The interest-free buy-now-pay-later option, known as ‘PayPal Pay in 4’ in Australia, has lowered its minimum purchase value from A$50 to A$30.
PayPal’s interest-free “buy now, pay later” scheme will give the company an edge over Afterpay which currently charges a default fee of A$10 to customers who miss a payment on their due date and makes provisions for future fines to not exceed the original order’s total.
PayPal’s ‘Pay in 4’ allows customers to pay off purchases in 4 equal fortnightly installments, charging zero late fees if customers miss a payment. The buy-now-pay-later option has lowered its minimum purchase value from A$50 to A$30. The maximum amount for a ‘Pay in 4’ transaction is A$1,500.
Critics claim that the buy-now-pay-later is simply an avenue for the companies offering the options to increase profitability, as customers will have to pay more when they delay, resulting in significant debt for customers who overstretch themselves. Many companies refute this claim and maintain that their profitability comes from charging merchants for a percentage of each transaction. PayPal’s interest-free buy-now-pay-later option, therefore, takes it away from the spotlight of the public’s criticism.
PayPal first announced its plan to launch ‘Pay in 4’ in March. This plan included a charge on late fees set at a level lower than Afterpay’s. Late payments would have incurred a $10 fee, just once for purchases under $125 and up to a maximum of $30 if three or more payments were missed for a purchase above $125. But the plan was revoked after consumer research was conducted with the results showing that late charge fees were a major reason why about half of Australia’s population did not try buy-now-pay-later.
According to corporate regulator Australian Securities and Investments Commission (ASIC), Afterpay is Australia’s largest buy-now-pay-later service, with 73% of the total market by dollar value. PayPal however has the advantage of an existing user base of 9.1 million Australian customers, a large percentage of which will be eligible to use Pay in 4 without requiring a separate sign-up process.
Other financial services are also expected to find ways to offer loan services devoid of late payments fines, to be able to stand up to PayPal in the competition that its new service will bring.