PayPal is rolling out a major change to its buy now, pay later (BNPL) services, which the fintech firm believes will help the growing number of shoppers battling financial pressure this holiday season.
On Monday, PayPal said customers will be able to earn 5 percent cash back when using BNPL between now and the end of 2025.
“As 60 percent of shoppers feel more financial stress heading into this holiday season, PayPal, one of the leading BNPL providers worldwide, is helping to make it easier to manage spending this holiday season,” the company said, citing a 1,000-respondent survey from September.
“With PayPal’s BNPL offering, shoppers can split purchases into convenient payments and earn cash back, thus making their money go further during the holidays.”
Why It Matters
Surveys have revealed that Americans are turning to BNPL loans at record levels. PayPal’s own data shows that over 80 percent of users will rely on the option in some way this holiday season, and believes its BNPL offerings will “make it easy for merchants to boost sales and loyalty by giving shoppers flexible payment options.”
Yet some perceive the growing reliance on BNPL—particularly for everyday essential purchases—as a troubling development and a sign of the growing pressures faced by the American consumer. Others caution that, without careful management, BNPL loans can evolve from a convenience to a debt trap for many shoppers.
What To Know
Shoppers will be able to take advantage of PayPal’s cash back offer through its app, and the company says this will apply automatically to all eligible in-store and online transactions until December 31.
PayPal offers two main BNPL options to help customers spread out their costs. “Pay in 4” lets customers split purchases of between $30 and $1,500 into four interest-free installments over six weeks with no fees. “Pay Monthly” splits purchases between $49 and $10,000 into monthly payments over three to 24 months, though this is an interest-bearing loan with fixed Annual Percentage Rates (APRs) ranging from around 10 to 36 percent.
PayPal is also planning to introduce Pay Monthly for in-store purchases in the U.S. “over the coming weeks,” which it said will provide shoppers “with more choice and flexibility to pay over time wherever they shop.”
“The expansion of PayPal Pay Monthly in-store provides shoppers access to the same flexibility, 5 percent cash back, and choice at checkout in store,” the company said on Monday. “Within the PayPal app, customers apply for their desired loan amount and once approved will be issued a single-use virtual card that can be added to their mobile wallet and used within 24 hours.”
What People Are Saying
Michelle Gill, general manager, small business and financial services, at PayPal, said: “Our customers seek payment options that make holiday shopping easier and more rewarding. With cash back on Buy Now Pay Later products, we’re giving them a smarter way to pay and more flexibility to shop the way they want. And for merchants, PayPal BNPL is a proven way to attract more shoppers and increase conversion during the busiest season of the year.”
Gwyneth Borden, founder and CEO of the credit-building firm Remynt, told Newsweek: “[Increased BNPL use] can be a strong indicator that many households are struggling to make ends meet. BNPL enables consumers avoid tapping into their available credit card lines or have the tradelines show on their credit report. This enables consumers to tap multiple BNPL providers, which can cause challenges for consumers managing the various payments.”
“Each BNPL provider operates a little differently, so understanding payment options and schedules is critical,” she added. “Some plans are interest-free, others aren’t—more extended payment plans generally come with higher interest and often aren’t a savings versus credit cards. Studies have shown that BNPL can lead to more impulsive and larger purchases because the immediate impact seems small.”
What Happens Next?
PayPal’s 5 percent cash back promotion will begin rolling out immediately, the company said.