The share prices of Zip Co Ltd (ASX: Z1P) and Afterpay Ltd (ASX: APT) will be on watch today on news that Paypal Holdings Inc (NASDAQ: PYPL) is coming for them in Australia.
What’s happening?
Around six months ago, PayPal started rolling out its ‘Pay in 4’ offering in the United States. This is where customers can pay for products costing between $30 and $600 in four payments, which are interest-free and fee-free if they pay on time. If they don’t pay on time then a late fee is incurred.
However, the key difference between PayPal and buy now pay later (BNPL) operators is lower fees for the merchant – there are no BNPL merchant fees, it just fits in PayPay’s existing costs – which is around 3%, whereas operators like Zip and Afterpay typically charge at least 1 percentage point more.
PayPal expansion into Australia
According to reporting by the Australian Financial Review, PayPal will enable 9 million Aussie consumers to use its instalment option.
Hundreds of thousands of merchants in Australia that already use PayPal will be able to add a ‘pay in 4’ option next to their existing PayPal choice. PayPal users will also see this instalment option if they choose the PayPal option.
The AFR quoted Andrew Toon, the general manager of payments for PayPal Australia:
“The one reason we are delivering this is feedback and requests from our business customers and broader users. When we announced the launch [of pay in four] in the US and UK, we were inundated with requests from existing business customers who are looking at PayPal as a one-stop-shop for payment requirements.”
This PayPal offering will be available for purchases between $50 to $1,500, with late fees of $10 for each missed payment – up to $30 for transactions above $125, or capped at $10 for transactions under $125. All of PayPal’s existing protections for buyers and sellers will be maintained.
Summary thoughts
Afterpay and Zip will have an interest day today considering there was a huge rally in tech shares overnight in the US. The PayPal share price itself went up around 7% overnight.
The BNPL sector has had a strong rally since the initial COVID-19 crash, but long term competition was always going to be a potential issue. PayPal isn’t just going to let Afterpay, Zip and others take market share without doing anything.
If merchants can earn a materially higher margin going through PayPal, then that could activity away from the local BNPL players if merchants end up only offering the PayPal option.