Paypal has today announced the launch of the ‘Pay in 4’ product, a short-term interest free buy-now-pay-later service for merchants in the US. Initially it will cover purchases of between $30 and $600 USD, with re-payments made over a six week period. Paypal is planning to launch their product early in Q4 2020.
With more than 300 million consumer and merchant accounts across more than 200 countries worldwide, Paypal is a global behemoth in the payment industry. For reference, Australian giant Afterpay has 9.9 million active customers, and 55 thousand merchants.
Its unsurprising that today’s announcement has caused some selling in Afterpay. Much of Afterpay’s valuation has been driven by expected continuation of current growth levels, but with more and more players entering the market some are beginning to question whether current growth levels can be maintained.
Much of their growth had been expected to come from the US market, but Paypal’s product launch today now brings this forecast growth into question. Especially given that Merchants will not have to pay additional fees to utilise Paypal’s offering.
Similar to Afterpay, Paypal’s ‘Pay in 4’ will also be free to customers, as long as they pay on time. Otherwise they will incur late fees.
Afterpay is also not the only buy-now-pay-later stock on the ASX that has taken a hit with today’s announcement. Peers such as Z1P, Flexigroup, Splitit, and many more are taking a hit, with today’s announcement potentially impacting their forward outlook.
Emerald Equities advisors have been worried that the current share price for Afterpay represent too much expected future growth. This growth may be achieved, but the risk of a large payment giant coming in and taking control of the market has not been adequately priced-in in our opinion. Paypal could also be the first of many payment giants entering the BNPL market, which has now grown large enough to attract some significant attention.
Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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