Banks shrinking, online banker bots increasing

Business Insider: Since the 2008 financial crisis, a lot of regional community banks have shut down.

That's become a major problem for small business owners, who traditionally had difficulty borrowing from big mainstream banks and instead had to rely on community banks for financing options.

But the rise of tech companies with more cost-efficient lending services has made it possible for some small business owners to borrow money with much more ease, bypassing regular banks altogether.

PayPal is one of the tech companies engaged in the small business lending space. PayPal Working Capital, launched in September 2013, extends loans to merchants who use PayPal to accept payments. It creates loans based on metrics like sales data, and not the traditional credit score, while processing it much faster than most other bank loans.

And according to PayPal CEO Dan Schulman, PayPal Working Capital is already making an impact on small business owners. Schulman says about 3% of all the counties in the US have had 10 or more banks close branches in them, yet 25% of the PayPal Working Capital loans were extended to merchants from those counties.

“We’re actually replacing what used to be done by mainstream banking,” Schulman said at Business Insider’s Ignition conference. “We’ve made a difference to merchants for sure.”

PayPal’s loan service, although only a small part of the company's overall business, may have much more upside in the coming years once more small business owners learn about it.

According to BI Intelligence, more than half of the businesses generating less than $1 million in sales were not able to receive any financing, while a recent report by the US Small Business Administration said the number of community banks have cut in half over the last two decades.

What is Pay Pal doing?

They have replaced the bank clearing house with a bot.  When their merchants use PayPal, the merchants also use lending facilities to match.  Thus, in a brilliant stroke, PayPal has automatically reduced inventory flow volatility.  The application is better called the virtual yield curve, lending and savings  monetize merchants unable to get access to credit.  PayPal  introduced a virtual coin which captures and eliminate redundant money flows.