PayPal’s buy now, pay later Australia launch sends shivers through incumbents Afterpay, Zip, Splitit

Shoppers now have a new buy now, pay later option with the entry of a global behemoth in the Australian market – and an even bigger company is next.

Australia’s buy now, pay later sector just got a whole lot more competitive, with shoppers now able to choose PayPal’s offering over local incumbents like Afterpay, while tech giant Apple is believed to be planning a BNPL addition to its mobile phone payment method.

With US-based behemoth PayPal having nine million active accounts in Australia, its Pay in 4 service that launched here on Wednesday looks certain to take a substantial share of the booming BNPL market, given those consumers won’t need to apply for the credit service.

The company says the service, which launched in the US last year, incurs no interest, no late payment fees and no sign-up fees, with only currency conversion fees potentially applicable to international purchases.

It is heralded as the only BNPL service in Australia offering no late fees.

When a shopper pays using the standard PayPal “button”, it will appear at checkout in their PayPal wallet as a payment option.

PayPal is expected to take a big chunk of Australia’s BNPL market. Picture: Richard B Levine/Zuma Press.

“Our primary driver is to make the PayPal wallet the most versatile and useful digital wallet available by giving more payment choice and flexibility to our customers while maintaining the highly secure processes they know and trust,” PayPal Australia general manager of payments Andrew Toon said.

Macquarie Research said PayPal offering no late fees was a strong move to encourage adoption of the service.

“In the case of missed payments, both Afterpay and PayPal would suspend the user’s account,” Macquarie Research said.

“The recouping of missed payments, however, is treated differently.

“Afterpay will send text messages and emails but eventually write off the bad debt, whereas PayPal will refer the debt to a third-party debt collector.

“Whether this treatment of debt would weigh on consumers’ decision to forgo a late fee is yet to be seen.”

A PayPal spokeswoman, however, said customer defaults would be reported to credit bureau agencies.

“We believe this supports the entire industry and, ultimately, reduces the risk of customer detriment,” she said, adding the company would have already worked with the customer to find out when they could pay and suspended their use of Pay in 4 in the meantime.

“For customers experiencing hardship, we will make efforts to support them to make their payments,” she said.

“In extreme circumstances, we may limit a customer’s use of PayPal overall.

“However, our key objective will be to work with the customer to get their account into good standing again.”

Meanwhile, Bloomberg reports that Apple plans to launch a rival service, known internally as Apple Pay Later, which will be available as an option on Apple Pay.

Apple Pay is available on Apple watches, not just Apple phones. Picture: Supplied

Macquarie Research said it was understood the functionality would not be tied to Apple Card but needed to be linked to other credit cards available on Apple Pay “and thus is more of a direct competitor to Splitit versus other BNPL products, which do not require a credit card”.

Splitit weighed in.

“We see Apple joining the BNPL sector as positive news for Splitit as they will help accelerate acceptance of instalments as a payment option around the world,” chief executive Brad Paterson said.

“Apple’s solution offers new finance to consumers and as such, competes more with other consumer finance providers.

“We consider its solution to be complementary to Splitit, which enables shoppers to better use existing credit on their credit cards.

“Apple provides another opportunity for us to sit alongside it as an alternative option, or to partner to enhance its offering and provide a low risk means to expand the retail categories it serves and its average order value, as we recently did with BNPL, Tabby.”

Afterpay is expected to get a run for its money from the PayPal service. Picture: NCA NewsWire/Bianca De Marchi

Shares in Australian BNPL providers tumbled on the news, with Splitit dropping 4.5 per cent to 53 cents.

Local market leader Afterpay slumped 9.59 per cent to $107, while Zip plunged 11.38 per cent to $7.32.

Macquarie Research said it had already counted on Afterpay losing market share in Australia amid the increasing competitive landscape provided by new entrants, including PayPal, CommBank’s StepPay and Citi, with the latter two yet to be launched.

RateCity research director Sally Tindall said PayPal’s existing large customer base in Australia meant Afterpay would get a serious run for its money.

“With millions of people to market to, and with a new zero fee proposition, this new platform is likely to be a serious contender in the buy now, pay later space,” she said.

“However, PayPal customers who miss repayments should be aware, if you default, it could end up on your credit file.

“The big question is whether PayPal’s new service will prompt people to switch buy now, pay later providers or encourage them to use multiple platforms at once.”

With more than 20 BNPL services now in the Australian market, customers could easily rack up a slew of debts across a number of platforms, Ms Tindall warned.

“ASIC’s most recent report into the sector found people getting into trouble using buy now, pay later were more likely to have multiple accounts,” she said.

Expert observers expect a period of consolidation – mergers and acquisitions – within the increasingly crowded industry.