eBay Puts Faith in Bill Me Later Purchase

Bill Me Later allows customers to make deferred payments for their purchases online and also offers a promotional financing service.

Jeffrey Lindsay, an analyst with Sanford Bernstein, notes that Bill Me Later could be risky for eBay in the short term in the event that customers default on their payments. But the risk is limited, because unlike credit card companies that extend customers a certain line of credit, Bill Me Later only extends credit to cover the price of a purchase. That means if a customer defaults on a payment for that particular purchase, Bill Me Later can prevent him or her from making future purchases.

In the long term, Lindsay says eBay made a good strategic move by acquiring Bill Me Later.

"It gives [eBay] a bigger slice of online transaction," he says, noting that right now PayPal collects about 3.9% in payments from transactions made online using the service while Bill Me Later collects about 12.7%.

eBay points out that Bill Me Later's credit-risk model and analysis "have consistently performed better than the consumer credit industry average. Combined with eBay's and PayPal's best-in-class transactional date monitoring, this expertise will bolster the company's ability to drive down risk in the payment system and provide customers with even safer, faster ways to pay online."

Imran Khan, an analyst for J.P. Morgan, described the Bill Me Later acquisition as "strategically positive."

"The business will present a cross-selling opportunity for PayPal, and could help PayPal gain additional momentum going forward," he wrote in his latest research. "The Buy Me Later business has significant reach among higher-volume merchants, whereas PayPal's penetration is stronger with smaller sellers."