PayPal will stop charging late fees when customers miss payments on buy now, pay later (BNPL) purchases worldwide, in an effort to attract customers amid booming market competition.
As of October 1, purchases from customers in the US, UK and France will no longer be subject to late fees, while the company’s BNPL services in Germany and Australia are already void of late fees.
BNPL services have grown rapidly during the pandemic thanks to their popularity among online shoppers, and the market swelled to £2.7bn last year.
PayPal’s latest move is a clear tactic to attract online shoppers to its service over competitors such as Klarna, which recently scored a $45bn valuation, and Clearpay.
According to a recent survey by PayPal, 33 per cent of consumers say that no late fees are an important feature when choosing a BNPL option.
Gen Z and Millennial shoppers particularly favour the option, with 57 per cent saying it was a “smarter way to shop”, and 37 per cent saying it gave them “more control of their finances.”
The service enables buyers to delay payment with no incurred interest, for up to 30 days after purchase, or alternatively to spread repayment across six weeks to four month installments.
“We know that eliminating late fees delivers an even better buy now, pay later experience that provides incredible value to our consumers and merchant partners,” said Greg Lisiewski, vice president of pay later products at PayPal.
“We’re able to help provide consumers peace of mind as they manage their plans on their terms while also helping merchants increase sales conversions.”
It comes after the BNPL sector has raised eyebrows amongst global regulators and come under fire from campaigners warning that it can encourage consumers — particularly younger shoppers — to rack up debts.
The sector is not currently regulated and relies on an exemption from consumer credit rules, though this has led to inconsistent practices.
In the UK, where the use of BNPL transactions tripled in 2020, the Financial Conduct Authority (FCA) said it plans to regulate the products and bring in new rules, including forcing providers to carry out affordability checks.
A consultation is expected in the next few months.