• Commonwealth Bank dives into BNPL sector with launch of product linked to customer bank accounts
  • ‘Customer needs are evolving and this new BNPL offering is about giving customers more choice around how they choose to pay and when’
  • ASX BNPL sector has seen market valuations crushed with new market entrants


Banking behemoth Commonwealth Bank of Australia created a stir last week with its long-awaited entry into the $40bn BNPL sector starting in the middle of this year.

Commonwealth Bank’s move occurred just weeks after a new code of practice came into force for the BNPL sector on March 1, which could head off the looming threat of regulation.

“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 group executive for retail banking services, Angus Sullivan, said.

Australia’s largest retail bank has unveiled a BNPL product that can be linked to customer bank accounts which carries no ongoing fees and does not impose any extra costs to retailers.

The bank’s BNPL offering can be used by its customers wherever its debit or credit cards are accepted in Australia, has a limit of $1,000, and is for transactions of less than $100.

“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,” said Sullivan.


No additional fees for customers, retailers

Commonwealth Bank said it has differentiated its BNPL offering by ensuring that retailers do not incur additional fees on top of a standard merchant fee when customers use its BNPL product.

“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,” said Sullivan.

Average BNPL costs to retailers are around 4 per cent per transaction and add up to hundreds of millions of dollars per year for Australian businesses.

The Australian bank emphasised its ability to monitor customer credit eligibility through its digital payments technology.

“As the leading digital bank in Australia, we believe that 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,” said Sullivan.

Customers applying for CommBank’s BNPL product will need to show evidence of a regular salary paid into the bank to cover any BNPL instalments and satisfy credit assessments.

The bank’s BNPL option will be available alongside its existing Klarna BNPL product and its Australian joint venture with the Sweden-based BNPL provider Klarna launched in 2020.


Company valuations compressed

The share prices of some of Australia’s largest BNPL operators have been under pressure as competition increases in the innovative sector and erodes profit margins and revenues.

US digital payments company PayPal will become one of the latest entrants to the BNPL sector in Australia when it launches its Pay-in-4 credit platform in June.

Sector leader Afterpay’s (ASX:APT) market value soared to $42.50bn in February as its share price soared, but its market value is now down to $31bn.

Zip Co (ASX:Z1P) has a market value of $4.5bn, down from nearly $7bn in mid-February at the sector’s recent peak.

The value of the BNPL sector’s 13 ASX companies has dropped to around $40bn currently, compared with $53.6bn in February when their share prices were flying.


Light touch regulation and Code of Practice

Australian regulators have taken a light-touch approach to BNPL operators as they try to strike a balance between allowing financial innovation to flourish and protecting consumers.

In a speech in December, Reserve Bank of Australia (RBA) governor Philip Lowe said, “even the largest BNPL providers still account for a small proportion of total consumer payments in Australia, notwithstanding their rapid growth”.

Only 1 per cent of payments in the Australian economy go through BNPL channels, he said and added that, “the increasing array of BNPL providers is resulting in competitive pressure that could put downward pressure on merchant costs”.

The government and financial regulators may be waiting to see how the industry’s self-policing Code of Practice plays out before deciding whether a regulatory framework is needed.

The Code came into life on March 1, and was drawn up by BNPL companies and the Australian Finance Industry Association (AFIA) based on recommendations from an ASIC report.


BNPL is regulated in other countries

Some financial market experts believe Australian BNPL operators will eventually face regulation with a rules based framework set out in an Act of Parliament.

“At the moment, BNPL is not regulated like other consumer lending institutions given they do not charge consumers for credit. They charge merchants instead,” RMIT University finance expert, Dr Angel Zhong, said.

“In 2020, the RBA said that BNPL will not be regulated as it is a small segment,” she said.

“With the potential growth in BNPL services, regulations should be put in place to ensure protection and financial wellbeing. Responsible lending means lending to those who can afford it,” added Zhong.

Also, other developed countries like the UK have adopted government regulation of the BNPL sector, Zhong noted.

“Internationally, there are regulations for BNPL services in some countries. The UK government recently announced that it will be regulating the sector,” she said.

ASX share prices of Afterpay (ASX:APT), Zip Co (ASX:Z1P), Humm Group (ASX:HUM), Splitit (ASX:SPT), Sezzle (ASX:SZL)