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PayPal to Enter Point-of-Sale Finance with New Feature, “Pay in 4”

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This year has seen the rise of point-of-sale financing, a modern alternative to credit card shopping that allows consumers to purchase items in several small payments instead of a lump sum. Want that new TV, but can’t afford it? Well, for 4 easy payments of $29.99, it can be yours!

Two of the leaders of the finance trend are Afterpay, an Australian company that has an $18 billion market valuation, and Affirm, a San Francisco endeavor that is flirting with the idea of an IPO within the next year.

But now, one of the biggest players in financial tech intends to establish a position in point-of-sale: PayPal. Here’s what you need to know about PayPal’s next big project.

Pay in 4

PayPal’s new feature, Pay in 4, will let you pay for any item that costs between $30 and $600 in four installments over six weeks. It is similar to its leading competitors, but with a few key differences that could make it more attractive to both buyers and sellers.

Afterpay, for one, charges retailers a 5% fee on every transaction. And while it doesn’t charge interest to consumers, it hits them with a fee for late payments. Meanwhile, Affirm also charges retailers a transaction fee, in addition to the 10-30% interest it charges consumers. They charge no late fee.

PayPal’s new feature combines some aspects of both, while lowering costs all around. Pay in 4 won’t charge interest to shoppers, nor will it hit sellers with additional fees. If you’re late on a payment, however, it will charge you a late fee of up to $10.

What is PayPal’s advantage?

PayPal already has a dominant, profitable network it can leverage to undercut the competition. In fact, 80% of the top 100 retailers in the US allow customers to use PayPal for transactions. Meanwhile, about 70% of online shoppers in the States already have a PayPal account. The company makes its money by charging retailers a 2.9% transaction fee, plus $0.30 on every purchase. But amid COVID-19 shutdowns, online purchases skyrocketed, contributing to a record-breaking year for PayPal. Just in 2020, it has garnered $5.3 billion in revenue.

But if the company is already doing so well, why branch out into a fledgling market? Well, data from Afterpay shows that consumers spend more money (sometimes as much as 20% more) when they’re offered a point-of-sale financing option. When PayPal launches Pay in 4 this fall, it expects to see an increase in transaction size. And by earning 2.9% on each transaction, PayPal predicts its revenue will increase at the same rate.

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