Visa Moves Into Buy-Now-Pay-Later To Counter Threat From PayPal, Others

Visa (V) is venturing into the domain of rivals such as PayPal Holdings (PYPL) by creating so-called buy-now-pay-later installment payment services for its credit card-issuing customers, the company says. The news comes as Visa stock has been in or near a buy range of late, as has PayPal stock.


Visa is quietly rolling out pilot buy-now-pay-later services, also known as BNPL, in the U.S., Canada, Russia and Malaysia. The credit card giant has set up a BNPL website for credit card issuers — mainly banks and credit unions as well as financial technology companies — that use its payment network. Merchants offer BNPL financing to consumers primarily during checkout when they shop online.

Visa hopes to counter the threat of PayPal, Affirm Holdings (AFRM) and possibly Apple (AAPL), which are encroaching into the consumer financing space.

Consumers typically use BNPL installments when buying media and large ticket items such as electronics and furniture, according to Visa. They generally split payments into three or four equal installments interest-free, and avoid transaction fees if they pay on time.

For most buy-now-pay-later transactions, consumers now use debit cards that deduct money from a checking account, analysts say. Merchants, though, pay BNPL companies a fixed fee as well as a small commission.

Visa Stock: Making It Easier To Provide Loans

Visa aims to make it easier for banks such as Wells Fargo and Chase to provide installment loans to consumers. While BNPL services have focused on online shopping checkout, Visa has developed pre- and post-purchase options for credit card issuers.

The company calls the program Visa Installments Solution, company spokeswoman Caroline Capers said in an email. She added that Visa expects to make announcements in “the coming weeks and months.”

“We believe there’s potentially room for as many different BNPL solutions as there are consumers who want to use them,” Capers said in an email.

And unlike PayPal and other buy-now-pay-later providers, which screen consumers for credit worthiness, Visa will not perform risk assessment on whether to extend installment loans for credit card issuers. But Visa has created network-level services so that credit card firms, fintech companies and merchants can exchange relevant information. Credit card firms will set their own financing terms.

There are some 336 million Visa credit cards in circulation. MoffettNathanson analyst Lisa Ellis says Mastercard (MA) is taking a similar approach.

“Visa and Mastercard have been building out this functionality in response to BNPL’s popularity — they have had it in progress for several years — with the overall goal to democratize BNPL and ensure it runs over (credit) card rails,” Ellis told Investor’s Business Daily.

PayPal Jumped In Last Year

Ellis added that BNPL can be positive for the credit card networks because it splits a single purchase into several transactions, which helps their per-transaction revenue.

“Visa and Mastercard like to democratize payment capabilities — they standardize services and offer them to all players,” Ellis added. “So  they are lowering the barriers-to-entry for BNPL — not good for PayPal, Afterpay, Affirm, and Klarna.”

PayPal jumped into BNPL services in late 2020. Analysts expect buy-now-pay-later services to provide a boost for PayPal stock, which belongs to the IBD Leaderboard.

BNPL services could be a topic on the earnings call with analysts when San Francisco-based Visa reports second-quarter earnings on July 27. Visa stock holds a Relative Strength Rating of 64 out of a best-possible 99. PayPal stock holds a Relative Strength Rating of 85.

“BNPL has only recently entered the retail credit spotlight and has gained a foothold in several markets, boosted by a pandemic-induced rise in online shopping,” FitchRatings said in a recent report. “Focused on technology and youth-oriented marketing, BNPL is encroaching on space traditionally occupied by point-of-sale finance and credit cards.”

“The consumer appeal of BNPL lies in the simple user experience, desire to avoid high interest rates or other fees, and the convenience of not having to wait for refunds if purchased goods are returned,” said the FitchRatings report.

Visa stock is an investor in Sweden’s Klarna, another BNPL player. Other BNPL companies include Afterpay, Sezzle, Paidy and SplitIt. BNPL companies have forged ties with online merchants.

Apple, Others Reportedly Interested

In a July 14 report, analyst Christopher Brendler from D.A. Davidson said private label card issuers such as Synchrony Financial (SYF) and Alliance Data Systems (ADS) seem more likely to get involved in buy-now-pay-later financing.

“Increasing competition is to be expected given BNPL’s rapid consumer and merchant adoption,” Brendler said in a note to clients. “We expect traditional credit providers to also get involved including the networks (Visa, Mastercard), credit card issuers, and private label card issuers.”

Apple is working on a BNPL service, Bloomberg recently reported. While Bloomberg reported that Apple is partnering with Goldman Sachs (GS), Ellis said Mastercard also could be an Apple BNPL partner.

Apple stock is extended above a flat-base entry point.

If you’re new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns is one key to the investment guidelines.

IBD offers a broad range of growth stock lists, such as Leaderboard. Investors also can create watchlists, find equities like Visa stock or PayPal stock in or near a buy point, or develop custom screens at IBD MarketSmith.

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

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