The Australian market is the place to watch if you follow Buy Now Pay Later (BNPL) lending. With 25.4 million citizens, Australia is smaller than Canada (37.6 million) and California (39.5 million), but the country was at the epicenter as BNPL took hold. Indeed, Klarna originated in the Nordic countries, but Aussies quickly formed Afterpay, Brighte, Humm, Klarna, Latitude, Openpay, Payright, and Zip.
Australians carry more debt per household than the United States. In July 2020. According to Trade Economics, in the United States, household debt as a percentage of Gross Domestic Product was 78%, compared to a whopping 122.6% in Australia. This disparity shows that Australians may like consumer credit options even more than Americans.
Today’s read comes from the Australian News Channel, which publishes Channel News. The article covers PayPal’s efforts in the market and indicates that despite BNPL’s rapid and seemingly pervasive uptake, BNPL has not displaced Paypal.
- PayPal is still the number one online shopping payment method in Australia, despite the Buy Now, Pay Later industry raking in a lot of the market share during 2020.
- According to data from BigCommerce, PayPal has already accounted for 41 percent of all transactions in 2021 – up from 40 percent during the whole of 2020.
- Meanwhile, credit cards have accounted for 28 percent of transactions,
- debit card use is at 19 percent
- BNPL products such as Afterpay and Zip have accounted for 13 percent of online spending so far in 2021, down from 14 percent.
Now, consider PayPal’s recent announcement to enter the BNPL market in Australia, as IT News Australia reported on March 10.
- The offering will allow consumers to split purchases valued between $50 and $1500 across four equal repayments every fortnight.
- General consumers will see the new ‘Pay in 4’ option at checkout or in their digital wallet, while merchants can integrate the new offering as a payment option on their website.
- Merchants will also show each installment’s monetary value through a messaging feature, letting consumers know how much to expect each repayment to be.
PayPal’s option looks like it may be more efficient. BNPL merchant acceptance cost runs between 4% and 6%. In Australia, credit card interchange is below 1% for credit and half that for debit, according to the Reserve Bank of Australia. (for information on credit card interchange versus BNPL fees, see here, and to understand Visa’s complete set of posted rates in AU, see here.)
BNPL rates for PayPal in AU look like they will undercut the BNPL market with “2.6 percent plus 30 cents for domestic transactions in Australia.” The transaction is “lower than Afterpay’s fee of around 4 percent plus 30 cents, which may provide PayPal an edge.”
The fundamental difference between PayPal and the cluster of BNPL is PayPal’s scope and breadth. PayPal’s 4Q20 results indicate 377 million active accounts, with almost $1 trillion in payment volume worldwide. Most BNPL lenders that Mercator Advisory Group reviewed have yet to show a profit.
In field testing, BNPL, my transaction with PayPal was processed with the speed of a credit card transaction: quick, friction-free, and straightforward.
Here is the big takeaway. PayPal can overtake the BNPL model. With offerings in more than 200 countries and regions, PayPal is everywhere. It has the staying power. It has the drive. And unlike many BNPL lenders, who focus on a single payment stream, PayPal’s transaction offerings, finance options, and presence are diverse.
The firm can react well to rising interest rates, which is a flaw in the current BNPL process. Stay tuned, and expect the disrupters to disrupt the disrupters.
Overview Provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group