Private equity firm KKR has announced its acquisition of a significant portion, up to 40 billion euros ($43.71 billion), of PayPal’s buy now, pay later (BNPL) loans in Europe. The move comes in response to the growing popularity of BNPL among millennials and Gen Z customers. Despite facing challenges in the form of rising interest rates and inflation last year, the sector has experienced a surge in demand. The news of the deal has led to a 1.7% increase in PayPal’s shares. With an approximate $1.8 billion in gross proceeds, the acquisition is expected to close in the second half of the year.

It should be noted that PayPal’s growth forecast for adjusted profit, made in May, already accounted for this deal. After the completion of the transaction, PayPal plans to allocate $1 billion to incremental share repurchases in 2023, bringing the total share repurchases for the year to around $5 billion. This move has been praised by Brett Horn, a senior equity analyst with Morningstar Research Services, as offloading credit risk can have a positive impact on payment processors, reducing uncertainty surrounding the performance of BNPL offerings.

As part of the agreement, private credit funds and accounts managed by KKR will purchase up to 40 billion euros of loan receivables originated by PayPal in various European countries, including France, Germany, Italy, Spain, and the United Kingdom. The global BNPL payment volume processed by PayPal in 2021 exceeded $20 billion, representing a nearly 160% increase compared to the previous year. Since the launch of its BNPL service in 2020, PayPal has provided over 200 million loans to more than 30 million customers worldwide. Despite the transaction, PayPal will continue to handle all customer-facing activities, such as underwriting and servicing, associated with its European BNPL products.