PayPal sells its consumer credit portfolio to Synchrony for $7 billion

In November 2017, PayPal announced it had agreed to sell $5.8 billion in consumer credit receivables to Synchrony Financial, as a part of an expanded relationship between the two companies. That deal has now closed, with Synchrony actually acquiring $7.6 billion in receivables, including PayPal’s U.S. consumer credit portfolio, totaling $6.8 billion at the close, as well as around $0.8 billion in participation interests held by unaffiliated third parties.

PayPal received approximately $6.9 billion in total consideration at the time of closing.

Both companies’ stocks were up this morning in pre-market trading as a result of the news, with PayPal up 0.7% and Synchrony up .06%.

The two companies have been partners since 2004 to offer PayPal-branded credit cards that allow PayPal users to shop online and in stores. As part of the deal to sell the consumer credit receivables business, the companies have extended their credit card program agreement involving the PayPal Extras Mastercard and the PayPal Cashback Mastercard through 2028.

In addition, Synchrony will now be the exclusive issuer of the PayPal Credit online consumer financing program in the U.S, also through 2028.

While the sale means PayPal loses the interest the loans could generate, it was part of the company’s strategy to free up billions in cash it could use in other ways to grow the business, including in ways that could produce higher returns.

It could use the cash to make acquisitions, for example – something it’s already done, in fact, with the $2.2 billion all-cash acquisition of iZettle in May, and the $400 million in cash acquisition of Hyperwallet in June.

“We’re pleased that we’ve completed the sale of our U.S. consumer credit receivables portfolio,” said Dan Schulman, President and CEO of PayPal, in a statement. “Our agreement with Synchrony accomplishes every goal we set out for our asset light strategy. We look forward to working with Synchrony to double down on our innovative consumer credit experiences for our customers and profitably grow the portfolio over time.”

Synchrony will update the financial impact of the transaction in its second quarter 2018 earnings call.

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