PayPal launches buy now, pay later product in crowded U.K. market

PayPal has launched a new buy now, pay later (BNPL) product in the U.K. called “Pay in 3” to take on rivals Afterpay, Klarna and others ahead of the winter holiday shopping season.

The new Pay in 3 BNPL program is available to all U.K. merchants for purchases of £45 (about $59) to £2,000 (about $2,600). The program splits that cost into three interest-free payments. The first payment is due at time of purchase with the remaining two payments made as automatic withdrawals in the following two months (one per month). The Pay in 3 product will appear in customers’ PayPal wallets so they can manage their payments online or through the PayPal app.

“During the coronavirus pandemic, we have seen the number of people in the U.K. shopping online increase dramatically,” said Rob Harper, U.K. director of enterprise accounts at PayPal, in the release. “At the same time, many more consumers are looking to spread the cost of those purchases. We have developed PayPal Pay in 3 to meet that need, building on our heritage as a responsible lender through PayPal Credit, which we launched in the U.K. in 2014, and has served more than two million customers to-date.”

The launch of Pay in 3 takes advantage of the upcoming winter holiday shopping season which includes Black Friday and Christmas. It also comes at a time when PayPal is attempting to take the wind out of the sails of its competitive rivals who have been gaining traction in the U.K. and other markets, in particular Afterpay and Klarna.

Australia-based Afterpay launched in the U.K. in the summer of 2019 and has built up a base of 1 million active customers. This market entry came just one year after Afterpay entered the U.S., where it has garnered 5.6 million active customers.

Swedish rival Klarna has been aggressively growing in Europe and the U.S. with a wide array of BNPL products that include the more traditional installment loans to the short-term deferred charge program of splitting purchases in four no-interest installments. Most recently Klarna has been eyeing an IPO in the U.S. as it expands its BNPL offerings globally.

According to the FIS 2020 Global Payments Report, BNPL has a 3% market share in the U.K. compared to just 1% in the U.S. Additionally, the report predicts that BNPL products will grow within the EMEA region, where the U.K. is the biggest e-commerce market, to a 9% share by 2023. This prediction may be conservative given that it was made before masses of consumers flocked to the internet during the COVID-19 pandemic.

According to the U.K.’s Office of National Statistics, the average monthly penetration of e-commerce as a percentage of total retail sales spiked to 32.8% in May during the U.K.’s COVID-19 lockdown. Despite the country re-opening later in the summer, e-commerce sales have remained high, with August numbers showing a 26.6% penetration level.

In August PayPal launched its “Pay in 4” program in the U.S., following a similar launch in France targeting small businesses in July. During its second quarter earnings call, PayPal CEO Dan Schulman stated: “I’m pleased to say that PayPal just had its strongest quarter since becoming an independent public company five years ago."