PayPal's Rise in Buy Now, Pay Later (BNPL)

The COVID-19 pandemic has significantly altered American consumer behavior, particularly in the realm of shopping. With e-commerce projected to experience a 20% increase in 2020 as more consumers move their purchases online, Button anticipates a parallel shift in payment preferences. Alongside growing financial concerns among the public, there is an expectation of a substantial rise in the use of “buy now, pay later” (BNPL) payment options at the point of sale.

A primary factor influencing BNPL adoption is its accessibility, specifically whether retailers offer these programs to their customers. Integrating a BNPL program into a retailer’s existing point-of-sale system is a complex undertaking, creating a considerable advantage for established providers. Leading companies in the BNPL sector include Klarna, Affirm, Afterpay, and Quadpay, with PayPal recently announcing its entry into the market with its own BNPL services in August.

To understand the current landscape of BNPL adoption as the shopping season approaches, mobile commerce platform Button analyzed data from its marketplace. This examination focused on the number of retailers offering BNPL programs, the prevalence of each program, and the extent of direct competition between them.

Leveraging Button’s Commerce Intelligence, we examined consumer payment methods within our marketplace over the last 90 days. The analysis encompassed almost 500,000 transactions across more than 300 retailers. Key findings from this review include:

• The analysis identified five alternative payment solutions available: Afterpay, Affirm, Klarna, QuadPay, and PayPal. Although PayPal’s payment option isn’t solely a BNPL service, it was included to demonstrate the strong base from which it can expand its BNPL offerings compared to its competitors.
• PayPal demonstrated the broadest retailer coverage, appearing at 65% of retailers. Afterpay followed at 10%, with Affirm at 6%, Klarna at 5%, and QuadPay at 2%.

Considering the extent of their retailer networks, the other payment solutions showed the following overlap with PayPal: Klarna (87%), Affirm (80%), AfterPay (77%), and QuadPay (60%).

Out of 218 retailers offering an alternative payment solution at checkout, 50 retailers (26%) provided multiple options. PayPal was the sole alternative payment choice for 155 retailers (71%). PayPal was not available at only 14 retailers (6%).

 

Due to its greater retailer coverage, PayPal was also the most accessible alternative payment solution. It was an option for 89% of all transactions where an alternative payment solution was presented. The other payment solutions had the following transaction coverage: Affirm (15%), AfterPay (8%), Klarna (6%), and QuadPay (<1%). For 3% of the transactions analyzed, no alternative payment solution was available.

Current adoption rates suggest that BNPL is still in the early stages of growth. Among their respective potential transactions (where an alternative payment solution was available), PayPal was the most frequently selected at 13%, followed by AfterPay at nearly 7%. Klarna and Affirm were each chosen for approximately 5% of transactions, while QuadPay accounted for less than 1% of selections when offered.

Although consumers choosing PayPal weren’t necessarily utilizing PayPal’s BNPL feature, the company’s extensive market presence positions it favorably to lead the BNPL space as the 2020 holiday season approaches. AfterPay, Klarna, Affirm, and QuadPay will also likely benefit from the anticipated increase in BNPL adoption.

However, their limited differentiation – with all providers generally offering payments in four interest-free installments – and comparatively smaller market reach indicate that they must significantly expand both retailer coverage and user adoption to effectively compete with PayPal at scale.