything therefore depends on the efficiency of the algorithm that will process this data.

Today, a whole new wave of financing platforms is launching into the RBF niche. They thus finance the acquisition and marketing campaigns, the stocks, the commissions of the salesmen, all these expenses which promise future receipts, but no cash in the immediate future to reassure its banker.

A wave of enthusiasm for the RBF

It is even a real enthusiasm for this type of financing that we are witnessing. Last month, in Germany, a comparable fintech, Mubadala Capital, raised 115 million euros, and the Spanish Ritmo nearly 200 million dollars (mostly in debt). According to data from Dealroom, nearly $2 billion was raised in 2021 by around thirty RBF startups around the world. And some are starting to make a name for themselves, like Silvr and Karmen in France, Ritmo in Spain or Vitt in the United Kingdom, to speak only of Europe.

The principle of remuneration is always the same: a reimbursement based on a percentage of turnover, a fixed commission or variable interest depending on income (higher when turnover increases…). A system that can thus bring the rate to high levels… up to 20%!

But it is the nature of the credit, adapted to the needs of digital companies, and the rapid response with a fluid journey that wins people over. And this alternative method of financing could well benefit from the rise in interest rates and the tightening of the current context, with stricter credit conditions and less generous fundraising.