PayPal Inc. is taking a bigger step into the credit world with a new agreement with GE Consumer Finance that allows the eBay Inc. subsidiary to offer the equivalent of an in-house credit account for purchases made with the person-to-person payment service.
PayPal already offers consumer credit cards through the issuers MBNA Corp. and Providian Corp., but this deal focuses on extending microcredit loans to eBay's small merchants - in particular, the large population of eBay merchants who make a living selling wares through the auction site.
"Sellers can now compete a little more aggressively with the larger online retailers or offline retailers," said Amanda Pires, a PayPal spokeswoman. "If you're selling jewelry on eBay, you're competing with the mall jewelers that offer promotional financing."
PayPal Buyer Credit is an instant line of credit, with an upper limit of $7,000, that anyone using PayPal can apply for online (not just for eBay auction payments). A credit decision is rendered within 30 seconds by the General Electric Co. subsidiary, which said it makes offers to applicants depending on their credit history. The goal, executives said, is to sign up as many PayPal customers as possible.
For people who want to use PayPal to buy something, the Buyer Credit option will function like a virtual private-label credit card. For the entrepreneurs who use eBay to sell things, the product will amount to a small-business microloan, a type of lending vehicle that experts say is crucial to the prosperity of this growing sector.
PayPal Buyer Credit was officially announced Friday, but the product itself was made available to buyers and sellers on June 7. So far only U.S. PayPal customers can use it.
Margaret Keane, the president and chief executive of GE Consumer Finance, of Stamford, Conn., said this is the second lending product that GE and eBay, of San Jose, Calif., have introduced jointly. The first, which came out May 6 and was not tied to eBay's PayPal product, was aimed at more substantial businesses; it was a working capital line of credit for up to $50,000.
She said the newer product is meant to address the needs of smaller businesses and individuals. "This was our first venture with them on the consumer finance side," Ms. Keane said. Even if a consumer already has a credit card, the PayPal product "allows them to keep a line of credit aside for all their PayPal purchases," she said.
Ms. Keane is open to future ventures with PayPal. "We're looking for new ways to expand our offerings in new channels," she said.
The companies have structured the product so that there are several features - including more attractive interest rates - that can only be obtained by people who use it to buy and sell goods on eBay, making it clear that eBay's intent is to promote its use for the auction site.
For example, eBay sellers who have high approval ratings - the feedback that people who use eBay contribute to the site - can opt to offer interest-free payment periods on purchases that exceed $199, or offer a lower interest rate on purchases that exceed $1,000. The fees to sellers for these features range from 0.5% to 3.75% of the purchase price.
Ms. Pires said PayPal Buyer Credit can also be used to buy items that cost less than $199, but without the more attractive financing terms. All sellers can accept Buyer Credit, but the incentives are only available to those with at least 50 feedback ratings averaging 98% or more.
The promotional financing terms are only available to eBay sellers; non-eBay merchants using the PayPal credit service must offer the account's standard terms, which carry an annual percentage rate of 20.8%.
Gwenn Bezard, a senior analyst with the market research firm Celent Communications LLC in Boston, said that this offer could drive users to spend more through PayPal. Though the company's average transaction today is $50, he said, "The more credit you provide consumers, the more they spend."
Mr. Bezard said PayPal Buyer Credit is similar to Bill Me Later, an instant-credit service offered through CIT Bank and used on several Web sites. Though Bill Me Later is aimed at large merchants, Mr. Bezard said it has increased sales for those companies.
"I don't know why a consumer would want to use another line of credit other than their credit card, but what we see is some consumers want to do that," Mr. Bezard said.
John Gould, a director of the consumer lending and bank cards practice at the TowerGroup Inc. unit of MasterCard International, said PayPal's service "takes a nonbank and it puts them squarely in head-to-head competition with MasterCard and Visa issuers, and quite frankly with MasterCard and Visa themselves."
