US payments giant PayPal will make its new “pay in four” instalment option available to its 9 million Australian customers in early June, as the biggest competitive threat to Afterpay and Zip materialises amid a savage share rout in the buy now, pay later sector.
Afterpay shares lost another 4 per cent on Tuesday to close at $106.78 after falling off a cliff in mid-February.
They are now down a whopping 32 per cent from their February peak, amid a savage turnaround in sentiment as tech valuations are smashed by rising bond yields and more intense competition emerges.
Many analysts have pointed to PayPal’s huge scale – it has 375 million global customers – and lower merchant fees as the main threat to Afterpay.
PayPal charges merchants an average of 2.6 per cent of the cost of goods plus 30¢, much lower than Afterpay’s fee of around 4 per cent plus 30¢.
From early June, hundreds of thousands of merchants in Australia who already accept PayPal will have the option to add a “pay in four” button next to the existing PayPal option, to draw customers to accept the alternative interest-free offering.
PayPal users will also see the instalment option if they click the existing PayPal button.
Meanwhile, PayPal will let merchants add a message about the instalment option inside their product pages where Afterpay’s icons appear.
“The one reason we are delivering this is feedback and requests from our business customers and broader users,” said Andrew Toon, general manager of payments for PayPal Australia.
“When we announced the launch [of pay in four] in the US and UK, we were inundated with requests from existing business customers who are looking at PayPal as a one-stop-shop for payment requirements.”
PayPal shares are also on the slide; they are 20 per cent off their peak, after global sentiment on high growth tech stocks and payments companies turned badly in the past fortnight.
PayPal is considering joining the Australian Finance Industry Association, which last week launched a code of conduct for the buy now, pay later sector.
Mr Toon said a strict “suitability model” would be applied before customers were offered the buy now, pay later option.
If PayPal does not have enough data on customers to make a lending decision, it will tap an external credit file. The AFIA code does not require this for transactions below $2000.
PayPal’s “pay in four” product will be available for purchases between $50 and $1500. The first payment is required upfront, like Afterpay, and it collects the remaining three payments each fortnight.
PayPal’s late fees are $10 per missed payment. For transactions under $125, these will be capped at $10; for transactions above $125, the cap is $30.
It said all existing protections for both buyers and sellers would be maintained for the new product.