Dive Brief:

• PayPal Holdings said Monday it’s giving consumers a 5% cash credit on buy now, pay later purchases online and in physical stores through year end as the company looks to expand its “omnichannel” strategy and expand installment lending to more brick-and-mortar merchants.
• The digital payments pioneer also began offering certain installment loans in retail stores, as opposed to just online, the company said in a press release. The loans can be for up to $10,000 with repayment over two years at interest rates of up to 35.99%. PayPal began offering these pay monthly loans at physical stores in May in Germany.
• PayPal views its first BNPL cash back promotion as a way to entice more shoppers to try the loans and to reduce cart abandonment for retailers during the holiday shopping period, Michelle Gill, PayPal’s general manager of small business and financial services, said Friday in an interview. Other BNPL providers, including Klarna Group, have previously used cash-back promotions.

Dive Insight:

PayPal began emphasizing its omnichannel sales effort last year with a marketing campaign focused on persuading consumers to use the payment service for more routine daily purchases, both online and in the physical world of coffee shops, gas stations and grocery stores.

The company, based in San Jose, California, has previously offered the same cash credit for use with its debit Mastercard. PayPal is now trying to expand its installment lending as part of that campaign with a new push into the physical retail environment. 

BNPL use at physical stores remains “relatively nascent for most players, but it is definitely a focus area for most players,” Gill said. “With the advancement of technology, a lot of it can now be availed through digital wallets, which makes it just much more accessible.”

PayPal first offered consumer financing in 2008 and introduced its “pay in 4” BNPL installment product in August 2020. Last year, PayPal had about $33 billion in BNPL payment volume, a 21% increase over 2023, the company said last month in a press release.

Younger consumers spend more on debit cards than credit and “they tend to be very cash-flow focused in the context of ensuring that they can repay,” Gill said. PayPal is trying to attract people to consider BNPL purchases as “a phenomenal cash flow planning tool that allows you to really know exactly when the payments are due,” she said.

PayPal is pushing its loan products as retailers head into a holiday buying season with flagging U.S. consumer confidence and a job market that has begun showing signs of contraction. Moreover, consumer prices for many goods are beginning to rise with the impact of the Trump administration’s import tariffs.

More than a quarter (27%) of U.S. consumers expect to spend less this holiday season, while 80% said they prefer shopping at a physical store, according to a recent report from credit bureau Experian.

BNPL is “a tool that reduces cart abandonment and also boosts conversion, which we think is really important for merchants, and they'll be particularly focused on this holiday season,” Gill said, with conversion referring to BNPL’s ability to turn retail browsers into actual buyers. Consumers using BNPL services also make “substantially higher average order values,” she said.

The 5% amount will be applied as a credit in a customer’s account, a PayPal spokesperson said Monday. The cash back promotion isn’t available in Alaska, Connecticut, Hawaii and Washington.

The in-store longer-term monthly loans can be made through PayPal’s app and issued on a Mastercard-branded virtual card for a one-time use within 24 hours at merchants that accept Mastercard, Apple Pay or Google Pay.