eBay Will Become A More Dominant Consumer Lender

| About: eBay Inc. (EBAY)


eBay plans to expand its credit portfolio; Bill Me Later is in its early growth stages.

While Bill Me Later doesn’t contribute significantly to sales, it offers significant synergy.

Since eBay monetizes e-commerce transactions in multiple ways, eBay can leverage its model to offer significantly lower interest rates to competing lenders.

eBay (NASDAQ:EBAY) continues to expand into untested yet strategic areas that offer adequate growth potential. These new areas (Bill Me Later and a consumer loan portfolio) will supplement PayPal's growth going forward.

PayPal's next major category, consumer lending

Currently, one of eBay's faster growing segments is the bill me later category, which is eBay's version of extending credit to consumers so they can buy more products and services. In the most recent earnings conference call, eBay's CFO, Bob Swan, goes into greater detail about its credit business (Bill Me Later), and strategic partnerships, along with ways to extend its reach into the credit business.

According to Bob Swan, CFO of eBay:

Credit is still in its early stage of growth. Bill Me Later TPV growth accelerated 5 points in the quarter driven by increased usage of eBay Inc. data for credit approvals as well as adding Bill Me Later on PayPal's recurring subscription products. BML as a funding source represented a 4.9% share of U.S. addressable GMV and 2.5% share of Merchant Services U.S. TPV.

Using those figures, Bill Me Later has an estimated volume of $514 million, as domestic merchant service volume is $20.589 billion, and of that amount 2.5% share is $514.7 million. The Bill Me Later segment is near non-existent on a financial basis, meaning that it doesn't have a very meaningful impact to earnings or revenue. However, this part of the business will grow at a rapid pace due to BML's integration into eBay's ecosystem, along with rapidly improving consumer awareness.

Also, according to Bob Swan, PayPal is planning to make credit a bigger part of its core strategy going forward:

Additionally, PayPal signed an agreement with GE Capital to extend our relationship, where we offer a dual-branded retail credit card. We also committed to purchase the associated loan portfolio in 2016 for an estimate of $1 billion based on the size of the portfolio at that time. This increases PayPal's flexibility to expand its credit offerings to consumers and merchants, while improving its ability to manage transaction expense and reinvest back into the business to accelerate payment volume.

PayPal plans to integrate more closely into the established payment ecosystem of credit cards by buying the loan portfolio associated with PayPal branded credit cards. This has significant implications as eBay is developing a more vertical ecosystem for commerce. This ecosystem effect may have significant implications for eBay's growth trajectory going forward.

Bottom line

Investors should anticipate the BML segment to become a larger contributor to eBay's consolidated revenue and net income figure. Assuming eBay is able to earn interest on a high-quality portfolio of consumer loans, eBay will be able to monetize its ever expanding installed base of users.

A bill me later transaction on eBay's marketplace platform will be monetized through insertion fees, final value fees, transaction fees (from PayPal) and interest income (from Bill Me Later/Credit portfolio). A unique characteristic of eBay is the ability to extend credit at lower rates, as it can monetize the same transaction in other ways. Assuming eBay offers the lowest interest rates among lending institutions on transactions via its various web properties, eBay can become a dominant lender in the e-commerce space.

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