PayPal Inc. has concluded a deal with Synchrony for consumer credit receivables. In November 2017, PayPal Inc. made a deal with Synchrony to sell them consumer credit receivables for $5.8 billion. Initially, the deal was agreed for $5.8 billion but finally, the deal was closed for $7.6 billion. Synchrony Financial has closed the deal for $7.6 billion with PayPal Inc. In the $7.6 billion, PayPal Inc. will receive $6.8 billion. The remaining $0.8 billion is in the participation interests which are held by third-party companies.
The Deal Between PayPal Inc. And Synchrony
The spoils of this deal have benefited both the companies. As a result of this deal, both the companies saw a rise in their stock prices during the early market trading. Due to the news, PayPal Inc. shares increased by 0.7% and Synchrony saw a rise of 0.06%. The deal also led to the expansion of consumer credit card program. It will fortify the presence of these consumer credit cards in the market. With the Credit Card conquering the market at a faster rate, it is said that they will acquire nearly $4.8 Trillion of the total card payments value by 2022. As a result, PayPal is trying to prepare itself to suit the situation which will arise in the near future. Moreover, with the expansion of their consumer credit card program, the company will be able to deliver better customer experience.
When the deal between the two companies started in 2004, it helped the PayPal increase their customer base and their experience. With the new deal, PayPal was able to offer its customers’ credit card to shop at the stores using them. And with this new deal, the credit card program has been extended to 2028 for the PayPal Mastercard and Cashback Mastercard. Also with the new deal, Synchrony will become the exclusive partner of PayPal for issuing the Online consumer financing program. But, PayPal is a little towards the losing side with this agreement. PayPal Inc. will lose the access to the loans which are generated but they will be able to expand their customer base to reach more people and serve them.
Benefits For PayPal Inc
The deal is a win-win for both the companies. With the deal, PayPal will be able to expand their customer reach with more varieties. Also, they will have huge cash with them which they can use to acquire potential startups. Surprisingly, PayPal has already started the expansion by acquiring HyperWallet in June for $200 million. Earlier, they acquired iZettle for $2.2 billion.
Dan Schulman, CEO of PayPal Inc. was pleased with the deal agreement. He said, “We are happy to achieve our target of consumer credit receivables. We have agreed with Synchrony on the deal agreement which will set our strategy right. We are looking forward to this deal with Synchrony to establish our customer base. With the deal, our customer will experience enhanced innovative consumer credit experiences”.
The benefit for Synchrony with this deal is not known yet. When they were approached for a comment, Synchrony said that it will provide the financial details in the second quarter report of 2018.