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PayPal gets serious about credit business

Signage for Ebay Inc.'s PayPal unit is seen outside the company's offices in Dubin, Ireland.
Aidan Crawley | Bloomberg | Getty Images
Signage for Ebay Inc.'s PayPal unit is seen outside the company's offices in Dubin, Ireland.

PayPal is looking a lot different these days.

The eBay-owned payments company is ramping up its credit business, challenging traditional lenders, such as banks, in the process.

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The San Jose-based company said Wednesday that it's expanding its small-business and consumer lending programs outside the U.S. It's also rebranding Bill Me Later, its consumer credit program, to PayPal Credit.

"This is the latest chapter in bringing credit more into the center of PayPal," said Steve Allocca, vice president of credit at PayPal.

PayPal Credit will soon be available in the U.K. and Germany, while PayPal Working Capital, its small-business credit arm, will expand to the U.K. and Australia.

The company plans to extend its PayPal Working Capital service into at least two more new markets by the end of the year, said Darrell Esch, vice president and general manager of small- business lending at PayPal.

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The PayPal Working Credit product is unique because it doesn't use traditional credit checking methods to approve loans. Instead, one of the key ways it determines how much money it will lend a business is based on how well it knows that customer. In other words, it looks at a business' sales history with eBay and PayPal to make lending decisions. Because it's using its own data, it's able to make decisions about an applicant in minutes.

The company also doesn't charge interest on the loans; instead, it charges a flat upfront fee and deducts a percentage of each sale to repay the loan. The business determines how much of each sale will be returned to PayPal.

The maximum loan for small businesses via the PayPal Working Credit Program is $60,000.

Since PayPal launched the pilot program for PayPal Working Capital in September, the company and its lending partner, WebBank, have lent more than 20,000 businesses loans that total more than $150 million, Allocca said. About 60 percent of businesses using its lending program are companies that operate on eBay, Esch said.

PayPal's push to bring more credit products to market is about driving engagement and usage of the entire payment network, Esch said. Basically, when there is more access to capital, more people are buying and selling. Spend increases about 30 percent after a customer starts using a PayPal Credit product, he said.

By CNBC's Cadie Thompson

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