CBA VS Afterpay: Who will win the BNPL battle in Australia?

With PayPal recently launching a BNPL product and CBA set to enter the space, competition has never been more intense for what is becoming a relatively crowded market.

  • The Commonwealth Bank of Australia announces it will soon launch its own BNPL product in Australia.
  • UBS says ‘CBA's foray into BNPL is yet further evidence of competition in the BNPL space.’
  • Afterpay share price remains mostly unchanged in response to CBA's announcement.
  • You can start trading stocks like Afterpay and CBA with IG today.

Compete now, profit later

On Wednesday, March 17, the Commonwealth Bank of Australia (CBA) – the country’s largest bank and listed-company – announced it would be launching its very own buy now pay later product.

Like many players in the space, the focus will be on smaller purchases, with the bank setting a $1,000 limit for purchases made using its BNPL product.

CBA said its BNPL offering will carry no ongoing fees, be available to eligible CBA customers and will be able to be used wherever debit and credit card payments are accepted. In saying that, a $10 dollar late fee will apply for missed installment payments.

Moreover, eligibility requirements will involve the satisfactory completition of a credit check – signalling the bank’s heightened focus on prudent and responsible lending.

On the other side of the equation, CBA looks to be taking aim at the sector’s merchant fees, opining that high merchant transaction fees – which average 4% said the bank – is 'costing Australian businesses hundreds of millions of dollars a year.’

Better still, CBA said businesses would be able to implement their BNPL product at no additional cos – paying just standard merchant fees. And according to CBA Group Executive Angus Sullivan,

‘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.’

The rollout of CBA’s BNPL product is set to take place in mid 2021 onwards.

CBA, Afterpay share price reaction

Despite that, there was no grand reaction by the market to CBA’s announcement. The Afterpay share price actually closed higher on Wednesday! And to be fair, CBA’s stock also closed higher.

Proverbial Afterpay bear UBS took this news as another chance to show off their Sell rating and 12-month $36.00 price target on the stock.

Reiterating that competition in the space was always going to intensify, UBS said:

‘This is in line with our view that the lucrative economics of BNPL (particularly in APT's case), given its enormous success to date, will attract competition.’

Does it even matter?

In contrast, Emanuel Datt, Principal at Datt Capital argued that:

‘Commbank BNPL fails in the sense that it focuses too heavily on the supply (merchant) side of the equation without any compelling proposition for the customer themselves.’

Slick marketing and a pleasant product aside, Afterpay’s success can broadly be pinned on its obsession with always putting the customer first. A notion, which, many companies could learn from.

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