Is PayPal’s No-Fee BNPL a Game Changer? We Asked the Experts

Power Retail By Power Retail | 15 Jul 2021

A potentially game-changing development in the BNPL market is underway, as PayPal launches the country’s only BNPL service with no late fees.

The payment platform features no interest fees, late fees or sign-up fees – the first of its kind in Australia.

What does PayPal’s new BNPL offer look like? With a minimum value spend of $30 (dropped from $50), shoppers can pay for their purchases in four instalments.

“We are launching with no late fees in Australia because we believe it’s the right thing to do for our customers and will deliver a better consumer experience,” said Andrew Toon, the General Manager of Payments at PayPal. “We are backing the strength of our systems to determine consumer suitability for PayPal Pay in 4 and we believe we have the right measures in place to support our no late fees approach.”

The Rivals and Late Fees

The currently leading BNPL platform, Afterpay, charges a late fee of $10 plus a further $7 if an account doesn’t pay for seven days or more. For purchases under $40, there is a maximum of one $10 fee. However, if the purchase is above $40, users may receive late fees capped at 25 percent of the original order value or $88 – whichever is lower.

Similarly, Zip Pay will implement a $5 late fee after two repayment attempts ($15 for Zip Money). There is also a ‘dishonour fee’ that only applies to Zip Money customers, if a payment is rejected by the bank a $10 penalty will be applied to the user’s account.

Klarna’s late fees are capped, and range from $9 to $45 depending on the value of the items ordered using the service.

The Differentiating Factor

What makes the no-fee offer so attractive is the flexibility provided by PayPal’s business model, Toon explained. “Our business model does not rely on late fee revenues and we believe that many people who miss a payment do so by mistake, not design,” he said. “By removing late fees, we are providing our Australian customers with a secure buy now, pay later service without the risk of being penalised for late payments.”

Is BNPL Still Popular with Consumers?

PayPal’s popularity has remained somewhat consistent over the last 12 months, fluctuating from 38 percent to 31 percent of last online payment methods. Currently, 34 percent of online shoppers said they paid for their last online order using PayPal, increasing by two percent from the month prior.

On the other hand, BNPL payments have dipped by four percent in the last month, after increasing at a consistent rate month on month. Afterpay is staying strong as the leading BNPL platform (a whopping 90 percent of the market share), but could this new service knock it off its post?

via PayPal

Andrew Toon, General Manager, Payments at PayPal Australia | via PayPal

Another Player in the Game – Apple

Since the announcement was made, Apple has also launched its own rival BNPL platform. This service – unofficially dubbed Apple Pay Later – will allow Apple Pay users to divide their payments out in four interest-free fortnightly payments, or over several months with interest. It would ideally be available online and in-store. This service would be in conjunction with Goldman Sachs, which has been the partner for Apple Card since 2019.

Why would Apple do this? Despite the obvious market share grab, it would also increase the adoption of Apple Pay, which will in turn increase revenue for the tech leader. Apple has declined to confirm or deny these rumours, but it has only added to the pressure mounting on existing BNPL platforms, which had a rough day on the ASX yesterday.

Despite the news impacting the payment platform shares yesterday, Afterpay’s share prices have increased roughly 24 percent in the last two months.

BNPL Share Price Drop

On Wednesday, Zip’s share prices sank by 11 percent, sinking to its lowest point since February. Similarly, Afterpay’s shares have also made a significant dip of 9.6 percent – another BNPL platform experiencing its worst day since February. PayPal’s shares have increased by 3.09 percent on a five-day basis.

How Will Retailers React?

PayPal has more than 370 million users worldwide, with a flexible and adaptable business model that can change alongside customer needs. Of those 370 million, nine million are in Australia, making it a huge existing market. If PayPal continues on the upward trajectory as the leading payment platform for online purchases, it could seriously disrupt the BNPL industry as we know it.

We asked a series of experts about the change in the BNPL game, and their thoughts on the new service from PayPal.

“From a retailers perspective, Paypal launching a BNPL option is great news,” says Jake Munday, the Co-Founder of Custom Neon. “We found utilising pay in instalment platforms such as Afterpay pushed our average sale value up by 23 percent.

“Customers were willing to purchase a higher-priced product because they could split the payment into more affordable (or palatable!) chunks. Whilst Paypal may be entering a crowded market, they come to the party with over nine million existing customers in Australia, and many retailers, like ourselves are already offering Paypal as a payment option. With no account fees, interest charged or late fees, I wouldn’t be surprised if they are soon dominating the space,” he tells Power Retail.

What about shoppers?  “Consumers will easily be able to log in to their PayPal account and choose between upfront payment, BNPL, or a combination of both. This selection process will be as easy as ticking boxes,” says Adam Garcia, the Founder of The Stock Dork. “Due to its dominant position in the online payments space, BNPL with PayPal is likely to be a major disruptor.”

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