Buy now, pay later isn’t new, but fintechs and incumbents alike have been making big bets that consumers will spend more if they can split up purchases into installments.
PayPal has long been known for facilitating e-commerce checkouts and for its peer-to-peer payments app, Venmo. But the payments giant has actually offered a buy now, pay later solution since 2008, when it acquired Bill Me Later. PayPal rebranded it as PayPal Credit in 2014, offering shoppers interest-free installment payments, spread over 6 months.
However, it’s been younger fintechs like Afterpay, Klarna, and Affirm that have gotten attention recently for their buy now, pay later programs. The former two, in particular, have resonated with a younger audience thanks to their short-term payment plans spread over just four payments and ability to directly embed themselves in merchants’ websites.
And while PayPal has leaned toward longer-term installments, it appears the payments giant is catching on to the newcomers’ strategy. In June, it launched a new product in France, giving customers the ability to split purchases into four equal payments over three months.
“Our launch in France is exactly what a lot of consumers are moving towards, which is using this product and creating a smoother cash flow experience for them,” Doug Bland, senior vice president and general manager of global credit at PayPal, told Business Insider.
“With COVID and what’s happening right now, credit can play a very important and critical role for us,” he added.
Offering consumer credit benefits PayPal’s merchants, too
Amid the coronavirus pandemic, with more consumers shopping online, buy now, pay later has taken off. Offering customers the ability to stretch payments over time, especially during times of economic uncertainty, is key.
Millennial and Gen Z consumers, in particular, have been quick to adopt these new forms of credit, Bland said.
“The thing that tends to not get as much attention from a segmentation perspective is how much Millennials and Gen Z actually use and leverage our products,” Bland said, “and that’s something that we’re certainly focused on, helping these consumers with flexibility around various financing options.”
And by offering consumers the ability to buy now, pay later, PayPal drives sales for its merchant customers, Bland said.
“Credit tends to be a loyalty accelerator for merchants in terms of seeing a higher average online value of purchases,” Bland said.
Bland declined to comment if or when the short-term payments plan rolled out in France would be brought to the US.
When offering PayPal credit, merchants have seen average order values increase by 58% for electronics and 28% for fashion among millennial consumers. And among Gen Z, PayPal has seen order values increase by 40% and 90% in fashion and electronics, respectively.
Buy now, pay later startups also say they’re able to increase average order values and help convert online browsers to buyers. Affirm says it can help increase average purchase sizes by upwards of 85%, Afterpay says merchants see a 20% to 30% increase, and Klarna says it can increase order values by upwards of 45%.
Merchant lending is a key part of PayPal’s credit business
It’s not just about lending to consumers that Bland is focusing on. PayPal also offers its merchant customers lines of credit and working capital.
The differentiator for the payments giant from traditional lenders is leveraging data that already sits on its platform.
While banks typically look at credit bureau information to make lending decisions, PayPal can use data around a company’s sales to determine how much to lend.
PayPal isn’t the only payments player that uses businesses’ sales data to lend. Payments giants like Square and Stripe, too, offer working capital and loans to their merchant customers.
“With the proprietary data that we’re able to see within PayPal Working Capital, we’re able to understand the velocity of payments, both inflows and outflows, of what’s happening with each of these merchants,” Bland said.
“We’re able to make predictive decisions based on that data that other lenders just don’t have access to and are unable to see,” he added.