Credit Losses at Bill Me Later Climb Past 8% But Don’t Faze eBay

Credit losses at Bill Me Later Inc. are manageable despite the economic downdraft of the past year, officials at eBay Inc. told analysts recently. The Timonium, Md.-based provider of so-called transactional credit for online transactions, which eBay bought last year and paired with its PayPal online-payments unit (Digital Transactions News, Oct. 6, 2008), currently manages a total portfolio balance of $570 million, eBay said. Credit losses at Bill Me Later, a popular alternative-payment program, reached 8.75% for the final quarter of 2008, according to statistics eBay released on Wednesday. For most of last year, the losses had ranged between 6% and 8%, shooting above the 8% mark in the fourth quarter as economic conditions rapidly worsened. That performance has given rise to speculation among some observers that eBay may have second thoughts about the acquisition, which cost eBay $820 million in cash. But in last week's conference call with analysts, company officials expressed no concerns about the losses at Bill Me Later. “The Bill Me Later team has been tightening their credit decisioning criteria,” said Bob Swan, chief financial officer at San Jose, Calif.-based eBay. “The increase [in credit losses] is much less than at other credit issuers and in line with our expectations.” Bill Me Later issues credit for each discrete transaction, rather than putting its users on a credit line, as do credit card issuers. For that reason, Swan said the company is able to more readily rein in credit extensions. Indeed, far from showing concerns about the online-payment service, Swan said eBay is exploring ways of expanding its reach. “Bill Me Later is not offered overseas,” he said. “Our ambitions are to take it overseas.” Bill Me Later brings some key advantages to eBay and PayPal, not the least of which is the fact that it is accepted by about 1,000 online merchants, including many major retailers selling high-ticket merchandise. At PayPal, eBay's quarterly release indicated dollar volume processed at off-eBay merchants reached 51.8% of PayPal's nearly $16 billion in fourth-quarter volume. That figure crossed the 50% mark for the first time in the third quarter (Digital Transactions News, Oct. 15, 2008), indicating PayPal is making steady inroads with online merchants and lessening its dependence on eBay auction traffic. PayPal remains a solidly profitable unit for eBay, even with Bill Me Later statistics rolled into the fourth-quarter reporting. Revenue was 3.78% of transaction volume, leaving a margin of 2.29%, or 61% of revenue, after deducting expenses and transaction losses. Active accounts worldwide grew to 70.4 million, up 23% over the same period in 2007. Transaction volume was 252.2 million, up 24%. Both dollar volume and transaction counts include Bill Me Later but exclude PayPal's gateway business.