The Commonwealth Bank of Australia (CBA) has announced that, from “mid-2021”, eligible customers will be able to utilise its new buy now, pay later (BNPL) offering when making a payment via a digital wallet.
How it works
The BNPL product – available for purchases under $1,000 – will reportedly be accepted anywhere Mastercard is accepted and will be available to customers via a card in their digital wallet (i.e. on their mobile phone, smartwatch, tablet).
With the product, purchases over $100 will automatically be split into four equal, fortnightly instalments.
The product will link to the customer’s CBA bank account.
While there are no ongoing fees or foreign exchange fees, there will be a $10 late fee for every missed instalment repayment (for example, if there is not enough money in the customer's account to cover the payment).
CBA said that caps will be in place to “minimise the amount of additional fees charged”. Fees and charges may also apply to a customer’s linked CBA account.
The offering can also be used for purchases under $100, however, the full amount will come out of the CommBank account in one go.
CBA said the BNPL product will not provide access to cash advances or gambling.
The bank also said that there will be no additional merchant fees charged to businesses outside of standard merchant service fees.
Who can use it
Eligible CBA customers will be able to apply for the product where they show evidence of a regular salary deposited into a CBA transaction account “which can cover repayment instalments”.
CommBank’s BNPL will reportedly only be available to customers following “internal and external credit assessments”.
It will be made available from “mid 2021”, according to the bank.
The big four bank said that the product was being released following a growing uptake and interest in BNPL usage in Australia.
It cited recent research from RFi Group that found that 76 per cent of Australians who currently use BNPL were interested in using a BNPL service offered by their main bank, with some suggesting they believed a bank-provided BNPL service would be more secure and reliable.
CBA’s group executive, retail banking services, Angus Sullivan, commented that the major bank was well placed to offer its customers “a prudent and responsible BNPL option”.
He continued: “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.
“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.”
He noted that the industry average BNPL costs to businesses sits around 4 per cent per transaction, and highlighted that CBA’s product would not require businesses to pay any additional fee above standard merchant service fees.
“We are excited to announce the first BNPL offered by a major bank which will give customers access to cash flow in a way that meets their changing preferences and expectations,” Mr Sullivan said.
He added that it would be available alongside the existing Klarna BNPL offering, stating: “Our new BNPL service complements and underscores our investment in Klarna and our joint venture business here in Australia which offers both CBA and non-CBA customers huge opportunities to connect with domestic and international retailers”.
CommBank’s new BNPL offering follows hot on the heels of the bank’s “no-interest” credit card, CommBank Neo, which comes with the option of three credit limits ($1,000, $2,000 and $3,000), and a monthly fee of $12, $18, or $22, depending on the limit.
Consumers increasingly turning to BNPL
According to ASIC’s recent report 672, BNPL arrangements have increased in popularity in the last few years, rising by 90 per cent between the 2017-18 and 2018-19 financial years alone, when the number of BNPL transactions hit 32 million.
As at 30 June 2019, there were around 56,000 merchant agreements in place across the six buy now, pay later providers covered in the review, ASIC found.
ASIC’s research also warned that while the arrangements are working well for the majority of users, some consumers are suffering harm.
It found that one in five customers was missing payments, and that 22 per cent of borrowers who had missed repayments had missed a mortgage repayment in order to pay their BNPL provider.
This equates to just under 5 per cent of the total customers surveyed in the report.
There are regulatory changes coming that will impact the BNPL industry, with the design and distribution obligations coming into effect in October 2021.
Further, the industry is also developing a code of conduct, which ASIC said “provide an opportunity for the industry to address consumer harm”.
[Related: Plenti launches green BNPL finance]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.