Here’s why I like PayPal’s BNPL strategy more than Square’s


To put it mildly, the buy-now-pay-ulter (BNPL) industry has been on fire lately, so it’s no surprise that the fintech giants Pay Pal (NASDAQ: PYPL) and Square (NYSE: SQ) both want a share of the action. However, they take very different approaches: PayPal has created its own BNPL business from scratch and is growing it through targeted acquisitions, while Square is aggressively spending to simply acquire a ready-made BNPL business in the form of After-payment.

In this fool live Video clip, recorded on September 13, contributor Matt Frankel, CFP, explains to Focus on industry host Jason Moser why he’s more of a fan of PayPal’s approach.

Jason Moser: Well, speaking of buying now, paying later, and switching to the other side of the spectrum here, PayPal also announced last week that they are making an acquisition. It’s a relatively small acquisition by comparison, at least. But Paidy, a Japanese company that buys now and pays later, PayPal will acquire Paidy and integrate it into its network. I believe it needed $ 2.9 billion. They are mainly funded in cash by PayPal. This is not a big acquisition for a company like PayPal given that they have already built their own buy now pay later offer.

Some may ask, well, why would they buy this instead of just expanding their offerings? Often times, simply stepping into another geographic area of ​​the world can be much more difficult, even if you’ve built something that shows the promise, that the PayPal offer buy now pay later shows up here today at at the national level, being able to roll it out around the world is a little different. It seems they are buying this share in the Japanese opportunity. But looking at the numbers, that seems like a very reasonable bet on PayPal’s part.

Matt Frankel: I like it a lot more than I like Square spending $ 29 billion on it. Not just because it’s a tenth the price, I like the strategy of it better.

Moser: Move the decimal to just one and men, I would tell you it looks a lot better than that.

Frankel: Well, that’s a bolt on the acquisition. Unlike Square which tries to establish buy now pay later from scratch, PayPal has already done this. PayPal has already built a buy now pay later platform. Now they’re just trying to optimize that, I guess you would say. This brings them to the Japanese market. This makes them pay for these exclusive technologies.

Paydy uses proprietary technology to guarantee its loans in order to assess its creditworthiness. They have their own method of credit scoring to determine which consumer credit could ultimately be applied around the world. It is an impressive platform. It is the leader of the Japanese market, which is also the world’s third largest economy for e-commerce. This gives them a good head start in this market.

Square is not an international company at this point. After the compensation is present in a few markets, it is mainly Australia and the United States, where Square is already present. It doesn’t really open up the world. PayPal is already a global business. I love that they can take this leader in a really strong market and apply it to over 100 countries that they operate around the world. It seems like a better use of capital than just spending $ 29 billion to buy an established service, buy now pay later. It’s just my opinion. This is from a Square shareholder.

Moser: Well, this is from a shareholder in Square and PayPal. I tend to agree with you. When I look at this acquisition, it’s definitely a lot easier on the stomach. If that doesn’t work, that’s no good, but it’s not something that really shakes things up for PayPal anyway. But in your opinion, being able to take that and even expand the proprietary technology that they get, extend the intellectual property that they get from that acquisition globally, it could be very significant over time. time.

In particular, when you look at the Japanese market, I found this market quite fascinating, the Japanese market is always very rich in liquidity. About 70% of all purchases are still paid for in cash. The Japanese people as a culture, it seems, are much more averse to debt than probably others. That’s not to say it’s a bad thing, but it’s probably a challenge they’ll have to overcome to convince people that, hey, this is one way to buy what you want to buy if you want to. . If 70% of all your purchases are still paid for in cash, that means you probably have a lot of room to change people’s minds and show them there is another way.

But at the same time, it might be a little easier said than done. But probably, we want to see that number drop over time so that it’s an acquisition that really shakes things up, at least from a Japanese market perspective.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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