PayPal launches credit card to take on Afterpay, big banks

James EyersSenior Reporter

Jun 9, 2021 – 5.00am

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PayPal is hedging its bets on the buy now, pay later sector, extending its debit-based online offering into old-school, plastic credit cards to allow customers to splurge in physical stores.

PayPal’s diversification in Australia points to Afterpay’s growing isolation as a pure-play provider of “pay in four” instalments. PayPal, along with Zip, Humm and Klarna, offer both interest-free, short term repayment plans and longer-term, interest-bearing credit products.

PayPal Australia’s Andrew Toon: “We are focused on delivering a one-stop payments shop.”

Retail payments data released by the Reserve Bank on Monday showed a 29 per cent annual fall in the value of goods being bought on credit and charge cards.

The growth of buy now, pay later has partly been a product of Millennials cutting up their credit cards.

But PayPal – which has 9.1 million active Australian customers – says many of its users still want a credit card, especially if it has no annual fee and accrues points that can be spent on a wider range of options.

“There is no silver bullet when it comes to payments,” said Andrew Toon, general manager of payments for PayPal Australia. “We are focused on delivering a one-stop payments shop.”

He points to a different RBA data set: a 2020 bulletin, showing the share of credit card payments, as a proportion of all payments, flat at 19 per cent between 2013 and 2019.

He says many credit card users have been left with frequent-flyer points they cannot spend because of COVID-19 border restrictions, but the PayPal card will hold points in the digital wallet and allow them to be redeemed via discounts at any of the 300,000 merchants integrated in Australia. The move could put pressure on banks, whose credit cards offer frequent flyer points or discounts out of a catalogue of goods.

PayPal’s push into the traditional territory of the major banks comes after ANZ chief executive Shayne Elliott was forced to defend ANZ’s card strategy in parliamentary hearings in Canberra in April.

He denied ANZ was trying to lock customers into high-fee credit cards ahead of a deadline for ASIC’s new Design and Distribution Obligation, with the bank offering an $800 gift card, bonus of 180,000 reward points and no annual fee for the first year on a big points card.

The new PayPal credit card will be issued by Citi, under a white-label arrangement. That comes as Citi, the fifth-largest provider of credit cards after the four major banks with an 11 per cent market share, is selling its credit card book in Australia as it withdraws from consumer banking in multiple countries.

PayPal said the Citi sale will not change its credit card proposition.

PayPal is not the only innovation in the credit card market. At a technology briefing last month, Commonwealth Bank chief executive Matt Comyn said its no-interest credit card known as Neo was accounting for 30 per cent of all credit card applications at the bank, and the number is rising towards 40 per cent.

Card points are also extending into other financial services verticals. Symple Loans on Tuesday announced a partnership with Qantas Frequent Flyer that will see it grant one Qantas point for every dollar borrowed, up to 50,000 points, for personal loans.

Mr Toon said PayPal, which has grown its user base by providing secure debit payments for online shipping, is keen to push into physical retail at the point of sale, which is still where the majority of retail commerce takes place despite the COVID-19 online shopping boom.

“PayPal is looking at its options to move in-store, and this is the first step,” he said. “We will continue to look at capabilities.”