BNPL players

Last week, CBA indicated it would launch a buy now, pay later (BNPL) product, the first of the big four banks to directly respond to the dominance of incumbents such as Afterpay.

The product will be available to current CommBank customers, linking to their bank accounts and it will require a credit check to access.

CBA is proceeding with the roll-out, despite having already invested in Swiss provider Klarna and teaming up with the company to launch its Australian arm last year. The bank also launched an interest-free credit card last year.

Angel Zhong, a senior lecturer in finance in the School of Economics, Finance and Marketing at RMIT believes that after the recent tech stock price correction and rise of bond yields, BNPL stocks could be set to suffer further as the big four bank snatches some market share.

“This could pose a major challenge to the existing players in the BNPL space,” Dr Zhong said.

“CBA is likely to lower merchant fees and given their presence in the traditional banking sector, it is more likely to touch on a group of customers that have never considered BNPL. CBA’s entrance also implies that the BNPL sector will grow bigger and raise the possibility of regulation.”

Currently, the BNPL space does not face the same level of regulation as other consumer lending organisations, given providers do not charge consumers for credit – they charge merchants.

The local industry has devised a set of self-regulation codes, known as the AFIA Buy Now Pay Later Code of Practice. ASIC called for an effective code of self-regulation in a December report on BNPL.

Overseas, however, there are regulations for BNPL services in some markets. The UK government recently signalled it will regulate the BNPL sector.

Last year, the Reserve Bank stated the sector would not be regulated as it is a small segment. But Dr Zhong believes history will repeat itself.

“This happened when credit cards entered the market, but were regulated once they became popular,” she said.

“With the potential growth in BNPL services, regulations should be put into place to ensure consumer protection and financial wellbeing.”

CBA’s move also comes after PayPal recently declared it would be launching its own BNPL rendition, called “Pay in 4”.

The Pay in 4 product will be available across PayPal’s existing 9 million active accounts in Australia, by June.

Insync Funds Management portfolio manager John Lobb believes PayPal could be set to disrupt Afterpay and other major players.

“It shows the strength of PayPal’s technology and global customer base that they could roll out a BNPL so quickly,” Mr Lobb told Fintech Business.

“I think PayPal has potentially got a better BNPL to its competitors given their customer base, their knowledge of clients’ spending behaviour and their credit worthiness.”

PayPal will not charge retailers extra fees for the offering, on top of their current 2.9 per cent per annum – compared to Afterpay’s 3-5 per cent. The product will be available where PayPal is accepted.

“We have liked the PayPal model for quite a while and its reach into merchants around the world is unsurpassed,” Mr Lobb said.

“Its response to the Afterpay/ZipPay model is measured enough to keep its online payments crown. And customers can borrow up to $1,500 depending on their credit rating, which they will already know for existing users. Afterpay and other new entrants have much more modest lending limits.”