So this is happening now--- PayPal has financed eBay shoppers before, but now they're moving into the lending business for ...small businesses. (I'm not that eloquent after long Friday nights, okay?).
This is interesting because, shortly after I started at Booth, I started taking copious amounts of econ and finance classes, and I surprisingly learned a lot. (Note that I didn't say that I learned enough by Booth standards, because, let's be real-- no one has ever learned "enough" by Booth standards, which is why we kill ourselves trying to take continuously more classes, do more school stuff and then feel overwhelmed by our overcommitment and feel forced to drink our feelings away.) One of the things that I learned is that in the past financial crisis, it logically followed that a lot of the nation's lending institutions stopped lending as much money as often because of all the newly introduced and very concerning risk that was introduced into the system. Although this sounds like a good thing ("Well if the economy isn't doing well then we should stop giving people money willy nilly because obviously that didn't work out too well for us.") it isn't as simple as that-- not only because the cause of the financial crisis has other roots, but because the potential solution out of this financial mess might be the exact opposite response.
When the economy goes south, it's natural that lending institutions would be less willing to lend because they're trying to keep more reserves in the bank for their safety (hedging against the possibility of a bank run or something like that) or because the government tells them to (which they did). However, even beyond what they're required, banks get nervous about lending money and when lending dries up, then a lot of the consumer spending that drives our economy (~70% of GDP) and infrastructure spending from private business/corporations (~10% of GDP) also stops. When that declines, our GDP declines, morale worsens, and then we potentially push ourselves into a tail spin.
So what does this have anything to do with PayPal? Well, it seems like PayPal saw the opportunity where it lay. They realized that small business was their life blood (statistically speaking, if they're anything like the previous clients that I've worked for, their small business segment makes up the majority of their revenues) and that they needed to encourage that to grow even if the market environment wouldn't. PayPal has gone through some rough spots recently. I'll be the first person to admit that-- they instituted massive layoffs this year and generally have been out of the limelight (more or less) because of their outspoken opinion on the way that mobile payments will go (not NFC), and that's what everyone wants to talk about. They had a couple of exciting partnerships with companies like the Home Depot, but I was left wondering-- has PayPal taken a wrong turn? Their strategies and recent roll-outs seem disparate with what their core business is! But now I realize that they're just in the stage of trying to figure out what their NEW core business can be. I think they've realized that alternative payments is not going to be enough, so they're testing different things (of which mobile payments is just one very small functionality that they rolled out to test out the waters of this type of technology) to see where their next big idea can come from.
Some may argue this sounds the death echo for PayPal as a more negative person would argue that they're just grasping at straws. I'm still optimistic. They're trying things out for now, but I think they'll find their way.
