PayPal offering in ‘buy now, pay later’ weighs on Afterpay, Zip

Shares in Afterpay took a tumble on Monday with PayPal’s entrance into the nascent “buy now, pay later” market.

Afterpay’s shares took a hit following the announcement of PayPal’s Pay-in-4 functionality in the US.

Shares in Afterpay took a tumble on Monday, with PayPal’s entrance into the nascent “buy now, pay later” market representing “the most material competitor” to the likes of Afterpay and Zip Co thus far, according to Royal Bank of Canada analysts.

Australia’s BNPL stocks have been red hot in recent months, but last week the companies were all sent backwards after an announcement from California-based heavyweight PayPal that it was entering the fold.

PayPal announced a Pay-in-4 functionality in the US market that will allow customers to split purchases of between $30 and $600 into four repayments over six weeks. Like Afterpay, customers will not be hit with interest charges, but may have to pay a late fee.

The announcement sent Australia’s BNPL stocks spiralling: Afterpay was down 8 per cent; Zip 13 per cent; and Sezzle down nearly 15 per cent on Tuesday last week. They each fell 5-7 per cent further on Friday.

Afterpay closed down another 2.4 per cent on Monday at $76.35.

Australia’s BNPL stocks have been sent spiralling.

RBC Capital Markets analyst Tim Piper said in a note that PayPal would prove a serious BNPL player, but that its move also ­signalled the materiality and positive outlook of the payment method.

“The product construct is very similar to existing BNPL ­offerings (four fortnightly instalments with no interest or consumer fees), but there is no additional fee for merchants above the standard PPL processing fee (about 2.9 per cent). At face value, this represents a significant competitive threat,” Mr Piper said.

“Some of the key pressures the existing BNPL players may face revolve around the pace of customer and merchant acquisition, the fees they can charge merchants, and the customer take-up of pay anywhere functionality for those which provide it. Additional investment, particularly in marketing, may be required with a significant new competitor as the US is currently in ‘land-grab’ phase with a race to build customer and merchant networks.”

According to Mr Piper, key questions around PayPal’s BNPL offering include whether the tech giant will conduct credit checks on its Pay-in-4 customers, if PayPal will invest in developing a customer experience as strong as the BNPL providers, and how aggressively the company will promote its offering to its thousands of small business merchants.