PayPal's Buy Now Pay Later Grows Fast: What Drives This Surge?

PayPal Holdings’ PYPL Buy Now, Pay Later (BNPL) feature is a major growth engine. The company’s BNPL is a fast-growing payment mode allowing consumers to purchase goods online and pay for them in interest-free installments over weeks or months. In the second quarter of 2025, BNPL volume grew more than 20% year over year, while monthly active accounts expanded 18%.

Recently, PayPal has signed a two-year agreement with Blue Owl Capital OWL, where funds managed by OWL will purchase about $7 billion of PayPal’s U.S. “Pay in 4” BNPL receivables. PayPal will still handle all customer-facing activities for these products. “Pay in 4” is a payment checkout option that allows consumers to split purchases into four interest-free payments over six weeks.

BNPL offers multiple benefits to merchants, along with consumers. PayPal mentioned Ace Hardware as a perfect example of a merchant benefiting from its BNPL solution. After Ace Hardware adopted PayPal’s BNPL, it experienced a 35% year-over-year increase in PayPal sales and a sevenfold increase in average order values. This showcases the positive impact of PayPal's BNPL integration within its branded checkout ecosystem.

PayPal’s BNPL solution is available almost everywhere PayPal is used in its largest markets. This makes it the most widely available BNPL solution among competitors. Currently, PayPal offers BNPL in nine global markets and plans to expand more throughout 2025.

The economics of BNPL are also attractive. PayPal disclosed that when consumers choose BNPL, their average order value is more than 80% higher than a standard branded checkout. This lifts merchant sales and creates incremental revenue opportunities.

How Are Block and Affirm Doing in the BNPL Space?

Block’s XYZ BNPL Gross Merchandise Value (GMV) grew 17% year over year to $9.11 billion in the second quarter of 2025, while Cash App’s gross profit per active user rose 15%. Re-payment schedule is strong, with 96% of installments paid timely and 98% avoiding late fees. Moreover, more than 95% of Afterpay GMV came from returning customers.

Affirm Holdings, Inc. AFRM reported a 45.6% year-over-year rise in total transactions to 31.3 million in the third quarter of fiscal 2025, fueled by a 94% repeat transaction rate. It expanded its partnership with Stripe to integrate Affirm into Stripe Terminal, enabling in-store shoppers in the United States and Canada to select Affirm at checkout via Stripe point-of-sale devices.

PYPL’s Price Performance, Valuation & Estimates

Shares of PayPal have declined 20.5% year to date, underperforming both the broader industry and the S&P 500 Index.

From a valuation standpoint, PayPal shares are trading at a discount, as suggested by the Value Score of A. In terms of forward 12-month P/E, PYPL stock is trading at 12.02X, which is at a significant discount to the Zacks Financial Transaction Services industry’s 21.13X.

PayPal’s estimate revisions reflect a positive trend. The Zacks Consensus Estimate for full-year 2025 EPS has been revised upward over the past month. The Zacks Consensus Estimate for 2025 EPS suggests 12.5% growth year over year.

PayPal currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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