- Commbank has unveiled their new Buy Now, Pay Later option
- Economist Angela Zhong predicts this is bad news for competitors and could lead to regulation
- The product will be available to eligible CBA customers towards mid-2021
Last week CommBank announced its entry into the Buy Now, Pay Later (BNPL) market. They will be the first major bank to offer BNPL options which is likely to shake up the market according to Economist Angela Zhong.
From later this year eligible CBA customers will have access to BNPL products with no ongoing customer fee or cost to businesses.
Dr Zhong is a Senior Lecturer in Finance in the School of Economics, Finance and Marketing at RMIT University. She warns this move by CBA could pose a major challenge to existing BNPL players.
“BNPL stocks have not been performing well in the recent week due to tech stock price correction and rising bond yields. Share price is a function of future cash flows. With CBA entering and potentially grabbing some market share, BNPL stock price will suffer further.”
Angel Zhong, RMIT University
CBA says it was triggered to develop the product following research from RFi Group. This research showed that 76% of BNPL users in Australia are interested in using a BNPL service from their main Bank.
Respondents to the RFi Group survey felt a bank-provided BNPL service would offer more security and reliability.
“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.”
CBA’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,” Mr Sullivan said.
CBS’s new offering will entice a new demographic of consumers according to Dr Zhong.
“CBA is likely to offer 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.”
Angel Zhong, RMIT University
As the BNPL sector becomes more mainstream, the regulation of the sector is likely to be implemented.
“At the moment, BNPL is not regulated like other consumer lending institutions given that they do not charge consumers for credit. They charge merchants instead. In 2020, the RBA said that BNPL will not be regulated as it is a small segment. This happened when credit cards entered the market, but were regulated once they became popular,” said Dr Zhong.
Dr Zhong believes regulation is necessary to ensure protection and financial well-being as the sector grows. She explains that “responsible lending means lending to those who can afford it.”
“Internationally, there are regulations for BNPL services in some countries. The UK government recently announced that it will be regulating the sector. Recently, the BNPL companies have devised a set of self-regulation codes, known as the AFIA Buy Now Pay Later Code of Practice.”
CBA’s BNPL will be accepted anywhere Mastercard is accepted and has a limit of $1,000.