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Sunday, September 19, 2021

Explained: The PayPal-Paidy deal, and interest in the ‘buy now, pay later’ space

PayPal is buying Paidy, a 'buy now, pay later' firm, for $2.7 billion. What is the BNPL payment option, which has become very popular? Is it prevalent in India?

Written by Pranav Mukul , Edited by Explained Desk | New Delhi |
Updated: September 9, 2021 8:04:50 am
PayPal Paidy acquisition, PayPal buys Paidy, Buy Now Pay Later, Buy Now Pay Later India, PayPal news, Indian ExpressPayPal is buying Paidy for $2.7 billion

American payments giant PayPal has agreed to buy Japanese ‘buy now, pay later’ (BNPL) firm Paidy for $2.7 billion, in what is yet another major deal in the segment after Twitter CEO Jack Dorsey-run Square bought Australian Afterpay for $29 billion last month.

What is buy now, pay later (BNPL)?

The BNPL model has evolved over the years as a payment option to buy goods and services online through small sized credits. In this model, unsecured loans are extended to online shoppers on the lines of a credit card, but these are smaller in amount and have a shorter repayment schedule.

Over the last one year, BNPL companies across the world have seen a boom in their business, and experts suggest this is happening on account of the stimulus money being pumped into the system by the US government, particularly because of diminished spending capabilities caused by Covid-19 pandemic.

However, some economists are also looking at BNPL as a potential debt-trap for millennials.

Reportedly, iPhone maker Apple is said to be in talks with Goldman Sachs to launch its own BNPL service.

Why has PayPal bought Paidy?

In a statement, PayPal said: “The acquisition will expand PayPal’s capabilities, distribution and relevance in the domestic payments market in Japan, the third largest e-commerce market in the world, complementing the company’s existing cross-border ecommerce business in the country.”

The American company is already considered a key player in the BNPL market, holding stakes in companies such as Sezzle and Z1P.AX Co Ltd.

In an investor presentation, PayPal noted that shopping volume in Japan has more than tripled to around $200 billion in the last 10 years, but more than two-thirds of all purchases are still paid for in cash, thereby presenting a huge opportunity for BNPL to proliferate.

Is BNPL prevalent in India?

In India, there are several BNPL wallets that are prevalent in e-commerce, grocery, and food delivery platforms. These include PayU-run LazyPay, Simpl, Zest Money, Amazon Pay and Paytm Postpaid, in addition to several pay later services being offered by banks such as ICICI Bank.

Goldman Sachs has predicted that BNPL will rise to become the fastest growing online payment option, with its market share growing from 3 per cent now to 9 per cent in 2024.

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