Competition might lower merchant fees
Merchant fees for BNPL providers like Afterpay typically roam between 4% and 6% for merchants. But increased competition in the space means retailers are pushing for lower fees.
Despite competition from other well known BNPL providers like Klarna and ZipPay, Afterpay has remained the apex in Australia. PayPal, however, has recently entered the BNPL space. Despite not being known as price competitive, their service PayPal Pay in 4 might have the clout to pressure Afterpay in a way others have not been able to.
PayPal doesn’t charge any additional cost to merchants beyond its standard 2.6% rate and $0.30 fee. Such low percentages, coupled with PayPal’s nine million customer base, will force other BNPL players to evaluate where else they can continue to make money or face losing merchant contracts to lower fees elsewhere.
But it’s not solely competition from BNPL providers that might cause merchant fees to drop. Concerns are growing among Australian banks as they experience a decline in credit card businesses due to the broader adoption of BNPL services and its effect on interest margins. In response, banks are developing their own BNPL technology.
Businesses that dip into the customer base of large financial institutions through BNPL will likely benefit from much more affordable partnering options than typical BNPL fees. They will also probably generate more revenue through a higher customer pre-approval rate, as customers will have been subject to a credit check at the start of the transaction.