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PayPal expands its lending business, looks more like a bank

PayPal‘s small business lending arm, Working Capital, is growing fast, doling out $1 billion in loans in just the last eight months, bringing its total amount loaned to $2 billion. The news comes just after American Express revealed its interest in building a quick-assessing loan platform aimed at small businesses. 

Small business loans platforms are hot, because traditionally such loans have been difficult to get approved. Big data and good user experience design have ushered in new technology that makes getting small business loans a lot faster and easier. But much of the innovation isn’t coming from the big banks. That might be because the underwriting process is still largely manual, says Darrell Esch, head of small business lending at PayPal.  “They can do that profitably with a two or three hundred-thousand dollar loan,” he said. But with smaller loans it’s not practical. 

“Micro business lending is still untapped,” said Esch. “It’s the tech companies that can innovate around and find a way to do it affordably.” Companies like PayPal, Square, and Kabbage are pushing this movement. And as they grow,  they’re going to look a lot more like banks and thus represent more of a threat to the traditional players. RR