- By offering its own BNPL product, CBA gets to expand into an area of consumer finance untroubled by Australia's National Consumer Credit Protection Act, which was strengthened in 2019 to include mandatory background checks on cardholders.
Commonwealth Bank of Australia became the nation's first major lender to offer its own "buy now, pay later" service on Wednesday, taking on US giant PayPal Inc and local heavyweight Afterpay Ltd with the promise of lower fees.
The move sets the stage for a race - and the first shot in a price war - to sign up shoppers and stores in a country that is home to many of the world's largest providers of BNPL finance after stay-at-home orders sent more people shopping online.
Australia's so-called Big Four banks have acknowledged the rising popularity of BNPL which was worth A$5.6 billion ($4.3 billion) domestically in 2019, but none had so far entered the space with their own service.
The CBA launch is planned for mid-2021, coinciding with the entry of PayPal into an Australian market where BNPL regulation is thin and adoption is high.
"This is in line with our view that the lucrative economics of BNPL, given its enormous success to date, will attract competition," said UBS analysts in a client note.
Similar to Afterpay, the CBA product involves four repayments with a A$1,000 limit and will be available alongside a product it already offers from Klarna, a Swedish payments firm in which CBA holds a small stake.
Unlike many BNPL pureplays, however, CBA said it would charge stores only the "standard merchant fees" that it does for credit cards. BNPL providers like Afterpay typically charge merchants around 4%.
"The CBA product is cheaper for merchants, however merchants are willing to accept higher fees from Afterpay as recompense for the referral traffic it drives," said Lachlan Hughes, CEO of Swell Investment Management, which does not hold shares in CBA or Afterpay.
Afterpay declined to comment.
Klarna, which will see CBA offer a rival product as well as its own, said in email that it had "a close collaboration with CBA in a highly valued partnership over the last year and we continue to focus on the growth of that offering".
Banks around the world have watched as BNPL took off, while the popularity of credit cards withers. Unlike credit cards, BNPL is not bound by Australian consumer lending laws since it does not involve interest.
By offering its own BNPL product, CBA gets to expand into an area of consumer finance untroubled by Australia's National Consumer Credit Protection Act, which was strengthened in 2019 to include mandatory background checks on cardholders.
Instead of interest, CBA plans to make money by charging late fees. A 2020 report by the Australian Securities and Investments Commission (ASIC) said BNPL late fees industry-wide grew 38% to A$43 million in the previous financial year. ASIC declined comment on Wednesday.
"Commonwealth Bank says its purpose is to 'improve the financial wellbeing of our customers and communities' but it's hard to see how promoting an unregulated credit product that promotes quick consumption and debt over savings behaviours is one that aligns with that purpose," said Consumer Action Law Centre CEO Gerard Brody.
CBA said it would "apply robust criteria to approve customers based on specific eligibility and credit assessments"