PayPal Acquires Japanese Buy Now, Pay Later Startup Paidy For $2.7 Billion

By REINHARDT KRAUSE

Paypal Holdings on Wednesday said it's acquiring Japanese "buy now, pay later" consumer financing startup Paidy for about $2.7 billion. PayPal stock fell amid the overseas strategic move as the Nasdaq also retreated.

Featured as the IBD Stock of the Day on Tuesday, PayPal stock fell 2.7% to close at 285.23 on the stock market today.

Buy now, pay later, or BNPL, installment payment services are encroaching on the credit card industry. Merchants offer BNPL financing to consumers primarily during checkout when they shop online.

"We feel the deal is quite geographically limited to Japan and is not easily scaled to new geographies," said Barclays analyst Ramsey El-Assal in a report. "Paidy is generating around $1.5 billion of run-rate gross merchandise volume as of July 2021, has 6 million registered users and more than 700,000 merchants including Amazon.com, Rakuten, and the rest of the top 10 Japanese marketplaces."

Digital payment company Square on Aug. 1 agreed to purchase buy now, pay later provider Afterpay in an all-stock, $29 billion deal. E-commerce giant Amazon announced Aug. 27 that it's working with BNPL provider Affirm Holdings, sending Affirm's shares soaring.

Buy now, pay later services generally split payments into three or four equal installments over two months or less.

PayPal Stock: Getting Higher Fees Than Credit Cards

BNPL is a way to spread out interest-free payments for consumers. They also can avoid transaction fees if they pay on time. Meanwhile, merchants generally pay BNPL firms fees of 4% to 5%, offering a boost to PayPal stock and others in the game. That's higher than the 2% transaction fees they pay credit card companies.

Roughly 80% of consumers use debit cards to pay off their BNPL transactions, deducting money from checking accounts rather than putting it on their credit cards.

Before acquiring Japan's Paidy, PayPal developed its own buy now, pay later service, which it rolled out in the U.S. in late 2020.

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Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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