Public Policy Team Conducts Research on Impact of PPWC in the UK

| Small Business Lending

PayPal’s Global Public Policy team released a new white paper titled “Helping Underserved UK Small Businesses Grow: How PayPal Working Capital is providing Access to Finance in Pockets of Great Britain that need it most.” The paper examines recently conducted research determining the impact that PayPal Working Capital is having on small businesses in the UK. Access to finance, similarly to the U.S., is a major challenge for UK small businesses. The issue worsened after the 2008 financial crisis as financial institutions became reluctant to provide capital to what they perceived as ‘risky’ businesses, characterized by a lack of information like credit history, etc. In fact, small business financing by large banks declined by 7.5% or £7.64 billion between Q2 2013 and Q3 2016. Moreover, the retail bank branch, the most common source for small business financing, was hit hard by the financial crisis causing many to shut down. There are 23 postcode areas that have lost 50 or more bank branches since 2013. The study conducted by the Public Policy team demonstrates how PayPal Working Capital is providing access to finance in precisely those places where traditional institutions have closed. The onset of online and mobile technology is allowing financial technology companies, like PayPal, to offer innovative solutions to traditional financial services. The research analyzed a dataset of over 20,000 UK small businesses that have used PayPal Working Capital (PPWC). Some of the key findings in the study included the following:

  • PPWC cash advances disproportionately go to places where retail bank branches have closed. Over 30% of PPWC cash advances went to postcode areas that had lost 50 or more bank branches since 2013.
  • The volume of PPWC cash advances is greater in areas with larger declines in small business lending by large banks. On average, across the UK, a 1% decrease in small business lending in a postcode area is associated with 6.5 additional PPWC cash advances in that postcode area.
  • Small businesses in the UK seem to be fairly responsive to the closing retail bank branches by looking to PPWC. Our results from simple linear regression analysis suggests that, on average, across the UK, each additional 2015 bank branch closure in a postcode area is associated with an 8.5% increase in 2016 PPWC cash advances in that postcode area.
  • Lower income regions have experienced disproportionate usage of PPWC cash advances. 64% of PPWC cash advances went to postcode areas that have a household income less than the national average.
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