Why flexigroup’s BNPL strategy may not cannabalise its credit card business

  • By Christine St Anne

flexigroup announced that it would step up its focus on growing both its buy-now-pay-later and credit card businesses following a 12-month transformation strategy.

Another key focus area for the business is SME lending. 

flexigroup CEO Rebecca James said that its transformation strategy had “delivered clear market propositions as well as unique, recognisable and visible brands that are loved by our customers”. 

James made the statement as the firm announced its first-half results on Tuesday. 

flexigroup reported BNPL volumes of $416 million, up 23 per cent and reflecting eight months of the new humm offering 

Similarly, its credit card business grew - net profit for its Australia cards business was $4.1 million, up from $0.4 million in the previous corresponding period. 

The solid growth was largely due to as it transitioned from Lombard and Once offerings to its Skye card – an initiative that was part of its transformation strategy. 

The business had also signed four-year agreement with FlightCentre.

Net profit for its New Zealand cards also grew by 10 per cent to $12.6 million. 

The commercial and leasing delivered a net profit of $9.4 million up 14 per cent as “as the Australia commercial business transitions to a model focused towards SMEs, leading to higher credit quality”. 

The business also launched bundll – a global BNPL service and also plans to launch wiired, a digital wallet solution for SMEs. 

The rise of BNPL services has often been perceived to be at the expense of credit cards. In fact, RFi Group data has shown that regular credit card usage is in decline, as debit card and BNPL usage increases.

Source: RFi Group 

However, RFi Group general manager Julien Wilson said that credit cards and a BNPL offering can be complimentary. 

“By rolling out payment propositions that include BNPL and credit cards, flexigroup is providing ‘shoppers best friend’ strategy,” Wilson said. 

However, the take up of these propositions are dependent on the person’s lifestyle. 

Latest data from RFi Group research suggests that from the ages of 25 – 34, more BNPL users are looking to take out a credit card in the next 12 months. 

Source: RFi Group

According to Wilson, BNPL could act as a credit card on training wheels. 

“For younger people, purchasing is all about experiences. Older people’s financial decisions are now about buying a home and even perhaps starting a family. This means larger purchasing amounts. 

“They tend to start shopping at Bunnings or Ikea where credit cards are more convenient.”

Wilson added that older age groups also tend to take longer trips with again a need for credit cards. 

In fact, flexigroup’s agreement with Flight Centre Travel could position its credit card business to fare better than other providers, according to Morningstar. 

“flexigroup has designed its new credit card to attract customers via other features including longer interest free periods, lower foreign transaction fees and customer instalment options,” Morningstar analyst Chanaka Gunasekera said. 

He believes that the more established credit card issuers that rely on rewards schemes to attract customers are under the most pressure from new BNPL providers.