The burgeoning buy now, pay later (BNPL) sector is being taken to task for the first time by a major multinational bank, the Commonwealth Bank of Australia (CommBank).
CommBank unveiled its new BNPL service on Wednesday, which can be used anywhere debit and credit card payments are accepted. It will begin rolling out the BNPL facility to eligible CommBank customers from the middle of the year. It will allow customers to make purchases between A$100 (US$77) and A$1000 (US$770) and repay the money in four interest-free fortnightly instalments.
Split it in four with our new way to Buy Now, Pay Later. Pay back your purchases over $100 in four, equal fortnightly instalments.
— CommBank (@CommBank) March 17, 2021
BNPL companies are growing. Afterpay, which says it has 13.1 million active customers, is the market leader, although it has never made a profit. Its share price has risen 15 times since last March on the Australian Stock Exchange and it revealed last month it will launch an app, Afterpay Money, that will let users deposit their salary directly into the service and allow a far wider range of payments, which is a direct attack on banks.
Afterpay has five key businesses: Afterpay Asia Pacific (platforms in Australia, New Zealand and Asia); Afterpay North America (platforms in the US and Canada); Clearpay (platform in the UK); Pay Now (mobility, health and e-Services; corporate) and Corporate (expenses that are not attributable to the Afterpay, Clearpay or Pay Now segments). Other BNPL companies include Brighte, Humm, Klarna, LatitudePay, Openpay and Zip Pay.
“Customer needs are evolving and this new BNPL offering is about giving customers more choice around how they choose to pay and when, depending on the option which suits them best,” said CommBank’s Group Executive, Retail Banking Services, Angus Sullivan.
“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.
“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.”
With industry average BNPL costs to businesses at around four per cent per transaction, BNPL fees are costing businesses hundreds of millions of dollars a year, CommBank said.
CommBank’s BNPL facility will apply robust criteria to approve customers based on specific eligibility and credit assessments.
“As the leading digital bank in Australia, 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,” Sullivan added.
Eligible customers will be able to apply for the product where they show evidence of a regular salary deposited into a CommBank transaction account that can cover repayment instalments. CommBank’s BNPL will only be available to customers following internal and external credit assessments.
Research undertaken by RFi Group in December last year showed 76 per cent of Australians who currently use BNPL are interested in using a BNPL service offered by their main bank, believing it to be more secure and reliable.
“We are excited to announce the first BNPL offered by a major bank, which will give customers access to cash flow in a way that meets their changing preferences and expectations,” Mr Sullivan said.
CommBank’s new product is issued as a card to customers’ digital wallet on their mobile.