PayPal sells consumer loan portfolio to Synchrony Financial
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PayPal sells consumer loan portfolio to Synchrony Financial

PayPal has fast become one of the most ubiquitous digital payment solutions on the internet, and since its days as a division of eBay, it has transformed into a far more rounded Ecommerce company, which interacts with physical payment solutions and offers credit. Or did offer credit – a recent announcement from the company explained that PayPal is selling its entire consumer loan portfolio to Synchrony Financial, the lending unit that was spun out of GE Capital in 2014. However, that doesn’t mean PayPal is going to stop offering loans.

PayPal’s share price has risen by 94% so far this year

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SOURCE: Yahoo Finance

The decision to sell to Synchrony won’t affect the company’s offer of payment in installments – it just changes where the money is coming from, and who gets the interest. From now, Synchrony will provide that service on PayPal’s platform. The reason PayPal wanted to get out of loans is that it feels it could use its capital more productively elsewhere. The company’s chief financial officer, John Rainey, told the Wall Street Journal: “we want to invest in growth. That $6 billion can be reinvested in higher-returning alternatives.”

Wall Street has long harboured concerns over what might happen if PayPal’s borrowers started defaulting on repayments – and investors largely agree with them. Hence, it is little surprise that the company’s share price is trading up on the news.

Disclosure

Dominion holds PayPal in its Global Trends Managed Fund.


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