Australia’s biggest bank wages war on Klarna and Afterpay with its own pay-later offering

The Commonwealth Bank of Australia (CBA) has launched its own buy-now-pay-later product, two years after the bank first dipped its toes in the buy-now-pay-later (BNPL) waters with a strategic investment in Klarna.

CBA will let users use the BNPL feature anywhere Mastercard debit and credit cards are accepted and will begin rolling out to eligible customers from mid-2021.

The pay-later option will be available for all transactions between A$100 and A$1,000, with payments split into four instalments due each fortnight and a A$10 late fee for missed repayments.

Angus Sullivan, group executive of CBA’s retail banking services, 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.”

“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.”

CBA says the industry average costs businesses around four per cent per transaction, with BNPL fees costing Australian businesses hundreds of millions of dollars a year. 

By not charging businesses any more for BNPL than it would a normal debit or credit card transaction, CBA could put pressure on the likes of homegrown pay-later providers Afterpay and Klarna, in which the bank holds a 5.5 per cent minority stake out of the Australian market. 

According to the bank, it will roll out the new product alongside Klarna’s existing pay-later option to give its customers a better all-round experience.

Sullivan added: “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.”

“Klarna Australia has experienced strong growth since its launch just over a year ago and we are delighted with its success to date. Our latest investment in the company is an expression of our confidence in its future both worldwide and in Australia and New Zealand,” he continued.

CBA will offer the BNPL product to customers once they can prove they have a regular salary being paid into a CBA bank account and it has conducted both internal and external credit assessments.

Eligible customers will then be able to add their BNPL card to a smart wallet, negating the need for another physical card.

The move from CBA marks the first step by a major bank to offer its own on-the-go buy-now-pay-later solution, with other banks shying away from the credit product. 

In December 2020, American bank Capital One blocked BNPL transactions on its credit cards after calling the transactions “risky for customers and the banks that serve them.” 

Since then, tighter regulation of the buy-now-pay-later sector has been proposed here in the UK after the sector was able to operate largely unregulated.