EcommerceBytes-NewsFlash, Number 1890 - October 07, 2008     1 of 3

eBay Acquisition of Bill Me Later Steals the Headlines

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Analysts on eBay's conference call Monday morning were focused on the company's pending acquisition of Bill Me Later (BML), rather than on eBay's layoffs affecting 10 percent of its workforce. eBay CEO John Donahoe, PayPal President Scott Thompson (who will oversee both PayPal and Bill Me Later), Bill Me Later CEO Gary Marino, and eBay CFO Bob Swann were on the call and took about a dozen questions from analysts after a presentation. They revealed the two companies had been in talks for some time. (eBay's code name for BML was "bean.")

BML's model is interesting - it offers transaction-based credit to online shoppers at the time of checkout. Consumers provide BML with their date of birth and last four digits of their social security number. BML's engine decides whether to approve and extend credit for the transaction - the average authorization time is less than 3 seconds. (The PayPal blog has a link to a demonstration of how the service works.) The value proposition for merchants is a supposed higher average conversion rate and order size.

One analyst on the conference call had asked, "who's on the hook" in a default situation. The answer was, Bill Me Later.

I spoke to Bill Me Later's VP of Corporate Development Mark Lavelle after the conference call, who said CIT Bank issues the loan to the shopper, then BML buys that loan from CIT Bank. CIT Bank is an industrial loan company based in Salt Lake City, Utah (see recent news about the company).

Lavelle said they target a default rate of around 1.5 - 2 percent of total loans. "So for every $100, we'll lose $1.50 to $2 on average, but it varies based on the type of customer it is, and the type of vertical it is. So we optimize that loss rate in order to approve as many customers as we can meet our return hurdles. It's a science, and it works quite well."

I asked Lavelle if BML change the levers as the credit environment changes. "All the time. It's a living, breathing thing. We've got 6 years of learning."

eBay said during the conference call that BML slowed its growth last year, but eBay spun that as a positive. eBay CEO John Donahoe said BML's Marino saw today's credit crisis coming, and that BML was a seasoned and proven model and team.

I asked Lavelle if that slowing was all based on predictions, or if credit conditions had already started to slow last year. "It was a combination of slowing growth, it was also... Gary Marino runs the business, and Tom Keithley is Chief Credit Officer, and they've been through these cycles before. The economy, credit has always run through cycles. It's a credit manager's ability to have a long memory and understand how to read the signs, and understand how to build the tools in order to get ahead of these down cycles. It makes really, the difference."

Lavelle referred to a chart in eBay's presentation (Slide 10) that showed the credit loss rate for Bill Me Later compared to the credit card industry. The base for the trend lines is June 2007.

The words "complementary" and "synergy" were used to describe BML and PayPal being under the same corporate umbrella, and it was evident in the slide presentation. Slide #18, for example, stated, "PayPal's data and fraud engine will lower BML's loss rates."

And of course, eBay represents dollars for BML. Lavelle said when BML becomes part of eBay, "we'll have corporate resources that allows us to buy the loans from CIT. We buy the loans from CIT on a regular basis within 2 days of them being originated from the customer. We've done that with the revenue from our business as well as the venture capital, and lines of credit with CitiBank and at various times with other banks. eBay represents a large balance sheet with a tremendous amount of liquidity in cash that will enable us to grow well into the future."

A side bar is's investment in Bill Me Later. eBay is acquiring 100 percent of BML, so will get money for its stock and won't have an equity stake once the acquisition goes through. But it means there is a risk that will choose not to continue offering BML on its site. Lavelle could not answer for Amazon, but said, "We expect to have a long relationship with Amazon." Amazon did not respond to our inquiry of whether eBay's acquisition of Bill Me Later would affect its use of the BML service on its marketplace.

As for Bill Me Later on eBay, Donahoe said he was excited about the opportunity, saying eBay buyers are natural consumers and customers for BML's product and that it would help eBay sellers because more buyers would come, and buyers would be more inclined to buy. eBay is currently working on the technology roadmaps, and he envisioned BML being available both on eBay and on PayPal's Merchant Services platform at some point next year. He had not gotten around to quantifying what the impact would be, but thought it was significant.

Bill Me Later is set to reach $1 billion in Total Payment Volume (TPV) and said it is growing at 36 percent. Its take rate is approximately 12.5% of TPV, with revenue broken down as follows (as a percentage of TPV): Merchant fees - 2.4%; Customer interest income - 6.5%; Customer fees - 3.6%.

eBay is paying $945 million to acquire receivables of about $550 million, and expects it to earn $150 million in revenue in 2009.

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About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to

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