CBA Launches “StepPay” BNPL Offering
(24 August 2021 – Australia) CBA officially launched its new buy now pay later (BNPL) offering “StepPay” to directly take rival cardless payment services head on and become the first Australian bank major to offer a standalone BNPL service.
As the first major Australian bank to release its own BNPL service, the Bank is taking on Zip Co, AfterPay and even CBA partnered Klarna who continue to rapidly lure millennials in particular away from traditional credit cards.
Barclays recently entered the US BNPL market while Apple, backed by Goldman Sachs, and Visa have also entered the sector. PayPal is offering a credit card to Australian customers issued by Citi (who sold its retail division to NAB) and recently launched its own new “Pay in 4” BNPL offering.
CBA’s StepPay is being offered to the bank's four million retail customers noting 86,000 customers registered in advance after the group signalled its intent to enter the ultra competitive BNPL space as early as Q1 2021. StepPay users can make repayments in four installments and will be made available at any retailer accepting MasterCard with initial purchase limits of up to A$1000.
For merchants, CBA’s StepPay will be cheaper than accepting competing BNPL alternatives. Merchants will pay the normal credit card processing fee of 1.5 percent on average of the cost of the goods, significantly less than the average four percent charged by Afterpay inclusive of the processing fee but notably more costlier than debit cards.
Importantly interchange fees (where a merchant’s bank pays the cardholder’s bank a small fee for facilitating the digital cash transfer) will be also be significantly greater than MasterCard’s standard scheme credit cards. CBA can expect 80c for every A$100 processed through StepPay, considerably higher than interchange fee revenue derived from regular MasterCard credit card and Eftpos debit card receivables.
StepPay is a digital only BNPL product that can be added to the CommBank app or digital wallets. The Bank will automatically split purchases of A$100 or greater into four equal, fortnightly repayments while purchases under A$100 will be drawn from a linked CommBank account in a single transaction, inferring StepPay can be utilised for both day-to-day and big ticket consumer purchases.
There are no interest charges, monthly or annual fees and the repayment schedule is accessible from the CommBank app. Late payment fees apply however limits are applied to cap fees and charges.
“The bank is excited to create the first BNPL from a major bank given BNPL is a popular choice among customers. StepPay is also a win particularly for smaller businesses who may be charged a high fee in order to offer BNPL to customers. Creating a responsible BNPL is at the forefront of StepPay’s design. While we expect it will have great appeal among customers, it will only be available to eligible customers so we can offer the most responsible option we can” commented CBA Executive General Manager Consumer Finance, Marcos Meneguzzi.
“The bank needed to have a direct offering in the BNPL space to take advantage of some of the preference of customers to pay in installments. StepPay will complement CBA’s partnership with Swedish BNPL company, Klarna” stated CBA CEO, Matt Comyn.
“Linking these strategic assets by way of StepPay makes sense. The CBA BNPL product is a hybrid of consumer payment structure of BNPL four fortnightly payments but cheaper interchange fees of a credit card to the retailer. Retailers will likely advocate for customers to switch to the CBA channel” said Jefferies Managing Director, Head of Banks Equity Analysis Australia, Brian Johnson.
“Our core consumers have a lot of distrust for many financial institutions but a huge amount of trust for Afterpay” countered AfterPay co-founder Nick Molnar, who recently sold the group to Square for A$39 billion.