To gain an edge over increasing competition in the fast-growing Buy Now, Pay Later sector, PayPal Holdings has canceled the payment of late fees globally. Customers who miss payments on their buy now, pay later purchases will no longer be charged late fees. PayPal said on Wednesday that the change will be effective from October in the United States, the United Kingdom, and France. PayPal’s Buy Now, Pay Later services in Germany and Australia already do not incur the payment of late fees.
Although PayPal was founded more than two decades ago, it only started offering Buy Now, Pay Later services last year. The reason behind the cancellation of late fees payments, according to the San Jose, California-based company, is to make its products more affordable and attractive for consumers. “We felt late fees were hindering the customer experience,” Greg Lisiewski, Vice President of Global Pay Later Products at PayPal, said in an interview.
The change comes as more regulators across the world pay closer attention to the Buy Now, Pay Later sector, in an endeavor to prevent consumers from taking excessive debt. “Given the massive rise and acceleration through the pandemic of this space, regulators across all geographies are taking notice. We think that is appropriate, and we do think late fees will be and have been, part of that discussion, and we think being as customer-friendly as possible puts you in a better place with regulators,” Greg Lisiewski said.
When asked if there was a risk that scrapping late fees would encourage more consumers to default on their loans, Greg Lisiewski replied that he didn’t expect that to happen.
Buy Now, Pay Later services, which allow customers to divide payments for purchases into installments, have become popular during the pandemic, as many people have turned to online shopping. According to analysts, the Buy Now, Pay Later industry experienced 215 percent year-over-year growth in the first two months of 2021, with the sector’s staggering growth leading to increased competition.
PayPal faces competition from companies such as Afterpay, Klarna, and Affirm. Apple is reportedly aiming to partner with Goldman Sachs to offer BNPL services to Apple Pay users. Banks like JPMorgan Chase and Citigroup have started giving their cardholders the option of splitting their purchases.
Earlier this month, Square, a payments company owned by Twitter’s CEO – Jack Dorsey, announced that it was buying Australian financial services firm Afterpay for $29 billion. Square said it plans to create an international transactions giant in the biggest buyout of an Australian firm, as it aims to expand further into the booming installment loan market.
PayPal said that it has processed more than $3.5 billion in total payment volume through BNPL products, since when it launched the service, and that more than 7 million consumers have used the products.