Last week Commonwealth Bank (CBA) announced StepPay – their own buy now, pay later (BNPL) service – where consumers can split their purchases into four equal payments. With StepPay, CBA hopes to halt its customers transacting on competitors AfterPay, Zip Co, Humm, and others.
With the movement into BNPL, CBA is the first local major bank to offer a comparable service to the established BNPL providers. CBA's scale brings with it up to 4 million eligible customers, of which 86,000 have already pre-registered. This additional service offers CBA another lever to maintain its dominant market position amongst its younger consumers. Strategically CBA is well-positioned to squeeze the 4% merchant fees of their rivals, by offering their standard 1% merchant fee.
The timing of StepPay comes as the BNPL space is heating up and consolidating. Square’s much covered $39 billion acquisition of Afterpay ensures Afterpay has the scale to compete with Apple Pay Later and PayPal Pay in 4 which offers similar services without additional transaction fees.
While CBA is leaning into deferred payments, ANZ is moving into the savings side. In July, ANZ announced their partnership with Cashrewards where they offer a percentage of cashback on consumers’ expenditures at more than 1,500 active merchants. This partnership is exclusive for all ANZ consumers which helped motivate consumers to spend and save in one go. CBA is yet to create a compelling cashback offer – outside its own Commbank Rewards – and will seek to use its market power to outcompete Afterpay in Australia as they cry foul over "strong-arm tactics" to pressure home loan applicants to close their BNPL accounts.
Typically, consumers who engage with BNPL services are making transactions to satisfy their wants instead of needs. Unless these consumers are practical and manage their budget well, BNPL could act similarly to a payday loan in creating mounting “debt”.
Meanwhile, merchants are faced with a decision on how to manage fees from BNPL providers. The charges may impact the cost of goods and services and force them to pass those costs onto consumers. StepPay offers merchants and consumers BNPL access without needing a new account and protects merchants by being completely dependent on interchange revenue.
With a race to attract consumers only time will tell which BNPL and Bank’s strategies will prove most successful. Undoubtedly digital payments using contactless payments are growing. Equally providers such as ShopBack and Cashrewards are tapping into a largely under-explored space in cash backs. At igo, we’re happy to have a foot in both camps as a provider of gift cards via the True Rewards API, and as a supplier of contactless payments via our Visa Digital Gift Card.