Afterpay and Zip shares sink lower after PayPal announces Pay in 4 BNPL product

Afterpay Ltd (ASX:APT) and Zip Co Ltd (ASX:Z1P) shares are sinking lower on Tuesday after PayPal announced a buy now pay later product…

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Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) shares were on fire in August, with the two buy now pay later providers smashing the market with gains of 33.4% and 54%, respectively.

Unfortunately, September hasn't started as positively and both shares are tumbling notably lower this morning.

At the time of writing the Afterpay share price is down 6% to $86.17 and the Zip share price is down 7.5% to $8.46.

Why are Afterpay and Zip Co shares sinking lower today?

Investors have been hitting the sell button this morning in response to an announcement out of payments giant PayPal overnight.

That announcement reveals that PayPal will be launching "Pay in 4" to customers in the United States in the fourth quarter of 2020.

As its name implies, Pay in 4 is a short-term payment solution that allows consumers to make a purchase and pay over four interest-free instalments.

PayPal commented: "Pay in 4 can help merchants drive conversion, revenue and customer loyalty without taking on additional risk or paying any additional fees, while enabling consumers to make a purchase and pay over four, interest-free instalments."

It is part of the company's growing suite of Pay Later solutions, enabling merchants and partners to get paid upfront while enabling customers to pay for purchases between $30 and $600 over a six-week period.

Pay in 4 is automatically included in the merchant's existing PayPal pricing, so merchants won't have to pay any additional fees to enable it for their customers.

PayPal's SVP of Global Credit, Doug Bland, said: "In today's challenging retail and economic environment, merchants are looking for trusted ways to help drive average order values and conversion, without taking on additional costs. At the same time, consumers are looking for more flexible and responsible ways to pay, especially online."

"With Pay in 4, we're building on our history as the originator in the buy now, pay later space, coupled with PayPal's trust and ubiquity, to enable a responsible and flexible way for consumers to shop while providing merchants with a tool that helps drive sales, loyalty and customer choice," he added.

Foolish Takeaway.

Competition certainly is heating up in the lucrative market. However, given Afterpay's strong market position in the United States, I'm not overly concerned by this news. 

Though, given the smaller market share Zip Co's QuadPay business has, it might have a fight on its hands in 2021.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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