The Afterpay Ltd (ASX: APT) share price has dropped after Commonwealth Bank of Australia (ASX: CBA) announced that it was launching a buy now, pay later (BNPL) offering.
Why is the Afterpay share price dropping?
CBA announced that it’s launching a BNPL offering that can be used anywhere that debt and credit card payments are accepted.
The big four ASX bank said that it will begin rolling out to eligible CBA customers from the middle of 2021.
This will be available to eligible CBA customers – the new BNPL product will be linked to a CBA bank account. There will be no ongoing fees and no additional costs businesses – standard merchant fees apply. This could be a key disruption because the offering may be cheaper than what BNPL operators like Afterpay and Zip Co Ltd (ASX: Z1P) charge.
Customers can apply for the product when they can show evidence of a regular salary deposited into a CBA transaction account which can cover repayment instalments.
It can be used anywhere that Mastercard is accepted, up to a limit of $1,000. It can be used for everyday spending transactions of less than $100. There will be four fortnightly instalments for transactions higher than $100.
Late fees of $10 will be charged for each missed instalment repayment. CBA said there are caps so that the total charges are limited.
A new card will be issued to customers’ digital wallet on their mobile, so there is no need for a physical card. It doesn’t provide access to cash advances or gambling.
According to RFi Group research from 1,000 people, 76% of Aussies who use BNPL are interested in using a BNPL service from their main bank. Those respondents said that BNPL users think a bank provided BNPL service would be more “secure and reliable.”
CBA’s Group Executive, Retail Banking Services, Angus Sullivan said:
“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. 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.”
Summary thoughts
This seems like bad news for the Afterpay share price and Zip too.
CBA is the biggest financial entity in Australia with a large number of customers. This offering may be attractive to a lot of them. Afterpay and Zip are now facing a number of large profile competitors such as PayPal.
What happens if the other big banks all offer this service too? CBA, National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Bank Group Ltd (ASX: ANZ) combined have a large amount of the Australian population as customers.
I think that Afterpay’s prospects in Australia are dampened because of this.
