Paypal Is Rolling Out Its Own ‘Buy Now Pay Later’ Service in the UK

By Mariliana Fotopoulou Wednesday, October 14, 2020

PayPal announced it is rolling out a new "buy now, pay later" (BNPL) service in the United Kingdom that allows consumers to pay their purchases in monthly installments without interest.

While PayPal is common for its online payment services, the company has actually been growing its credit business for years since the acquisition of the lending service Bill Me Later.

PayPal Takes on Klarna

The online payments giant is now launching another service similar to those of Klarna and Afterpay, which are known for their point-of-sale loans services. Paypal launched its “Pay in 4” service in the United States in September and is now expected to roll out a similar product in the United Kingdom called "Pay in 3."

"What we've seen over [the] last 6 months or so is a significant rise in the shift from physical to digital transactions across the whole of the UK retail base," said Rob Harper, PayPal's UK director of enterprise accounts.

"We've also seen the rise of buy now, pay later solutions in the market; brands like Klarna, but also smaller brands that are entering into the market that are not as recognizable as PayPal."

This trend is becoming increasingly popular as several major companies have introduced similar services that let users finance their purchases in monthly payments. The concept of monthly payments is something that’s been around for years, but it was usually popular with large purchases like furniture.

However, online payment and fintech companies are now looking to roll out their own “buy now pay later” services for products that cost much less.

The basic idea behind these point-of-sale loans is to allow consumers to finance their purchases in increments and without interest. However, moving forward, the company may ultimately charge some interest and late or processing fees.

Furthermore, they may even ask for a percentage of the transaction price. This summer, Ascent released a study that found that more than a third of American consumers have used a "buy now, pay later" service. The majority of the participants said they used a service like this to avoid paying credit card interest or purchase something out of their budget.

"There's no question this is on the rise," said JMP Securities analyst David Scharf. "The application of pay later in a digital environment has definitely gained traction."

Better Than Competition

PayPal believes that its new service has the upper hand against its rivals Klarna, Clearpay, and Laybuy, because of brand recognition. The number of Paypal customer accounts has surged by 300% year-over-year in Q2 and now serves over 24 million active users in Britain, compared to Klarna’s 10 million.

The company’s new service will allow customers in the UK to make payments in increments of three per month, a “Pay in 3” option, for products that cost between £45 ($59) and £2,000 ($2,600). The payment schedule was decided in this manner since residents in the UK are paid on a monthly basis as opposed to Americans who are typically paid biweekly, according to Harper, who added that PayPal was a "responsible lender" and would run "affordability checks" on transactions.

However, some critics believe that this fast-developing trend could lead younger consumers to easily fall into debt. Still, PayPal, Klarna, and other companies offering similar services assert that they have precautionary measures in place to prevent this from occurring.

“The ultimate test of our ability to ensure that consumers are only buying what they can afford is our default rates,” Klarna said.

“Fewer than 1% default on a payment with us and that number has stayed constant throughout the lockdown period. The fact that this number is so low, and without the threat of late fees or interest accumulating, suggest to us that the vast majority of consumers are using our service to better manage their shopping within their means.”

But the Swedish company is facing a possible crackdown from financial regulators, with the Financial Conduct Authority reviewing Klarna and other “buy now pay later” operators as part of an investigation into the unsecured credit market that emerged in September.


Paypal is launching its own “buy now pay later” service in the UK, allowing consumers to finance their purchases in monthly increments and with no interest. This way, the payment-processing giant is taking on Klarna and Afterpay, which are known for their point-of-sale loans services.

About the Author

Headshot for author Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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