“Whilst not a huge fan of PayPal and it’s dinosaur UX, this offer from PayPal will annihilate the pop up players and their valuation bubbles that are so dependant on low interest rates and high fees. Online payday lenders be dammed” Ewan Walsh 2021This article is from the July 14 issue of The Australian Digital Edition. To subscribe, visit https://www.theaustralian.com.au/.
PayPal is throwing down the gauntlet to Afterpay and Zip in Australia, kicking off its own buy now, pay later service that avoids slugging customers with the late fees it labels a “huge bugbear” .
The much anticipated PayPal Pay in 4 launch on Wednesday came after the global payments behemoth earlier rolled out the service in the US, Britain and France.
PayPal is seeking to make a splash in this market by charging merchants the same fees it does for other payments and taking late fees completely out of the equation . It says it is the first to not levy late payment charges on buy now, pay later transactions in Australia.
This nation is the only market where late charges won’t be levied on customers that use the PayPal instalment payment option – an apparent strategy to gain customer traction in a market where Afterpay is dominant.
PayPal Australia payments general manager Andrew Toon said the local buy now pay, later option was designed in response to customer and merchant feedback , which showed late fees were a “huge bugbear” for customers.
“We’re doing this because we think it’s the right thing to do and it will deliver a better customer experience ,” he added.
Mr Toon cited research commissioned by PayPal involving more than 1000 online shopping customers which showed 55 per cent had not used buy now, pay later, with half of those noting they were “put off” by late fees.
“We are responding to that,” he said, declining to comment on whether the move was aimed at shaking up the competitive landscape .
“We support competition. It drives better outcomes for customers and innovation in the market ,” Mr Toon added.
The corporate regulator has also been concerned about the prevalence of late payments in the buy now, pay later sector. A report released last year found one in five users had missed payments, and a similar proportion have cut back on essentials like meals to make instalment payments on time.
Afterpay’s late charges sit at a maximum of $10 for purchases under $40. Above that amount they are capped at the lower of 25 per cent of the purchase amount, or $68.
Commonwealth Bank is also pushing further into buy now, pay later with a direct service called StepPay for existing customers, which will launch soon.
The bank has outlined late fees of $10 per missed payment, which are capped at $120 per year.
The PayPal buy now, pay later option doesn’t levy any sign-up fees or interest, but if customers are late on a payment their account is suspended until they rectify the situation.
“We take the view that custom- ers are missing payments by mistake and not design,” Mr Toon said, but he clarified that customers that perennially missed payments may see the service switched off altogether.
The other sore point about the buy now, pay later sector – largely from traditional lenders and consumer protection groups – is the lack of a credit assessment of customers . Afterpay, for example, does not assess a customer’s ability to repay the buy now, pay later purchases.
PayPal says it will conduct an assessment of customers they allow to access the BNPL soption, which is just one of several payment choices available online and through its digital wallet.
For PayPal’s more than nine million active Australian accounts , it will predominantly use its own data and analytics engine to assess suitability, while for new customers or to draw in additional information it will run credit checks through companies including Equifax.
“Suitability is assessed live, so that’s a real-time decision … we are only offering this to customers that we consider to be suitable and there are a number of elements that go into that decision,” Mr Toon said.
PayPal in March flagged its intention to launch the instalment pay option, at the time saying it would be available in Australia ahead of the end of financial year sales.
PayPal said regulatory issues it was confronting with local financial crimes regulator Austrac were not related to the launch of the buy now, pay later service coming weeks behind the initially flagged schedule. The company faces a real risk of enforcement action, including in court, after Austrac started a detailed investigation and assesses an independent report into hundreds of millions of potential breaches of the anti-money laundering laws.
The PayPal buy now, pay later service is available for purchases between $30 and $1500, with four interest-free payments. The lower threshold was reduced from an earlier flagged $50.
Merchants and businesses will pay the same fee to PayPal as they do for other payment services, which sits at 2.6 per cent of the transaction amount plus 30c.
PayPal’s global finance boss John Rainey, when he was asked about the pricing landscape in May, told investors that “competitors are probably going to have to move their pricing closer to where we are” .
In June, international reports had the company raising its merchant rates in the US for products like PayPal Checkout, Pay with Venmo, PayPal Credit and Pay in 4.
The Australian research commissioned by PayPal on attitudes to buy now, pay later was conducted by ACA Research.
Last month, PayPal said it was wading into the Australian credit card market – backed by Citibank
– to help facilitate in-store payments.
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Ewan Walsh
CX | Customer Alignment | Physical, Analog and Digital
