Crossroads
How big a deal is PayPal's NEW $7 Billion deal?
9/24/2025, 1:02:26 PM
Economic Summary
- PayPal (PYPL) is selling up to $7 billion of U.S. Pay-in-Four BNPL loans to Blue Owl (OWL) over two years, which transfers credit risk off PayPal's balance sheet but does not represent $7 billion in immediate cash to PayPal.
- PayPal's BNPL product carries a higher merchant fee (~4.99%) and users boost average order value by roughly 80%, supporting top-line growth as BNPL volumes grow ~20% year-over-year.
- PayPal's consumer loan portfolio showed improving net charge-off rates (about 5.2% to 3.6%), putting it in a stronger position relative to some competitors like Klarna, and Nova Credit partnership should further improve underwriting.
- Selling loans to institutional buyers like Blue Owl and previously KKR in the EU frees capital, reduces downside exposure in a consumer downturn, and creates cash that can accelerate buybacks or fund acquisitions.
Bullish
- Sells BNPL loans to Blue Owl to mitigate credit risk and remove volatility from the balance sheet.
- Frees up capital for buybacks or acquisitions, improving liquidity and strategic optionality.
- Partnership with Nova Credit should improve underwriting and help lower future net charge-offs.
Bearish
- PayPal cedes a slice of BNPL fees to Blue Owl, reducing per-loan revenue.
- The $7 billion figure is capacity over two years, not immediate cash to PayPal.
- Default risk still exists for BNPL products despite lower short-term charge-offs.
Bullish tickers
PYPLOWL
Bearish tickers
PYPLKLARNA
PYPL
Bullish
Removes credit risk, frees capital for buybacks/acquisitions, and benefits from growing, higher-fee BNPL volumes.
Bearish
Sells a portion of BNPL economics to buyers, reducing per-loan revenue and headline cash impact.
OWL
Bullish
Acquires a predictable stream of PayPal-originated BNPL loans, earning yield from fee slices.
Bearish
Takes consumer credit risk and relies on collecting a slice of BNPL fees for returns.
KKR
Bullish
Shows institutional demand for purchasing BNPL loan portfolios, validating the structure.
Bearish
Exposure to consumer credit if macro weakens when buying BNPL portfolios.
NOVA CREDIT
Bullish
Improves PayPal underwriting through broader credit data, potentially lowering future charge-offs.
Bearish
As a data/underwriting partner, effectiveness depends on data quality and adoption.
KLARNA
Bearish
Reportedly higher net charge-off metrics, implying weaker loss performance versus PayPal.
AFRM
Bullish
Demonstrates competitive BNPL underwriting performance in the market.
GOOGL
Bullish
Referenced as a more exciting recent headline in comparison to PayPal news.
People mentioned
Alex ChrissDan Schulman