BNPL – Triple Play in US and Australia

Major BNPL announcements in one day -

Apple enters the BNPL sector partner with Goldmans,

PayPal launches its Pay in 4 in Australia with vastly lower merchant rates and no punitive late fees for consumers to its 9 million accounts with 12 million consumers.

Visa announce in Canada BNPL ‘do it yourself’ kit for merchants in partnership with Global Payments, another step to roll out a global offering.?

CBA Australia's largest retail bank will also do a job on BNPL in Australia when it starts in August - which is why PayPay has gone to market now.?

Humm somewhat overwhelmed by other news announce a partnership with Westpac NZ for its bundll BNPL brand.

CONSOLIDATION ANYONE?

Everyone expects ‘consolidation” a nice word for carnage in this case – Australia has 26 BNPL apps trying to make it as well as many copy cats in other sectors – almost all will not survive.

Afterpay and Zips challenge to maintain lofty share prices, the clear goal, is to succeed in the crucial USA market (Afterpay is 5th , Zip 9th) while their Australian/NZ market share declines – remember over 50% of revenue still comes from ANZ.

How defendable is the BNPL niche?

Not very –?BNPL only requires integration into a retailer’s ecommerce platform and links with their physical point of sale (when required).?Fintech start-ups like Klarna, Affirm and Afterpay?created this niche by developing the Application Programming Interfaces?(API)?& Software Development Kits?(SDK)?to make this happen.

Most?banks and card issuers?core processors don’t offer a downloadable API or SDK for?retailers, currently making it difficult for banks and issuers to enter this market. The big players have or will bridge this gap very quickly; it’s not a defendable moat.

Once these applications are deployed it becomes a battle of brands, market power and scale.

Small FIs lacking BNPL integration can still participate by partnering with fintechs or ‘white label’ providers - also as BNPL apps become available in?Google?Plex,?Google Pay,?Apple?Pay, Samsung Pay this will allow small banks to enter this niche.

BNPL LACKS SCALE IN AUSTRALIA

BNPL has not yet created sufficient scale after 7 years.

Total consumer payments in Australia total $1.5 trillion

Australian’s use 70.1 million cards spending $741 billion

National Payment Platform digital payments (NPP/Osko) 6.8 million users with $632 billion

Cash and ATMs $116 billion,

BNPL 5.8 million users with $11 billion

Cheques $4 billion

BNPL market share is 73 basis points down from 84 basis points in January 2021 or as others contend 1.5% of debit/credit card usage down from 1.7%.

Simple put BNPL has already peaked in Australia before major players roll out - watch the destruction

BNPL SPEND PER CUSTOMER IS VERY LOW

Credit cards - $1230

Debit cards?- $806

BNPL apps?- $48 to $58

(May 2021 RBA figures)

Credit and debit are monthly spend, BNPL ‘bills’ consumers every 12-14 days, it’s still a paltry amount per bill, yet this is the great new thing in payments and you can only get $50 sale per bill?

Some examples of the media coverage from Wednesday 14th July -

Afterpay, Zip dive as giants enter the fray

THE AUSTRALIAN - JOYCE MOULLAKIS DAVID SWAN - 14th July

Investor jitters over plans by global technology giants PayPal and Apple to muscle in on the burgeoning “buy now pay later” sector sent shares in local listed groups Afterpay and Zip tumbling on Wednesday.

PayPal is seeking to shake up the Australian instalments payment market through the launch on Wednesday of its own ”buy now pay later” service which avoids charging customers late fees.?

The PayPal Australia announcement was briskly followed early on Wednesday by a Bloomberg report signalling that tech heavyweight Apple was working on its own BNPL service, in partnership with Goldman Sacs.

Bloomberg cited unidentified people with knowledge of Apple’s plan and the report triggered a drop of as much as 13 per cent in shares of BNPL group Affirm in US trading, while PayPal’s stock dipped about 1.4 per cent according to the report.

Local investors were also skittish on news of the strategic moves by PayPal and Apple. Afterpay’s shares plummeted 9.6 per cent to $107 on Wednesday, while Zip’s stock dropped 11.4 per cent to 7.32. Humm Group, which is not a pure-play BNPL operator, saw its shares decline almost 4 per cent to 97c.

The BNPL sector has been a hive of activity this week, and investors were scrambling to work out how the power plays would filter through the market.

An Afterpay spokesperson on Wednesday said the company’s model went beyond making payments in four instalments and it was a “marketing partner” to merchants and retailers.

“The Afterpay platform has always delivered a unique value proposition to customers and retailers” she said.

“It has never been about merely offering a transaction solution.

“We have achieved the growth we have because we have flipped the traditional credit model on its head and in the process built a platform that drives significant incremental value for our merchants.

“We are not a loan provider, we never charge interest or use credit checks”

A Zip spokesperson said “Apple’s move into BNPL is validation that what Zip has been doing is resonating with customers and merchants. We 100 per cent welcome the competition – competition drives keen pricing and great products and that is good for customers, which is what Zip is all about”

Also on Wednesday morning Westpac said it was teaming up with Humm in New Zealand to exclusively offer its BNPL product, bundll.

Humm entered into a joint venture with Red Bird Ventures – a unit of Westpac New Zealand to offer bundll to the Kiwi consumer finance market. The arrangement results in Red Bird getting the option to take an equity stake in bundll NZ.

The much anticipated PayPal Pay in 4 launch comes after the payments behemoth earlier rolled out the service in the US, Britain and France.??

PayPal wants to make a splash in this market by charging merchants the same fees it does for other payments and taking late fees completely out of the equation. It says it is the first to not levy late payment charges on BNPL transactions in Australia.

PayPal says it will conduct an assessment of customers they allow to access the BNPL option, which is just one of several payment choices available online and through its digital wallet.

The company has more than nine million active Australian accounts, and it will predominantly use its own data and analytics engine to assess suitability, while for new customers or to draw on additional information, it will run credit checks through companies including Equifax.

Commonwealth Bank is also pushing further into BNPL with a direct service called StepPay for existing customers. StepPay will launch soon.

Payments expert Grant Halverson of McLean Roche Consulting said the large tech and payments groups would have a notable impact in the BNPL sector.

“It’s the result of the BNPL relentless spin and bluster, its attracted big industry players who will kill off most of them – literally stomp on them” Mr Halverson said.

“Apple Pay and Goldmans are the latest ‘elephants’ to enter the BNPL critical USA race.”

“Apple in the US has 44 per cent of the phone market and 90 million Apple Pay users – plus a relentless approach to security that customers love – you have a serious player. Goldmans with its Marcus experience will provide funding, data and credit skills.

RateCity research director Sally Tindall said that, despite the PayPal service having no late fees, consumers needed to be mindful that if they did not repay PayPal instalment purchases it could damage their credit file.

Macquarie Group analyst told clients the removal of late fees from Afterpay valuation would result in a decline to $130 a share from $140.

“Zip’s account-based product construct consumers already show a willingness to incur on-going fees. We believe they would be less sensitive to the potential for an alternative ‘no late fee’ Pay in 4 product” they said.

The analyst said intensifying competition in the sector would trigger rationalisation.

“We expect a period of consolidation within the industry before seeing a better outlook for the industry overall” Macquarie said.” Our recent adjustments for Afterpay have already factored in market share loss in Australia partially reflecting the increasing competitive landscape”.????????

?Jefferies analyst highlighted the dominance of Afterpay and Zip in Australia, and that any Apple BNPL product would take time to arrive here.

“There are some important distinctions with Apple’s products. PayPal could be a risk in Australia, but it is quite a mature market dominated by Afterpay and Zip” they said.

“Apple may not have the same level of direct merchant integration as Afterpay and Zip, which may prevent it doing marketing with other brands. The Apple product seems to target credit card users, whereas the vast majority of Afterpay and zip’s customers shun credit cards.

Afterpay and Zip Co shares dive after PayPal launches buy now, pay later product

PayPal will offer Pay in 4, which allows PayPal users to pay for purchases in four instalments and has no late fees

The Guardian Business ?Ben Butler?Wednesday 14 Jul 2021

Buy now, pay later operators Afterpay and Zip Co are facing increased competition after global online payments group PayPal muscled into the Australian market with a product that has no late fees.

PayPal will offer Pay in 4, which allows PayPal users to pay for purchases in four instalments.

In response to the PayPal announcement, Afterpay shares tumbled 7.7% and Zip Co shares fell 7.6% in morning trade.

The local operators also face more competition from Australia’s biggest bank, the CBA, which is launching its BNPL product, StepPay,?next month, and potentially from Apple, which is?reportedly?working on adding BNPL to its popular Apple Pay system with the assistance of bank Goldman Sachs.

“I think PayPal is the least of their problems,” said Grant Halverson, a payments analyst at consultants McLean Roche Consulting.

“The real issue is that the CBA will do a number on them next month, and overnight Apple announced its entry.

“This is going to be a dance of the elephants, and the BNPL companies are tiny mice.”

PayPal’s product went live in Australia on Wednesday morning. The company started rolling out Pay in 4 in the US in October and has since offered it in the UK and France.

However, Andrew Toon, general manager of payments for PayPal Australia, said the no late fee offer was exclusive to Australia.

He said this was based on PayPal’s research into Australian customers.

“It’s our view that people are missing payments by mistake, not by design,” he said.

He said PayPal was using the data it held on customers to determine eligibility for Pay in 4, and where it couldn’t make a decision was using credit checks from agency Equifax.

“We have experience, we have systems, we have data to make that assessment,” he said.

Eligible customers can split the cost of purchases between $30 and $1500 into four payments made up of an initial downpayment and three fortnightly instalments.

The option is not available for payments related to gambling, cryptocurrency trading, contracts for difference, foreign exchange, transfers to other individuals and donations to not-for-profits.

“PayPal is a very serious competitor, they have more than 9m customers in Australia and the lead in the online market, where this is playing out,” Halverson said.

BNPL has exploded in popularity in Australia,?leading?to calls – resisted by the industry – for it to be more tightly regulated.

Despite its rapid growth it accounts for only about 1% of payments, and Australian operators are increasingly turning to the large US market for opportunities to grow.

But Halverson said the entry of whales such as Apple posed big problems for Australian companies looking to take on the US.

“Apple has got 90m users in the US, they’ve got 40% of the phone market,” he said. “Goldman Sachs in conjunction with Apple is going to be a very serious threat.

“I describe it as the end of the beginning – the question is whether it’s the beginning of the end.”

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