- Buy now, pay later is booming as consumers increasingly shop online and seek ways to stretch their dollar.
- PayPal is the latest player to jump into the ring, making interest-free installments available to all US merchants offering PayPal as a form of payment.
- With a checkout button in over 80% of the top 100 US retailers, PayPal’s scale could help you compete with startups like Affirm, Afterpay, and Klarna.
- While players like Affirm, Afterpay, and Klarna charge merchants fees for each transaction, PayPal’s installment product has no additional cost to the merchant.
- However, the payments giant could face some headwinds with the launch of other exclusive associations of buy now, pay later players with existing merchants.
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Buy now, pay later is taking off amid the coronavirus pandemic, with e-commerce becoming more prevalent and consumers looking for ways to stretch their dollars.
And while startups like Affirm, Afterpay, and Klarna created a lot of buzz in the space, the headlines are stepping in, ushering in the next wave of financing at the point of sale. Earlier this year, Goldman Sachs partnered with JetBlue and offered to buy now and pay later through its Marcus platform. And Amex has continued to expand its interest-free installment payment product, Pay It Plan It, to more cards.
Most recently, PayPal announced that it will offer a six-week interest-free installment product to all US merchants that offer PayPal as a way to pay at checkout.
“The 4-installment payment product specifically is an interest-free purchase now, pay later for consumers to pay, and will generate higher conversions without retailers incurring additional risk or cost,” said Doug Bland, senior vice president of global credit. PayPal. Business Insider.
“The background to all of this is that given the difficult and uncertain times we live in, we felt it was more important than ever to provide this solution, which will help both retailers and consumers,” said Bland.
The PayPal platform is used by 83% of the top 100 US retailers, according to Forrester. And analysts expect the scale to be beneficial for PayPal in the competitive buy now, pay later space.
“For us, that kind of scale and penetration means that not only is it easier for PayPal to compete with incumbents in the shopping space now, it pays later by putting the product in front of its user base,” Paul Golding, Analyst payment and lifestyle in Macquarie. Capital, he told Business Insider.
“It also means that as a product, it probably integrates more easily with online marketplaces because the PayPal button and the PayPal system are already integrated,” Golding said.
PayPal to Launch During Second Wave of Adoption Buy Now Pay Later
Fintechs such as Affirm, Afterpay, and Klarna have been marketed as an alternative to credit cards or other traditional forms of online payment, such as PayPal. That first wave of buy now, pay later adoption was followed by a second wave of industry incumbents like Amex and Chase offering their customers the ability to pay in installments instead of the monthly credit card cycle.
Cardholder buy-now, pay-later products differ from fintech products in that they are generally offered post-purchase, with payment plans built into credit card statements.“The second phase has consisted of institutions such as banks, issuers and acquirers that offer financing products similar to those of the points of sale after the purchase is made and appears in the statement,” Golding said. “That product is more of the prevailing wave.”
But PayPal, already known as a buy button at checkout, will offer your product buy now, pay later in the same context as Affirm and Afterpay.
“We think this could lead [market] share the use of conventional credit or debit cards, entering the number and credentials, “said Golding.
“It used to be that going with another purchase now, paying later was an alternative to using conventional PayPal, linked to some other card or account. Now everything is within the ecosystem, so the jump to make the financing decision to deadlines is much shorter in our point of view, “he added.
PayPal may be slowed down by the exclusive retail partnerships of other players, but the PayPal product comes at no additional cost to retailers.
However, PayPal’s path to success is not entirely clear as you may face challenges with merchants who have already signed exclusive deals with other players buy now, pay later.
“The difficulty in assessing whether there will be greater use or not is that, in some cases, retailers have decided to contract other shopping platforms now and pay later in exclusive agreements,” said Golding. “That may or may not prove to be a barrier for PayPal to implement this across the entire online marketplace ecosystem. That has yet to be seen.”
It’s unclear how much of other players’ retail deals they buy now, pay later are exclusive. That said, unlike leading startups, PayPal’s installment payment product has no additional cost to partner merchants, while players like Affirm, Afterpay, and Klarna charge merchants fees ranging from 3% to 6% of the transaction value.
“We can’t comment on what other BNPL providers are doing, but Pay in 4 will be available in the wallet for most US merchants, and more than 80% of US retailers work with PayPal. And implementing dynamic Pay in 4 messaging on product pages has no additional cost or risk to the retailer, “said Bland.
The third wave of buy now, pay later could bring incumbents and fintechs head-to-head
To be sure, card companies are increasingly looking to enter the context of the point of sale. And the third wave of buy now pay later, Golding said, will likely involve issuing banks as well as card networks.
“I think there will probably be a third wave, which will include card network buyers and rails that will develop cascading functionality that will aggregate offerings from a variety of services to provide the consumer with a point of sale loan offering,” Golding said.
The waterfall functionality means that a card network like Mastercard, for example, could aggregate installment offers from its various banking partners and offer consumers a buy now, pay later product at the point of sale.
Mastercard’s Vyze platform, which it acquired in 2019, gives merchants the ability to offer buy-now and pay-later options from various lenders. And the platform is growing. In August, Vyze added Buy Now Pay Later, QuadPay and digital bank Ally as lending partners.