PayPal taking fight to Afterpay (ASX:APT) and ASX banks

Afterpay (ASX: APT) and ASX banks have a fight on their hands as PayPal expands its payment offerings in Australia.

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Talk about the death of credit cards may be premature as Paypal Holdings Inc (NASDAQ: PYPL) looks to issue an old-school plastic to take on Afterpay Ltd (ASX: APT) and ASX banks.

The move is interesting on two fronts. Firstly, the posterchild and early fintech innovator seems to be going backwards in embracing a plastic card.

PayPal’s new credit card goes against the grain

This is happening at a time when credit card usage is falling and younger consumers are shunning that method of payment.

Data released by the Reserve Bank of Australia (RBA) this week showed a 29% decline in the value of goods purchased with a credit or charge card.

How PayPal could be pressuring the Afterpay share price

Secondly, PayPal’s move could put pressure on the Afterpay share price. The only offering Afterpay has is Buy Now Pay Later (BNPL) while competitors have a wider range of products, reported the Australian Financial Review.

Whether it’s Zip Co Ltd (ASX: Z1P) or Humm Group Ltd (ASX: HUM), these BNPL me-toos offer other credit solutions.

Don’t cut-up your credit card just yet

PayPal recently launched its own BNPL product and its move to plastic is in response to user demand, it said.

The online payment giant has 9.1 million active Australian users. PayPal found that many of them want a credit card. Demand is especially strong for cards with no annual fees and a rewards program that can be used on a wide range of options, according to the AFR.

“There is no silver bullet when it comes to payments,” the AFR quoted Andrew Toon, general manager of payments for PayPal Australia. “We are focused on delivering a one-stop payments shop.”

Taking on ASX banks at their own game

He added that many credit card users have been left with frequent-flyer points that cannot be used due to COVID-19 border restrictions.

But the PayPal card will hold points in a digital wallet and these can be redeemed via discounts at 300,000 Australian merchants on its platform.

That can’t be good news for ASX banks, which are a major issuer of credit cards. These include the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and friends.

Foolish takeaway

But PayPal isn’t the only one that’s inventing new payment channels for Australia. Qantas Airways Limited (ASX: QAN) is also striking deals to extend the reach of its frequent flyer program. The AFR reported that home loan providers like Symple Loans have signed up.

Borrow big and get a free flight! Fingers crossed this doesn’t come crashing back to earth.

Meanwhile, CBA reported that its no-interest credit card, Neo, accounts for 30% of all credit card applications at the bank. And this number is growing to 40%.

The old-fashion credit card might just be coming back into vogue.

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Brendon Lau owns shaes of Commonwealth Bank of Australia and Westpac Banking Corp. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, PayPal Holdings, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended Humm Group Limited and PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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