PayPal, the online-payments giant, has agreed to buy Swift Financial, the fast-growing, small-business lender based in Wilmington and Conshohocken.
The price wasn’t disclosed but people close to the deal said it was profitable for investors, led by Sutter Hill Ventures of Silicon Valley and including Philadelphia-based First Round Capital and others who pumped a total of at least $56 million into the company, starting in 2007.
Founder Ed Harycki said he and his board of investors chose the PayPal deal over a rival venture capital financing package that would have kept the firm independent longer. “This is great for our people” to be part of “PayPal, which is the fin tech company,” at a time when financial technology is a fast-developing industry.
Harycki said he and other bosses plan to stay with PayPal, which had $10.8 billion in sales in 2016. Swift employs about 125 at its Silverside Road headquarters and operations center north of Wilmington, and about 135 at its sales, tech and marketing, office in Conshohocken.
Swift staff will join PayPal’s Business Financing Solutions team, reporting to Global Credit’s commercial officer, Darrell Esch, says Paypal spokesman Josh Criscoe. “We expect the majority of Swift’s leadership will join PayPal,” and both area offices will remain in operation.
Esch said in this statement that his company launched its own small-business lending group, PayPal Working Capital, in 2013 to offer firms “the capital they need, when they need it, based on the strength of their business,” adding that group has lent more than $3 billion to more than 100,000 small businesses.
Harycki said Swift has lent more than $1.5 billion to 20,000 borrowers. PayPal has typically made loans of up to $100,000 while Swift lends up to $500,000.
Swift makes “cash advance” loans and arranges their repayment from borrowers’ revenues, at rates similar to credit card rates, which are higher than typical bank business loans. For larger loans, it offers “same-day answer” and next-day cash through bank loans arranged via Celtic Bank of Utah. Compared to bank loans, “it’s like Fed Ex vs. the post office” — you may pay more for quicker service, Harycki said.
In a memo to PayPal staff, Esch said his company last winter had worked with Swift Financial to build and test a new service, PayPal Business Loan, and was “impressed with their ability to deliver on an unmet need” for mid-market-sized customers larger than current PayPal borrowers. “It quickly became clear that combining our complementary capabilities and people will allow us to accelerate” and fill what he calls a “funding gap” for business cash.
Swift has an A+ customer rating from the Better Business Bureau based on 50 customer reviews and 29 complaints. Its borrower contact centers were cited for “customer satisfaction excellence” by J.D. Power and Associates last winter.
“We know and value Swift’s technology platform and people, and we believe their talent and capabilities will further strengthen our overall merchant value proposition,” PayPal’s Esch said. While PayPal Working Capital has been using customer PayPal payment data in determining loan approvals and terms, Swift’s experience tracking borrowers’ receivables and using them to underwrite loans “will allow us to assess supplemental information to more fully understand the strength of a business and provide access to complementary financing products,” Esch concluded.
Swift was formed by Harycki, a veteran of MBNA Corp., formerly the nation’s largest credit card company (now part of Bank of America). The company has recruited executives from Amazon and other big tech companies as well as credit card industry veterans. Its directors include Richard Vague, Philadelphia-based former head of credit cards for JPMorgan, Chase & Co. and other big banks.
As I noted in this 2008 story, Swift raised $20 million in 2008 from Sutter Hill Ventures; Village Ventures of Williamstown, Mass.; and former Morgan Stanley Alternative Investment Partners executive Fabio Terlevich’s Permit Capital L.L.C., of West Conshohocken. Sutter and Village invested an initial $6.5 million in 2007. The firm employed 60 by 2008, but cut back to just 20 in the recession before reorganizing around cash advance loans
Last year, Swift announced it had raised an additional $30 million, led by Third Point Ventures of Silicon Valley, with support from Sutter Hill, Khosla Ventures, and First Round Capital.
Sutter was convinced to back Swift by Harycki’s forceful case that “small business is not well-served by the consolidation of the big banks,” Sutter managing director Tench Coxe told me back in 2008. “We were thinking about how you can take the fees out of banking and make the value proposition really simple for small business, now that you can use scanners to deposit checks. So that there’s even less of a need than before for small businesses to go to the bank all the time.”
He added, “A start-up led by pros like Ed can grow this thing organically for 10 years, with good results.”