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Date : 18/03/2021

CBA’s announcement of a new Buy Now, Pay Later offering challenges AfterPay

One in two Aussies use CommBank for their banking needs. CBA shares have performed well during the recovery from the pandemic with a 27% return in the past 6 months. CBA entered the much adored or infamous (depending on which side of the table you’re on) Buy Now Pay Later sector by investing US$100 million initially and a further US$200 million – taking their stake to 5.5%. Klarna is a Sweden based market leading payment technology firm with a valuation of $38.9 billion. They have over 85 million customers and over 200,000 merchants. Klarna entered the crowded Australian BNPL sector with the investment from CBA to jointly fund and have a 50-50 ownership of its ANZ operations.

How CBA Plans To Disrupt Afterpay And Zip Co.

Today, the news coming out of Commonwealth Bank is that they will be launching their own BNPL product for all their account owners. This is a separate offering apart from their relationship with Klarna. CBA’s service would also be available anywhere a Mastercard is accepted. This means that CommBank will not be charging any merchants for this service – giving them a significant advantage over its BNPL rivals such as – Afterpay, Zip, and the never-ending list of companies. While Afterpay has partnered with Westpac, they do now have the customer base that CBA has in the banking segment. The advantage Afterpay has over CBA in the BNPL sector is that they are now focussing on the much more lucrative and larger American and European market.

This move dents and adds more pressure on the BNPL sector that has already been held at gunpoint by the rising bond yields. The sky-high valuations did not make sense anymore and it led us to even put out a Sell recommendation on Afterpay at a price of $143 a share for our members back in the tail-end of January. CommBank’s move to undercut the majority of the market by not charging merchants and also already having one in two Aussies using CommBank for their banking needs suggest that the likes of Afterpay and Zip shares may continue to shed losses.

CBA can also solve another big problem in the BNPL space, a problem that has come under scrutiny and may be subject to regulation. CBA has credit checks on most of its users – this gives them an edge over the BNPL rivals when it comes to provisioning and dealing with bad debts. Whether CBA can make up for the lost ground in the BNPL space, we have to wait and see, however, it does fundamentally change things for the likes of Afterpay, Zip, and the many other BNPL players in Australia.

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