Buy now pay later goes mainstream

 Afterpay might have achieved market dominance, but that is not deterring other players from entering the Buy Now Pay Later market with a range of new features and services for consumers.


The $A39 billion acquisition of buy now pay later (BNPL) juggernaut Afterpay by Square was the biggest signal yet that BNPL is not some Gen Z or millennial fad or whim.

In further evidence that BNPL is not going anywhere, RFi research on BNPL reveals a diverse demographic of users, not limited to the under 25, who are using a number of BNPL providers to manage their spending.

And with the big four banks and other major credit card providers getting into the market, those who called BNPL the “marijuana of credit” may be starting to look a little bit out of touch.

In Australia, AfterPay and Zip have the biggest brand recognition, with RFi Group’s BNPL Tracker – Australian consumer insights survey for June 2021 showing that 90 per cent of those surveyed were aware of AfterPay and 77 per cent were aware of Zip. LatitudePay was the next most recognised brand at 45 per cent.

Compared to the top three, Klarna consumer recognition might be low but it has had a significant increase over the past 15 months.  In March 2020 just 6 per cent of consumers said they had heard of the brand, but that had risen to 23 per cent in June 2021.

The Commonwealth Bank and Citigroup are just two of the latest financial organisations realising they need to provide BNPL functionality and services if they want to retain and grow their existing customer base.

Whether or not they can be successful may well depend on how they leverage their existing market share and infrastructure.

‘It’s going to be difficult for any newer providers in the market to catch Afterpay given Afterpay’s head-start, high level of customer satisfaction and repeat usage,” RFi Group’s global head ‑ consumer credit, deposits and payments,  Kate Wilson, says.

“However, we are seeing an expansion in the range of BNPL services being used by consumers – according to RFi data, one in two BNPL users have used multiple services so I think we can expect current users of Afterpay and other BNPL services to at least trial some of the newer providers.”

“Whether these new providers can win share away from Afterpay will largely depend on whether they can offer customers a superior user experience or additional features and benefits above and beyond those already on offer from the traditional BNPL providers”.


The credit card provider

The world’s largest credit card provider Citigroup recently started taking preregistrations for its BNPL offering Spot, which it plans to launch before Christmas.

“We have seen a very, very good response in the preregistration. We have more than 10,000 people who have expressed interest and preregistered,” head of cards and loans at Citi Australia, Choong Yu Lum, says.

Citi has been watching the BNPL space for some time and says that providers need to make BNPL available because consumers are demanding it.

“We know that buy now pay later is no longer just a fad. We've been monitoring the significant progress and customer interest and take up on BNPL,” Yu Lum said.

“During the first, I would say, covid-19 pandemic, we saw digital spend acceleration throughout the industry and BNPL continuously grew, apart from other digital payment mechanisms. And I think for us that really sort of triggered us to really think about, hey, we would like to have a product that would be able to serve this segment of customers because consumer needs are changing.”

Citi has carefully considered the kind of differentiated service they can offer customers, and how it can be better than those offered by existing providers.

Spot will provide approved customers access to an account limit of $1,000 and users can add the Spot card to their digital wallet. Repayments will be split into four fortnightly repayments.

But Citi says for purchases of $200 or more, customers will be able to break the payments, into eight smaller fortnightly payments for a flat fee of $10.

Depending on the success of the service, Citi may consider raising the account limit from $1,000 in the future.

In response to customer research, Citi has also made their BNPL offering available to customers anywhere MasterCard is accepted

“We partnered with MasterCard to use the network, so it becomes, I would say, almost merchant agnostic,” Yu Lum said.

“[Consumers] see this as a payment solution rather than real, I would say, credit from a bank. And therefore, we made sure that we enabled customers to tag any bank account, any Australian bank account…as a repayment mechanism for this final BNPL solution.”

Citi is also listening to merchants and endeavouring to make their offering as attractive as possible to them as well, by, for example, not changing an additional merchant service fee. 

“[With] our solution the merchant pays no incremental service fee other than whatever they pay their current merchant acquiring bank or service provider. So, the upside is there's no incremental loss in margin for the merchant if they use this solution,” Yu Lum said.

In addition, there is no backend or tech integration that the merchant needs to do or tweak in order to accept Spot as a form of payment.

“For this particular product, as long as you can accept any MasterCard, or any credit card to be honest, you are able to use it.” Yu Lum said.


The big four banks

In September 2020 National Australia Bank launched its version of BNPL – StraightUp. Strictly still a credit card, it does gives consumers  access to no-interest credit of up to $3,000. Customers don’t pay the monthly fee (of between $10 to $20) if the card is not used and there are no other fees or charges.

 “Last year NAB launched StraightUp, Australia’s first no interest credit card, in response to customers wanting access to credit that’s simple and easy to understand,” NAB Group Executive, personal banking, Rachel Slade, said.

“Over the past year, StraightUp has been our most popular credit card product, representing 32 per cent of our new credit card applications and providing customers an innovative alternative solution.  The card has been popular with younger customers with about 63 per cent of applicants aged under 35.”

“We’ll keep innovating and adapting to ensure our products are relevant to our customers who want simple and digital banking. You’ll see more from NAB in this space,” Slade said.

This August, Commonwealth Bank launched StepPay which is more of a BNPL offering in the true sense of the product but it still needs to be linked to a Commonwealth Bank account.

StepPay has an initial limit of $1,000, repayments which need to be made in four fortnightly instalments for amounts over $100, and there are late fees of $10 per missed instalment payment.

CBA’s executive general manager, consumer finance, Marcos Meneguzzi said the strong interest in StepPay exceeded that of any of its other product launches.

“Customers are resonating with a BNPL offered from their main bank as it’s integrated into their banking app and sits alongside existing accounts and products,” he said.

“One of the ways StepPay is different is the choice and accessibility it offers customers as it’s accepted anywhere Mastercard is.

StepPay is not reliant on businesses to opt in and allows businesses to offer StepPay to their customers at no additional fee cost.

“This levels the playing field for smaller businesses to better compete,” Meneguzzi added.

“At its core, StepPay was designed with responsibility in mind. That’s why it has a relatively low initial credit limit of up to $1,000. It’s also why we have robust criteria including evidence of regular income or deposits into a CBA transaction account. And we undertake internal and external credit assessments to make sure customers are in a position to afford credit and make repayment instalments.

It is early days for StepPay, but Commonwealth Bank’s existing footprint in the Australian credit landscape cannot be ignored and is something the bank will utilise as it tries to take a significant market share away from the incumbent.


Room for everyone

There are plenty of other new providers tapping into the BNPL zeitgeist, undeterred by the market dominance of the existing players.

Luckily, for all providers of BNPL services,  BNPL users do not appear to be wed to one particularly provider, with the proportion who are using more than one provider rising. This percentage of multi-provider users rose from 33 per cent in March 2018, to 55 per cent in June 2021. RFi Group research found that of the multi-provider users, seven in ten had used Afterpay.

So, despite the lateness of some of the newer entrants in this space, it doesn’t mean they can’t be successful if they are able to differentiate their offerings sufficiently and provide services that fix the issues users, and merchants, may have with their existing providers.


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