BNPL leaders Afterpay, Zip sink as PayPal circles

The red-hot buy now, pay later (BNPL) sector is suffering its worst day in weeks after payments giant PayPal said it was entering the instalment payment space.

PayPal said on Tuesday it would launch Pay in 4, an instalment credit solution, to US customers by the holiday season.

“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,” Doug Bland, senior vice president for global credit at PayPal, said in a statement.

By early afternoon Afterpay (ASX:APT) was down almost 10 per cent, while Zip Co (ASX:Z1P) and Sezzle (ASX:SZL) had fallen closer to 12 per cent. Humm owner Flexigroup (ASX:FXL), Openpay (ASX:OPY) and Splitit (ASX:SPT) were down between 5 and 7 per cent.

“It’s an ugly day, because there’s a lot of fear in the market at the moment,” Bell Direct analyst Jessica Amir told Stockhead.

“You can just imagine being a fly on the wall in the Afterpay boardroom right now.”

Australian companies have been a leader in the instalment payment solutions space, delivering tremendous growth in the last few years, but there’s always been the chance of a highly successful international player shaking the BNPL tree, Amir said.

“The tree is definitely getting tossed about in the wind. Trees and branches are falling today,” she said.

Tightly held Paypal has 80 per cent of US e-commerce companies already on the platform, as well as 70 per cent of e-commerce customers, Amir said.

“PayPal is a massively profitable, successful international empire,” she said.

PayPal will charge merchants much less than the roughly 5 per cent commissions Afterpay charges, Amir said.

But Pay in 4 will only be good for transactions from $US30 ($41) to $US600 ($811), while Afterpay accepts transactions of up to $US2000.

“I think there’ll be a place for both, the success in the US will be stunted for Afterpay, for Sezzle, for Zip,” Amir said. “But we haven’t heard about Asia.”

The most dominant, Afterpay, also has $1.4bn in cash and “sticky, loyal customers” as well, Amir said.

Zip completes QuadPay purchase

Meanwhile, Zip announced on Tuesday it had completed its acquisition of US-based instalment company QuadPay, which it already had a stake in from when it bought New Zealand-based PartPay for $62.4m last year.

Zip bought QuadPay for 118.8 million in Zip shares – shares that are now worth more than twice as much as when the deal was announced on June 2. At $8.12 a share, the deal is worth nearly $1bn.

“We are thrilled to welcome QuadPay to the Zip family,” Zip chief executive and co-founder Larry Diamond said. “The US is a critical part of our global strategy as merchants increasingly demand global payment solutions.”

QuadPay delivers over 2 million customers and over $US70m in monthly transaction volume to Zip, he said.

Zip is already working closely with the QuadPay team, Diamond said.

The company has also issued $100m in convertible notes and an additional $100m in warrants to an affiliate of US-based Susquehanna Investment Group to drive global growth, he said.