Is the BNPL market heading towards PayPal dominance?

Is the BNPL market heading towards PayPal dominance?


  • Online retail sales have gained huge momentum during the pandemic, with countries such as the US and Australia witnessing record increase in online retail turnover in 2Q 2020, compared to 2Q 2019
  • The retail sales have been strongly supported by merchants offering Buy Now, Pay Later payment option to their customers and witnessing exponential business growth in terms of revenue increase and consumer base.
  • Big fishes such as PayPal, which charge much lesser transaction fees from the merchants and have access to a broader customer pool, have entered the BNPL market to grab a share of the pie.
  • To sustain in the market, pureplay BNPL companies may now have to use new strategic measures such as slashed commission fees and making additional investments in marketing, leading to squeezed profit margins.

The pandemic has taken a toll on the world economy with GDP growth declining in various countries. Earnings across various industries such as travel, hospitality, and financial sector took a hit. Ironically, the retail industry, especially online sales, rebounded with great momentum from the early days of lockdown. The growth has been driven mostly by the demand stemming from the local market as international borders had been closed for a fair amount of time. It is believed that government stimulus played a major role in boosting consumption.

Huge momentum witnessed in Online Retail Sales

According to US Census Bureau of the Department of Commerce, the US retail e-commerce sales for the second quarter 2020 has been estimated at US$211.5 billion, up ~31.8% from the first quarter of 2020, and up ~44.5% from the second quarter of 2019. Total retail sales for 2020 second quarter has been estimated to be US$1,311 billion, decreased by ~3.9% QoQ whereas a decrease of ~3.4% from the previous corresponding year.

The Australian retail sector also has a similar story to tell. According to the Australian Bureau of Statistics (ABS), Ecommerce sales gained traction amid the pandemic. Total Australian retail turnover gained 3.2% in July 2020 and increased by 12.0% when compared to July 2019. Improved household goods retailing that witnessed a 29.4% increase from July 2019 contributed to the rise in the retail turnover. Household goods led the monthly rises as well with consumers purchasing large items for homes. Rebounding of restaurants, cafes, and takeaway food services along with clothing, footwear and personal accessory retailing also boosted July 2020 sales.

The BNPL industry is boosting consumption worldwide

Government stimulus has boosted the cash position of the people considerably, thus driving consumption in the economy. Though the economy is reopening in phases, people are still scared to visit brick-and-mortar stores, thus making online shopping a priority to buy household goods and appliances.

The Buy Now, Pay Later (BNPL) services have given many retailers with an online selling channel an option to boost their sales by providing easy payment option to its customers. The customers have also shown a preference for the BNPL service as it allows them to pay for the merchandise later but in a specific time period in instalments without paying interest.

For example, fintech company Afterpay Limited (ASX:APT) allows their customers to repay the credit amount in four instalments within a period of six weeks. Splitit Payments Ltd (ASX:SPT) provides customers options to split their repayments in the number of instalments most suited for them.

The US and UK, key target markets for ASX listed BNPL Players

Afterpay, whose key markets are Australia and New Zealand, has expanded its business into the US, UK, and Europe which led to a record-breaking increase in their overall customer base (up 116% YoY) and total merchant onboarding (up 72% YoY) in FY20 ended 30 June. The company also witnessed a 112% increase YoY in its FY20 merchant underlying sales, driven by the business growth recorded in the US and UK market.

Splitit recently partnered with QuickFee Limited (ASX:QFE), a professional services payment provider, to allow US and Australia based accounting and law firms clients to pay their fees on credit card using Splitit’s instalment solution. New York Headquartered Splitit, recorded 133% YoY growth in its 1H FY20 Merchant Sales Volume with gross revenue up by 244% YoY.

Also read: BNPL strong run on ASX & changing stance on stimulus: Are stocks done with the run-up?

PayPal enters the buoyant BNPL market

With pureplay BNPL players recording increased revenues and underlying sales along with improved customer and Merchant sign-ups, big fishes such as PayPal has also entered the market to grab a share of the pie.

PayPal has introduced its BNPL service “Pay in 4” recently. The service will be added to its wallet app. By adding it to its wallet, PayPal can easily extend the service to its 26 million merchants and 300+ million customers, enabling its merchants to offer the BNPL service to their customers for a purchase made. Additionally, PayPal is incorporating the service without charging any extra fee from its registered merchants apart from what they already pay as transaction fees.

Interesting Read: ASX BNPL Players Afterpay and Zip Co Share Price Down ~5%; PayPal Enters the Lucrative Industry

Survival of the fittest

PayPal, no doubt, has led a competitive spell in the BNPL market. PayPal charges 2.9% + US$0.30 per sale from US-based merchants, whereas the company charges a transaction fee of 4.4% for international sale plus a fixed price based on the currency used by the merchant.

The current BNPL players such as Afterpay or Sezzle Inc (ASX:SZL) charges higher commission fee than PayPal. Also, their customer base size and number of merchants on the platform is much smaller compared to PayPal.


To compete with PayPal, these pureplay BNPL players may have to slash their commission fee to attract more customers. To retain existing customers and invite new, they may have to invest more in marketing activities and create further pocket-friendly instalment options.

The companies also have to secure more funding through share placements or secure more debts to increase their geographical footprints, or to support business growth or sustainability.

With the pandemic taking time to subside and customers getting used to interest free credit with easy repayment options, the prospects of BNPL market seems bright for the near term. However, only the future will tell if the current BNPL players will be able to stand the test of time.

Good Read: ASX 200 Corner: Why investors can't get enough of Afterpay share price bump


Want to get exclusive insights into the star stock of the year? Gold stocks stood solid and ensured a safety net for investors.

Click now to access our report on Gold Stocks to understand how the rise in gold prices propelled the ASX-listed gold stocks, and many emerged as the star performer of the year.

Inside this report you shall discover

How the price trends of gold have got it where it is With the rallying gold prices and the record buying from Central Banks, the gold spot rose from $1,655.14 (low in December 2018) to $2,322.26 (high in August 2019). A promising return of over 40 percent was seen in the year 2019. Get exclusive insights into how the trends set the foundation for the performance and how Gold stocks seem to be a safe bet when you look back.

Which stocks you should have been looking at: Find out which stocks delivered promising returns to investors. Gold stocks such as Gold Road Resources Limited (ASX: GOR), Kirkland Lake Limited (ASX: KLA) Newcrest Mining Limited (ASX: NCM) delivered better returns against the S&P Commodity Producers Gold Total Return Index.



This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.


We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK