BNPL – Why ANZ Joined The Party

Australia has 27 BNPL apps, does this equal saturation?

What does it take for a CEO of a major bank to change his (note no female CEO’s of top 4 banks) mind?

Here are two quotes from ANZ CEO in March 2021

“I think the idea that buy now, pay later is somehow stealing business from cards is wildly exaggerated,”

“Apparently when you buy something and pay for it later, apparently that’s not borrowing, I struggle with that, personally, I think most thinking people would struggle with that definition.”

Yet six months later a change of mind – we all know it must have been on the agenda in March – banks don’t move that quickly.

?ANZs move has been greeted with some skepticism -

Australia has way too many BNPL apps for such a small market – BNPL is also losing share as well.

Remember Afterpay sales went backwards by 18.6% in Q1 of 2021. As the Australian pce below explains BNPL is now a ‘huge’ 1.46% of card spend.

The sector is now split between fully regulated banks/financial service provides and totally unregulated, unprofitable fintechs.

Two issues that would have helped change CEO Elliot’s mind, the new BNPL interchange rate and Visa worried about losing share in Australia.

?Interchange for virtual cards used in BNPL is now 0.80 basis points a massive lift from ‘normal’ debit and this changes the profitability somewhat – the credit risk issue is still considerable however.

Visa (and Mastercard) are under the pump in Australia – their best earner credit cards are going backwards and now consumer cards are just hovering above 16 million – down 6 million over 6 years as consumers move to debit cards, which started in 2009/10 (and has nothing to do with BNPL).

Once upon a time Australia was in the Top 10 credit card markets in the world - today its doesn't even make the Top 30 - yet Australia is 12th largest economy.

The largest retail bank CBA is a Mastercard customer and growing, Citibank the 5th largest issuer is also Mastercard, but it’s been sold to NAB who are a Visa Issuer. Will these cards be switch to Visa which would be a positive. So I’m sure ANZ got Visa to cough up plenty to support its BNPL effort.

Visa and Mastercard have also been caught flat footed by the rise of BNPL – it’s not like it’s a surprise as Klarna and Afterpay Europe started in 2005, Affirm in 2012, Afterpay Australia 2014. Plenty of notice for both global businesses – why they have taken so long to react is any one guess. ?

It gets worse when you consider the rise of Alipay and WeChat, who in ten years have surpassed both Visa and Mastercard in sales and they both use remote seamless customer and merchant sign ups, reducing cost and increasing sales. This is what BNPL single purpose apps have copied making it easy and instant for consumers to sign up and downloadable APIs for merchants. ?

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WHY ANZ JOINED BNPL PARTY

Consumers have a range of buy now pay later options.

THE AUSTRALIAN - JOYCE MOULLAKIS, NET INTEREST COLUMN 15th Oct

The buy now pay later sector is being flooded with entrants at both ends of the size spectrum, raising the issue of saturation.

Global credit cards giants PayPal and Amazon are all represented and there are reports Apple is joining forces with Goldman Sachs to enter the BNPL space.

Locally, even ANZ, which has shrugging off the hype, has waded into the market, albeit via Visa credit card instalments for customers next year.

Payments research group McLean Roche Consulting says there are 27 buy now pay later companies and apps that are based, or seeking to achieve scale, in this market. They span regulated financial services groups and ANZ-listed and private fintechs.

This year has certainly seen several of the major domestic banks push into buy now pay later, with Commonwealth Bank going beyond an initial partnership and stake in Sweden’s Klarna to also venture out on its own. In a move to combat the likes of Afterpay, CBA launched its StepPay instalments product in August.

It seeks to attract its customers directly, and also merchants via fees that are akin to credit card rates rather than charges that can often swell to 4-6 per cent per transaction.

But it’s ANZ about face that is quiet interesting. Last year, the bank conducted a deep dive review into buy now pay later sector which was presented to the board and coincided with David Gonski’s final meeting as chairman.

ANZ wasn’t keen to jump on the bandwagon after closely considering the topic chief executive Shayne Elliott telling this column “It (buy now pay later) doesn’t really fit into improving the financial wellbeing of our customers. ?

ANZ’s granular analysis showed users of instalment payments were typically younger, with lower levels of savings and a higher risk profile. “Their propensity or probability of being late on a payment or getting behind on their obligations to the bank is about two times what other customers are,” Elliott said of the bank’s analysis of its customer data.

ANZ obviously now believes it needs a foot in the door in buy now pay later, despite is representing about 1.5 per cent of total domestic payments sector on McLean Roche analysis. This is down from a peak of about 1.7 per cent of card spend.

In the Reserve Bank bulleting in March, the central bank noted strong growth in the buy now pay later sector, but said regulation wasn’t warranted due to its small representation in the broader payments landscape.

“While there has been a substantial increase in BNPL transactions over the past few years, it is estimated that the value of BNPL payments ( based on available listed company data) was equivalent to less than 2 per cent of the total value of Australian debit and credit card purchases in 2020” the RBA said.

The central bank has stopped short of allowing surcharging for instalment services and there is negligible regulation of the industry, which has frustrated traditional lenders.

The buy now pay later sector is captured by the corporate regulator’s product and distribution obligations which came into force this month, but little else.

Market including the UK and Singapore are closely assessing regulation of buy now pay later, but Australia’s policymakers are sitting on their hands.

Merchants and retailers should hopefully reap the benefits from more players and competition on instalment fees, but that doesn’t alleviate the risks for vulnerable consumers who may have multiple buy now pay later accounts and susceptible to hefty late fees.

Westpac has a foot in the buy now pay later sector through a partnership with Afterpay, and National Australia Bank and CBA last year pushed into credit card options charging no interest but levying a monthly fee.

CBA also a promotional offering new StepPay customers $20 cashback if they sign up and spend $100 or more by the end of next month.

About 86,000 customers preregistered for CBA’s StepPay and the bank is also hoping it can capitalise on research that suggests 76 per cent of Australians who use instalment payments are interested in using buy now pay later services offered by their main bank. ?????

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