What is PayPal Pay in 4 and how does it compare to Afterpay?

PayPal has introduced a buy now pay later service in Australia. Find out how it works and how it stacks up against Afterpay.

PayPal is taking on the likes of Afterpay and Zip, announcing its own buy now pay later service – PayPal Pay in 4 – is now available to eligible PayPal Australian customers across its base of more than nine million active accounts.

“Australian consumers are looking for more choice and flexibility and PayPal Pay in 4 gives them yet another way to purchase securely using PayPal,” said Andrew Toon, general manager, payments, PayPal Australia in March when announcing the company’s plans to roll out the service. “Shopping habits are changing at an unprecedented rate. During the pandemic we saw more than two million Australians start shopping online for the first time.”

What is PayPal Pay in 4?

It is essentially a buy now pay later service which allows you to purchase an item without paying for it in full upfront. Instead, you pay it off in four equal, interest-free instalments.


PayPal Pay in 4 on Device
Image source: PayPal

How does PayPal Pay in 4 work?

PayPal Pay in 4 lets you split eligible purchases, from $30 to $1,500, over four equal, interest-free instalments. The first payment is made at the time of purchase and the remaining three will be made with automatic repayments drawn every two weeks. Repayments are made automatically from your PayPal account using the payment method you have selected.

For example, let’s say you purchase an item for $500, you will pay $125 upfront and then make $125 repayments each fortnight. So, essentially you have to pay for the purchase in six weeks. Afterpay is set up this way as well, while other buy now pay later platforms may work differently.

Pay in 4 will be available as an option in the PayPal wallet for “customers with accounts in good standing, who have met eligibility criteria and are subject to suitability checks”. You’ll just need to use the standard PayPal button to pay for your purchase and Pay in 4 will appear at checkout. “We are using our data and systems for suitability modelling to help ensure PayPal Pay in 4 will only appear for suitable customers,” Mr Toon told Canstar. “If a consumer has a negative balance in their PayPal account or other risks have been identified in relation to the consumer, they will not see PayPal Pay in 4 as an option in the PayPal wallet.”

Businesses can also present PayPal Pay in 4 as a distinct payment option on their website but again you’ll have to meet the eligibility criteria mentioned above. “If a customer is not eligible and they click on the standalone ‘PayPal Pay in 4 button’ on a merchant’s website, they’ll get a message that says they can’t use PayPal Pay in 4 at this time, and they’ll be given the option to choose another payment method,” explained Mr Toon.

You can even have multiple Pay in 4 plans at the same time. According to the PayPal website, as long as you see the option for Pay in 4 at checkout, you can choose a new Pay in 4 plan.

PayPal’s Buyer Protection will also apply for transactions made using PayPal Pay in 4, which means that if a product does not arrive PayPal can refund the full purchase price, including delivery.


How much does PayPal Pay in 4 cost?

When PayPal first announced PayPal Pay in 4 in March it was set to charge a late payment fee when customers missed a payment. This has now been scrapped for Aussie customers. The only fees you might be charged by PayPal are currency conversion fees on international purchases, if applicable.

Merchants can also charge a surcharge but Mr Toon pointed out that the vast majority of Australian merchants do not surcharge for the PayPal service.

So how will PayPal make its money? PayPal charges businesses a fee for each transaction but Pay in 4 is available at no extra cost to business customers.

“PayPal Pay in 4 is another solution that we’ve added to the PayPal digital wallet.  All of the payment solutions we’ve added to date to the PayPal wallet benefit our consumer and business customers without any additional charge and PayPal Pay in 4 is no different,” said Mr Toon.

“We’re in the business of bringing buyers and sellers together on our platform. As we continue to make our service more versatile and useful, we anticipate our customers will use us more frequently and for a broader range of transactions. On the merchant side, PayPal charges a small fee for each transaction. The more consumers and businesses that transact on our platform, the better the outcome for PayPal.”

What happens if I miss a payment?

If you know you won’t be able to make a repayment, it’s a good idea to contact PayPal and let them know in advance. PayPal will send a number of reminders and notifications and will automatically reprocess the payment two days after the due date if it fails.

You may also hear from PayPal’s in-house collections team. “If a payment is missed, we will work with the customer to understand when they can pay. For customers experiencing hardship we’ll make efforts to support them to make their payments,” explained Mr Toon.

“As soon as there’s an unpaid payment and an outstanding balance, PayPal Pay in 4 will no longer be available for that customer until the balance is paid. In extreme circumstances, we may limit a customer’s use of PayPal overall. However, our key objective will be to work with the customer to get their account into good standing again.”

It’s important to know that if you don’t pay up your credit rating and credit score may be affected. “If a PayPal Pay in 4 payment remains unpaid, we will be reporting customer defaults to our credit bureau agencies, as we believe this supports the entire industry and, ultimately, reduces the risk of customer detriment,” said Mr Toon.

Where can I use PayPal Pay in 4?

PayPal Pay in 4 will be available for consumers to use at hundreds of thousands of Australian, and millions of global businesses, where PayPal is accepted, according to the announcement.

It will not be available for certain transactions including gambling, cryptocurrency trading, person-to-person transfers, not-for-profit donations, CFD and Forex.

How does PayPal Pay in 4 compare to Afterpay?

Afterpay is currently one of the most popular buy now pay later options in Australia. According to Power Retail, 77% of Australia’s top 100 online retailers offer Afterpay. As mentioned earlier, PayPal Pay in 4 will work the same way as Afterpay by allowing purchases to be repaid in four equal, interest-free instalments.

The key difference is that Afterpay charges a late fee of $10 on a missed repayment and a further $7 if the payment remains unpaid seven days after the due date. So, if you make a purchase and pay it off on time both Afterpay and PayPal Pay in 4 will cost you nothing. If, however, you miss a repayment then Afterpay will hit you with a late fee.

It’s worth noting that research by the Australian Securities & Investments Commission (ASIC) indicated that 21% of buy now pay later users who were surveyed missed a payment in the 12 months to June 2019. ASIC also found that missed payment fee revenue for all buy now pay later providers in its review totalled over $43 million in the 2018–19 financial year. More recently,

ClearScore revealed that over the past eight months, the number of consumers running up three or more buy now, pay later debts has jumped to 30% of users, while the number having missed repayments has blown out by 83%.


Cover image source: William Potter/Shutterstock.com


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This content was reviewed by Editor-at-Large Effie Zahos as part of our fact-checking process.

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