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Could the Swift Financial acquisition herald a wave of consolidation in online lending?




By Ryan Weeks on 14th August 2017


Payments giant PayPal to expand lending range with the acquisition of Swift Financial.

 

The online lending sector for small businesses in the US seems poised for a period of consolidation. On Thursday last week it was announced that PayPal would acquire 11 year old online lending platform Swift Financial. The move will allow PayPal Working Capital – PayPal’s lending arm – to lend to larger businesses and to firms that are not yet users of its services. Terms of the deal were not disclosed.

 

PayPal Working Capital has lent more than $3bn to over 115,000 small businesses since launching in 2013. The vast amounts of payments that are processed by the company are used to help inform its lending decisions. PayPal believes that the acquisition of Swift will enhance its underwriting capabilities, through access to supplementary information and technology. Previously, PayPal’s lending was powered “exclusively” by proprietary insights.

 

"With these capabilities, Swift Financial will help accelerate our efforts to democratize financial services by enabling PayPal to further fill the small business funding gap,” said Darrell Esch, commercial officer at PayPal.

 

Swift has provided funding to more than 20,000 small businesses to date. The acquisition is expected to close later this year.

 

It’s possible that the acquisition of Swift will trigger a spending spree within the small business-focused portion of the online lending sector. Multiple reports suggest that Kabbage is currently sizing up an acquisition of rival lender OnDeck. Speculation intensified when Kabbage clinched a $250m equity investment from SoftBank’s Vision Fund earlier this month. Meanwhile, OnDeck, the supposed target, has just announced rosy quarterly earnings numbers and is expanding its “lending-as-a-service” partnership with JPMorgan Chase. Kabbage is a major software-as-a-service provider for major banks, as well a lender in its own right.

 

More generally, competition across the online lending sector is intensifying. Major financial institutions such as Goldman Sachs and American Express have unveiled online lending platforms of their own over the past year, with more likely to follow. An M&A spree may be the natural consequence, as standalone disruptors struggle to keep pace within the market. 

 

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