PayPal Outpaced Afterpay and Affirm

PayPal’s early lead in new BNPL customers showed that checkout distribution mattered more than BNPL product novelty. Pay in 4 was inserted into an existing wallet that already sat on a huge share of merchant checkouts, so PayPal did not need to win one merchant integration or one shopper download at a time the way Afterpay and Affirm did. That let it reach 3.3 million signups within two quarters and over $1 billion in BNPL volume by Q1 2021.

• Afterpay and Affirm were building customer bases through merchant by merchant placement. Afterpay described BNPL growth as free consumer acquisition at the point of sale, and had 13.1 million active customers by December 2020, then 9.3 million active customers by March 2021 in a different company disclosure cadence. PayPal matched the visible pace of customer adds almost immediately because its button was already everywhere.
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• The merchant economics were also different. PayPal offered installments with no added merchant fee, which meant merchants could turn on BNPL inside an existing PayPal relationship instead of adding another button and another commercial negotiation. That is why PayPal’s entry put pressure on specialist BNPL margins, including Klarna’s transaction margin compression from 2% in 2017 to 1.5% in 2020.
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• This also exposed how weak BNPL network effects were on their own. Consumers regularly used multiple providers, with 18% of Klarna users also using Affirm and 20% also using Afterpay. When shoppers are willing to switch and merchants can activate installments from a scaled wallet, customer acquisition shifts from a brand battle to a distribution battle.
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The next phase pushes BNPL toward being a feature inside larger payment and wallet networks, not a standalone wedge. Specialists can still win by owning shopping intent, brand, and merchant demand generation, but the baseline installment product keeps getting cheaper and more widely bundled into the checkout rails that already control traffic.