It's not surprising this headline is giving the BNPLs a whack today, but I think the issue is far more nuanced. There is a reason that PayPal and the banks have waited so long to get involved in BNPL, which is that over the short-medium term, BNPL is a rubbish business to be in - to be successful there are material up front costs, large losses and a lot of competition. Having said that, like APT is seeing in Australia, once you finally get to a position of some maturity, the model can work OK. PayPal and the banks already have highly profitable businesses in financial transactions, credit cards, other debt products etc - BNPL is probably more of a pain in the a*se than an attractive new opportunity, yet clearly one that is eating away at part of their businesses.
I think the concern here is overblown - I can't imagine BNPL is a business that PayPal actually want to be in, and not charging any additional transaction fees could result in significant losses for them, which I assume strategically they are willing to absorb. The problem for them is that these lower fees offer no incentive for the end-user to choose PayPal over any other BNPL provider at the checkout. This is why for me user growth is probably the single most important metric in this industry at the moment - my assumption is that users could be 'sticky' with the BNPL provider/s they already have accounts with, so at checkout there is potentially no incentive to choose PayPal's offering over APT or SZL or any other provider. This however of course works both ways and is the reason why its imperative SZL get as many users on board as possible. I think many people think the entrance of Shopify's offering, or Visa's offering, or PayPal's offering will somehow wipe everyone else out - I would argue these moves will actually accelerate the mainstream adoption of BNPL throughout the US economy even faster. It was an interesting insight that the SZL CEO mentioned in one of the calls a little while back that he believed the arrival of APT in the US was a major driver in the growth of the SZL business, as BNPL suddenly came onto the radar with a large player. Given the minuscule penetration rate of BNPL in the North American market, I think moves like these could provide even further catalyst for growth. My main concern could be the downward pressure this places on transaction fees, as the 6% charge could become a bit unpalatable compared to 2.9%, but if consumers continue to choose APT/SZL at checkout, businesses will likely pay a marginally higher fee.
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