PayPal recorded a massive 25% revenue growth year-on-year, and they expect to add 70 million users to their platform amid the pandemic. In Australia for instance, the number of PayPal sign-ups has more than tripled in 2020. In April, according to the company itself, they processed the highest number of transactions and the total value of payments in a single month since it entered the market back in 2015.
The success is not unique to PayPal either, Aussie-owned online payment option POLi, has also been reveling. Both payment processors have become the go-to choices for consumers and many different marketplaces from ecommerce to iGaming. In iGaming for example, there’s a good amount of bookmakers that offer POLi as a payment method alongside PayPal.
PayPal’s Credit solution is attempting to attract new customers by offering what is effectively an interest-free four-month loan but there are some things to consider before diving in headfirst.
What is PayPal Credit?
PayPal Credit is a service offered by the company since 2016 that lets people use their PayPal account as a defacto, online-only credit card. Like any other credit facility, if you pay the entire balance before the due date no interest fees are charged.
However, in order to attract new people to the service, PayPal Credit has created a provision for users to spread any purchase of more than £99 over four months in three payments that will also be interest-free, as long as the minimum payment is met each month.
Handle with Care
While this sounds like an unbelievable deal, and a new account can be set up in seconds, it is vital to remember that it is still a credit facility that comes with all of the same pitfalls as a regular credit card and a couple of other unique issues besides.
Interest-free is great, but it will only stay that way if payments are met timeously and in full. PayPal’s interest rate for those that fall behind is high at 19.9%. And, if you fall really behind and are not even able to meet the minimum repayment of 2% of the outstanding balance, late fees of £12 will be added every month as well.
On top of that, the application process results in a hard credit rating check which, unlike the soft checks banks do before issuing a credit card, will impact your credit rating whether it is accepted or not. So if you are planning on asking your bank for a car loan or mortgage anytime soon, it might be best to hold off on the PayPal Credit application.
What Next For PayPal Credit
The unprecedented growth in online payments this year was a bit fortuitous for PayPal given the circumstances were completely out of its control. Put simply, it got a bit lucky. However, that doesn’t mean the good times won’t continue to roll, because the company is doing an excellent job of leveraging its success to expand its product offering and value proposition to users.
Moving into the buy-now-pay-later marketplace is a bold move for PayPal considering how much competition it will be going up against around the world. The entire industry is potentially facing increased regulatory pressure because it could be considered “unsecured credit”.
But, instead of being a deterrence for PayPal, the company feels this uncertainty around the industry will be a benefit for them. Its platform doesn’t charge interest, so it is consumer-friendly and is only one payment option among many offered to customers. This means, instead of being seen as “unsecured credit”, PayPal believes its platform will actually remove much of the stress and uncertainty from making purchases online.
“What we have a chance to do is simplify the landscape from the consumer lens,” PayPal’s vice president and general manager of consumer credit, Greg Lisiewski, told Pymnts.