Afterpay and Zip Co shares dive after PayPal launches buy now, pay later product
Buy now, pay later operators Afterpay and Zip Co are facing increased competition after global online payments group PayPal muscled into the Australian market with a product that has no late fees.
PayPal will offer Pay in 4, which allows PayPal users to pay for purchases in four instalments.
In response to the PayPal announcement, Afterpay shares tumbled 7.7% and Zip Co shares fell 7.6% in morning trade.
The local operators also face more competition from Australia’s biggest bank, the CBA, which is launching its BNPL product, StepPay, next month, and potentially from Apple, which is reportedly working on adding BNPL to its popular Apple Pay system with the assistance of bank Goldman Sachs.
“I think PayPal is the least of their problems,” said Grant Halverson, a payments analyst at consultants McLean Roche Consulting.
“The real issue is that the CBA will do a number on them next month, and overnight Apple announced its entry.
“This is going to be a dance of the elephants, and the BNPL companies are tiny mice.”
PayPal’s product went live in Australia on Wednesday morning. The company started rolling out Pay in 4 in the US in October and has since offered it in the UK and France.
However, Andrew Toon, general manager of payments for PayPal Australia, said the no late fee offer was exclusive to Australia.
He said this was based on PayPal’s research into Australian customers.
“It’s our view that people are missing payments by mistake, not by design,” he said.
He said PayPal was using the data it held on customers to determine eligibility for Pay in 4, and where it couldn’t make a decision was using credit checks from agency Equifax.
“We have experience, we have systems, we have data to make that assessment,” he said.
Eligible customers can split the cost of purchases between $30 and $1500 into four payments made up of an initial downpayment and three fortnightly instalments.
The option is not available for payments related to gambling, cryptocurrency trading, contracts for difference, foreign exchange, transfers to other individuals and donations to notfor-profits.
“PayPal is a very serious competitor, they have more than 9m customers in Australia and the lead in the online market, where this is playing out,” Halverson said.
BNPL has exploded in popularity in Australia, leading to calls – resisted by the industry – for it to be more tightly regulated.
Despite its rapid growth it accounts for only about 1% of payments, and Australian operators are increasingly turning to the large US market for opportunities to grow.
But Halverson said the entry of whales such as Apple posed big problems for Australian companies looking to take on the US.
“Apple has got 90m users in the US, they’ve got 40% of the phone market,” he said. “Goldman Sachs in conjunction with Apple is going to be a very serious threat.
“I describe it as the end of the beginning – the question is whether it’s the beginning of the end.”