On Thursday, RBC (TSX:RY) Capital maintained its Outperform rating on shares of PayPal (NASDAQ:PYPL) and reiterated its $100.00 price target for the company's shares. The endorsement comes after PayPal announced updates to its merchant agreements last week.
The significant change involves an increase in pricing for the company's Pay Later service, which will see fees rise from 3.49% plus 49 cents to 4.99% plus 49 cents. This adjustment represents a 1.50% hike and is set to take effect on January 13th, 2025.
The move by PayPal is part of a broader strategy to align prices with the value provided, especially in the Buy Now, Pay Later (BNPL) services, which have become increasingly popular among consumers. RBC Capital noted that this pricing adjustment is consistent with PayPal's stated approach to pricing based on the value offered to its merchants.
This increase in the Pay Later service fees allows PayPal to more effectively demonstrate the value proposition of its BNPL offerings to merchants. The BNPL service is designed to provide customers with flexible payment options, a feature that can benefit both the consumer and the merchant by potentially increasing sales conversions and customer satisfaction.
The new pricing structure for PayPal's Pay Later service is expected to contribute to the company's revenue growth, as it captures a larger share of transactions through the higher fees. It is also indicative of the company's confidence in the perceived value of its BNPL services among its merchant customer base.
RBC Capital's reaffirmation of the Outperform rating and the $100.00 price target reflects the firm's positive outlook on PayPal's strategic direction and its potential for growth in the competitive digital payment landscape. The changes to PayPal's merchant agreement pricing are seen as a step towards enhancing the company's market position in the BNPL sector.
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