PayPal’s First Business Credit Card Helps SMBs Earn Cash on B2B Spend

For small businesses — long the bedrock of Main Street — the cash crunch has never been more acute.

No one needs to be reminded that inflation is among the toughest challenges right now, testing how far revenues and cash can be stretched to meet operating expenses. Navigating supply chains and getting vendors paid quickly can mean the difference between having inventory on hand, or being stocked out.

Bernardo Martinez, vice president of global merchant lending at PayPal, told PYMNTS’ Karen Webster the traditional conduits to capital are drying up. The Federal Reserve, of course, is tightening monetary policy, which in turn means that banks are becoming more hesitant to lend.

Historically, financial institutions (FIs) have not been all that easy an avenue for small- to medium-sized businesses (SMBs) to tap for capital, especially not when the macro environment proves tough sledding.

There’s an enormous amount of inefficiency in the system. Martinez said that roughly $3 trillion in capital needs on the part of SMBs is not being met, or financed, by the banks.

In essence, the banks are where these SMBs keep their primary checking accounts, acting as proverbial vaults where enterprises keep their money until that money is needed. In fact, PYMNTS’ own data show that business owners want cards from their banks, but don’t often get them from their FIs. Instead, many business owners wind up paying daily operating expenses from their own accounts or personal credit cards.

One way for SMBs to become a bit more adroit in their cash management is to have easier access to credit and get rewarded for everyday spend — through a virtual card that helps SMBs meet their daily financing requirements.

To that end, announced Tuesday (June 28), PayPal has debuted its PayPal Business Cashback Mastercard, its first business credit card. The card has no annual fee and offers 2% cash back on all purchases with no limit to the cash back that can be earned. The card is issued by WebBank and available to all of PayPal’s 20 million PayPal Business account holders.

“The consumer was the early adopter of making everything digital — of buying online and receiving online,” said Martinez. “And now we’re seeing an acceleration of the B2B transactions moving online as well.”

The Mechanics of It All

In terms of mechanics, approved SMBs are provided immediate access to their assigned credit limit through a virtual card that is automatically integrated into the business’s PayPal account (spending must be focused on business activities). Martinez noted to Webster that the card is immediately available as a payment method when merchants check out with PayPal.

“They don’t have to wait five days [upon being issued a plastic card] to get going and get spending,” he said of the initial virtual availability that can be supplemented by a physical card. “They can go ahead and spend wherever PayPal is accepted in the online space.”

See also: PayPal Upgrading B2B Payments Tech for Business Accounts

Account and spending details for all cardholders are easily accessed through a PayPal Business account. There’s also the ability to issue free employee cards with separate account numbers and the ability to assign individual monthly spending limits.

Small business owners are demanding additional value from the online tools they use each and every day, he said, and the banks are somewhat slow to meet that demand. That offers up a wealth of opportunity for tech-enabled upstarts including PayPal.

The Data Component

The cash back card builds on top of programs already in existence, such as PayPal’s Working Capital loans, which have served more than a million customers, with more than $20 billion in lending through the years.

In issuing the cards, Martinez said that PayPal is able to leverage the wealth of data that has been collected on its merchant community through the years, with deep insight into cash flow and other metrics, which in turn aids underwriting.

PayPal has a deep understanding of the business behaviors that help facilitate the targeting of the right audience for the product and who has the likelihood of being accepted, he told Webster.

Looking ahead, in building out that SMB banking platform, Martinez noted that it’s a logical progression to move from lending to cash flow management.

Related: Unlocking Small Business Data Drives Big Returns in Working Capital

PayPal’s business account acts as the hub for that build-out of the SMB ecosystem, where the enterprise’s fund flows are visible — and where that visibility helps open up access to capital.

“We’re not only doing the credit piece of it,” he acknowledged, “but we are also managing the money and the payment side of the ‘house’ for these SMBs.”

The critical mass is gathering rapidly, as there are 20 million businesses that have businesses accounts with PayPal (and there are only about 33 million SMBs in the U.S., he said). A virtuous cycle takes shape, as the cash back card will gain more adherents up and down supply chains, boosting PayPal’s own points of acceptance.

Looking ahead, Martinez said the firms that have managed through the pandemic are the ones that have been nimble and have repositioned their business models. Better access to credit will help them navigate the transformations that lie over the horizon, he said, as the pandemic fades eventually.

The readiness is there for instant card issuance, for a transformation of B2B spend to find firmer footing in the digital age, Martinez noted — and for PayPal to build out a banking ecosystem for smaller firms that helps them address their funding gaps.

“Everyone is trying to adapt to this new world, rethinking how they supply other firms and manufacture things and how they operate,” he told Webster. “We’re trying to help with the right tools, and digitization will be a critical component of success.”