PayPal Offers Preapproved Credit Line to Members (NetBanker)

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