PayPal is set to buy Japanese Buy Now, Pay Later (BNPL) provider Paidy in a $2.7 billion deal.

The payments giant said the deal is expected to close in the fourth quarter of 2021 and will be primarily made in cash.

PayPal said the deal will strengthen its business in Japan by adding new services to its cross-border e-commerce payments.

Paidy, founded in 2010, has 4.3 million active accounts.

The Japanese firm allows consumers to pay for goods in cash instalments at local convenience stores or via bank transfer and does not require a credit card to use.

Paidy has a market capitalization of over $1 billion and raised 13 billion yen in March from the family of US investor George Soros.

Japan is the world's third-largest e-commerce market, and cash is used for 70 per cent of its payments according to PayPal.

Founder and chairman of Paidy Russell Cummer and chief executive Riku Sugie will continue in their current roles at the company.

The news comes as PayPal is making moves to improve its BNPL offering globally; the company will no longer charge customers for making late Buy Now, Pay Later (BNPL) payments from October 1 in the US, UK, and France.

The total value of Buy Now, Pay Later (BNPL) transactions is set to hit almost a trillion - $995 billion - in 2026, up from $266 billion in 2021 according to a study from UK-based analyst house Juniper Research released in July.

Other companies in the BNPL space have recently made large acquisitions; PayPal competitor Square agreed last month to buy Australian BNPL firm Afterpay for $29 billion.

"Paidy pioneered BNPL solutions tailored to the Japanese market and quickly grew to become the leading service, developing a sizeable two-sided platform of consumers and merchants," said Peter Kenevan, vice president, head of Japan at PayPal. "Combining Paidy's brand, capabilities and talented team with PayPal's expertise, resources and global scale will create a strong foundation to accelerate our momentum in this strategically important market."

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