- PayPal is launching a product this fall allowing consumers to pay for a purchase of between $30 and $600 in four installments over a six-week period.
- With Pay in 4, PayPal is looking to wrest part of a burgeoning buy-now-pay-later market from the likes of Afterpay, Affirm and Klarna. Affirm CEO (and PayPal co-founder) Max Levchin said last year that Affirm's point-of-sale loans doubled to about $2 billion in 2018 and were expected to at least double again in 2019.
- The option looks to appeal to younger consumers wanting to manage their finances without resorting to credit cards — and the interest rates attached. PayPal also is hoping to hook merchants with the prospect that consumers spend up to 20% more when they're given a point-of-sale financing option, Forbes reported, citing data from both PayPal and Afterpay.
Pay in 4 isn't PayPal's first entry in the point-of-sale financing space. The company bought Bill Me Later, a startup, in 2008 and rebranded it PayPal Credit in 2014.
PayPal Credit came under fire in August when four advocacy groups urged the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) to investigate the company after finding more than 150 career-training schools — most unaccredited and many largely unsupervised — let students pay tuition using PayPal Credit. At issue is the 25.49% annual percentage rate attached to PayPal Credit — quadruple the interest on even the most expensive federal student loans. If borrowers don't pay the full loan off by the end of a six-month deferred interest period, the 25.49% APR would be retroactively charged from the loan's origination date and added to the balance. Late payments are assessed a $39 fee.
Unlike PayPal Credit, Pay in 4 charges customers no fees or interest — unless a payment is late, in which case, a fee of up to $10 may be assessed, according to Forbes.
Because Pay in 4 will be another feature in PayPal's wallet, merchants that already accept PayPal won't have to pay extra to integrate it.
"In today's challenging retail and economic environment, merchants are looking for trusted ways to help drive average order values and conversion, without taking on additional costs. At the same time, consumers are looking for more flexible and responsible ways to pay, especially online," Doug Bland, PayPal's senior vice president for global credit, said in a press release. "With Pay in 4, we're building on our history as the originator in the buy now, pay later space, coupled with PayPal's trust and ubiquity, to enable a responsible and flexible way for consumers to shop while providing merchants with a tool that helps drive sales, loyalty and customer choice."
Customers' credit will be evaluated before they're accepted to the platform, Bland said. But because of the modest loan sizes, PayPal expects to approve most applicants, he said.
After the initial installment on a purchase is paid, the remaining three payments are automated. Customers can manage the payments from inside PayPal's wallet.
"Given the challenging and uncertain times we're living in, we felt it was more important than ever to provide this solution to help retailers help consumers," Bland told PYMNTS.com. "And we're going to make it available [in] time for the upcoming holiday shopping season."