Conventional banks are tapping into the Australian BNPL market, which is intensifying the rivalry

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Globally, the adoption of the buy now, pay later (BNPL) payment method is rising and is expected to continue to its upward trajectory in Q4 2021. This growing adoption among both consumers and merchants has resulted in the new BNPL product launches worldwide. From Scotiabank in Canada to Barclays in Germany, legacy payment providers are coming up with their own installment payment solutions. 

Similar trends are visible in Australia, the home to one of the largest BNPL industries globally. The launch of the BNPL product from the Commonwealth Bank of Australia (CBA) could lead to a new wave of traditional banking institutions starting to compete across the growing deferred payment sector in the country. 
PayNXT360 expects the launch of new BNPL products from banking institutions to further intensify competition in the deferred payment space in Australia through a series of strategic decisions. 
 

New BNPL product from the CBA

The CBA launched its BNPL product, StepPay, in August 2021. The launch came along with a series of strategic decisions from the bank, is expected to drive the competition in the deferred payment space in Australia. For instance, The bank offers lower merchant fee margins to its retail partners to expand its deferred payment business in the country.

PayNXT360 expects this strategic move from the bank is to increase the rivalry with key BNPL players. Notably, merchants in the country are charged a fee of 3% to 6% of the transaction value. Merchant partners and retailers of Afterpay pay around 4% of the cost of goods sold. In another announcement from the bank in March 2021, stated that the bank would not charge merchants more than their current card transaction fees to accept installment payments. 

However, it is expected that offering lower merchant fees would not be enough for the bank to compete with pure BNPL players such as Afterpay. These pure players usually offer retailers a marketing platform that enables merchants to drive higher sales and conversions. Therefore, marginally higher merchant fee charged by these companies also reflects the lead generation capabilities utilized by the retailers. Notably, Afterpay generated 35 million leads for its global retailer base during Q2 2020 and about 45 million in December 2020. 
 

Credit bureau checks to ensure BNPL payments are suitable for consumers

Apart from undercutting pureplay deferred payment providers in terms of merchant fees, the CBA also announced that the bank would conduct credit bureau checks to ensure BNPL payments are suitable, amid the growing evidence that some of its customers are struggling with several BNPL debts during the global pandemic. On the other hand, Afterpay refuses to conduct consumer credit checks, as it makes use of artificial intelligence and machine learning algorithms to assess customer risk on every transaction. 
 

Traditional banking players are focusing on their BNPL products to expand market share

The new BNPL product from the CBA shows that traditional banking players are not ceding to pureplay BNPL services; instead, they are focusing on their products. Notably, launching StepPay is also making the CBA an aggressive responder to the massive growth witnessed by Afterpay and other BNPL providers in Australia. 
The CBA is putting up the competition to pureplay BNPL services through its strategic initiatives of reducing merchant fees and conducting credit checks. However, the largest consumer bank is only making the BNPL service available to its customers depositing salaries in the CBA bank account.
 

The CBA is extending the partnership with Klarna to expand merchant base 

Apart from its own BNPL product launch, the CBA also extended its partnership with Klarna, the Swedish BNPL provider, in August 2021. Under the extended partnership, CBA and Klarna announced zero merchant fees for the first six months for the bank’s retail partners who integrate the Klarna BNPL product on online or offline stores. Notably, along with zero merchant fees, Klarna is also offering marketing support for the CBA’s retail partners.