Australia’s biggest bank will take on fintech powerhouses such as Afterpay, Zip and Sezzle by launching its own Buy Now, Pay Later (BNPL) product within months.
The Commonwealth Bank of Australia (CBA) will offer its own BNPL product to CBA customers from mid-2021 to use anywhere Mastercard payments are accepted.
The move will be CBA’s third BNPL option, after the Big Four bank CBA invested $300 million for a 5% stake in Swedish BNPL giant Klarna (an investment now worth $1.3bn) and late last year launching a no interest Mastercard that mimics a BNPL option.
CBA’s Group Executive, Retail Banking Services, Angus Sullivan said the new BNPL offering complements and underscores the investment in Klarna, which CBA runs as a joint venture in Australia and New Zealand.
Sullivan said the new BNPL offer will have no ongoing fees and at no additional cost to businesses.
“When making a payment, customers will have additional flexibility to use it for their everyday spending for smaller purchases as well as split over four instalments to help smooth payments for bigger purchases,” he said.
“Additionally we know transaction costs are important considerations for businesses. Unlike some other BNPL providers which may charge a high fee, there are no additional fees to businesses when customers choose to pay with CommBank’s BNPL.”.
The industry average for BNPL costs to business sit at around 4%, CBA’s hoping to offer a more attractive alternative via its product with margin-focused businesses paying no more than standard merchant service fees if customers choose the CommBank BNPL option.
CBA is also banking on research that says 76% of people are interested in using a BNPL if it was offered by their bank.
Another key point of difference is CBA, which has campaigned strongly with regulators over what it sees as an unfair advantage given to Afterpay in not having to comply with responsible lending laws for its BNPL product, says it will only offer its service to customers after a thorough credit assessment.
Afterpay says it is “committed to responsible spending” but doesn’t do credit checks on customers to ensure they can afford the repayments.
Meanwhile, Commonwealth customers will also have to deposit their salary into a CBA transaction account to cover repayment instalments in order to be eligible.
Sullivan said: “We believe we are best placed to offer our customers a prudent and responsible BNPL option based on the trends and insights sourced from real time transaction data over many years”.
The Commbank BNPL will have a $1000 limit, and can be used for everyday spending on transactions under $100. For purchases above $100, they will be repaid in four fortnightly instalments. A missed payment will result in a $10 late fee.
News of CBA’s new product did appear to spook Afterpay investors, with $APT shares climbing more than 1% to above $1.13 in late afternoon trade on Wednesday.
Meanwhile, CBA shares are down nearly half a percent to $86.78.