As the buy now, pay later (BNPL) category begins to heat up, PayPal Holdings Inc. is making moves to stay competitive. Starting October 1, 2021, the company plans to stop charging late fees for missed payments on new purchases made through its BNPL offering, Pay in 4.
“Building on the success of our Pay in 4 launch in Australia without late fees, we know that eliminating late fees delivers an even better buy now, pay later experience that provides incredible value to our consumers and merchant partners. We’re able to help provide consumers peace of mind as they manage their plans on their terms while also helping merchants increase sales conversions,” said Greg Lisiewski, Vice President of Global Pay Later Products at PayPal.
“This change is closely coupled with PayPal’s mission and values as we seek to remove hurdles that provide financial services to customers of all types while helping our merchant partners succeed in the changing retail landscape.”
The new change will benefit shoppers utilizing the installment service in the U.S., U.K. and France. It follows the company’s move to not charge shoppers in Germany and Australia for late payments.
Prior to the upcoming changes, to prevent delinquencies, PayPal has looked to utilizing a calendar app and reminder features to help customers stay on track with their payments. The company also offers an extended grace period of three or ten days for PayPal Pay in 4 users to catch up on missed payments in the U.S.
During a period in which payments are missed, PayPal’s current late-fee policy enables the company to charge a late fee of up to $10 per missed payment. But this policy varies across the U.S. as PayPal is not allowed to charge any late fees to residents who reside in Mississippi, Pennsylvania, Delaware, Indiana, Maine, Arkansas, Oregon and Maryland.
Customers who fail to make any payment at all ultimately shift into a “delinquent status.”
The move to offer drop late fees for the BNPL offering is part of PayPal’s effort to appeal to millennial and Gen Z consumers, who tend to be more budget-conscious and debt-averse than older generations. Furthermore, the move is also likely to help merchants drive conversion, revenue and customer loyalty without the merchant taking on additional risk or paying additional fees.
The offering is proving to be a success as, since its launch in August 2020, the service has processed more than $3.5 billion in total payment volume (TPV), with more than $1.5 billion coming in Q2 alone. The company has plans to roll out the installment payment offering to new countries in Europe later this year.
“Our customers have had the option to use PayPal Pay in 4 since October 2020, and we’ve seen an incredible response and adoption as our customers experienced different economic situations and wanted flexible payment options,” said David Oksman, Vice President Marketing & Ecommerce, Samsonite.
“We’re very excited about PayPal’s decision to no longer charge late fees, as it provides value for our consumers while also giving them the reassurance that a missed payment will not incur additional financial penalties.”
Travel luggage company, Samsonite, began offering PayPal Pay in October 2020 and since then, it has witnessed a 25 percent lift in average order value among customers that utilize the service.
The payments company originally launched its pay-in-four solution in 2020 to the U.S., France and the United Kingdom with four installments in the first two countries and three in the third, respectively.
The move to ditch late fees for missed payments comes as the BNPL category has started to see tremendous traction over the past year. The move also follows Square’s to acquire Afterpay in a $29 billion all-stock deal that is expected to close in the first quarter of 2022 and Klarna’s recent $46 billion company valuation.