Customers can use their debit and credit cards to access the service for purchases between $100 and $1000 and pay in four fortnightly instalments.
Buy now, pay later services have proven popular with young people as they do not charge interest but instead levy late fees for missed payments.
Yet providers such as Afterpay and Zip make most of their money from the fees charged to businesses in each sale.
CBA said providers charged about four per cent, which cost businesses hundreds of millions of dollars each year.
Businesses would not pay an additional fee using its service.
Individual CBA customers must apply to use the service and will be assessed before approval.
This is not the bank’s first foray into this payment type.
CBA already has a sizeable investment in buy now, pay later provider Klarna, which is also available to people who are not customers of the bank.
Zip touts ‘higher standard’ plus new code
A buy now, pay later code of practice will make sure the industry acts in the best interests of Australians, according to homegrown fintech Zip Co.
The code is replacing the regulatory black hole the fast-growing sector has been operating in until now.
Australia’s corporate watchdog is monitoring consumer harm and problematic vendors, while the Reserve Bank as payments regulator is watching the rise of BNPL as a form of credit or financing.
Peter Gray, Zip’s co-founder and chief operating officer, says the code is a “strong first step” to lifting standards across the industry.
‘Spreading out the cost of an item makes it feel less expensive, but that doesn’t mean you can afford it.’
The code has been developed by the Australian Finance Industry Association whose BNPL members include Afterpay, Brighte, flexigroup, Latitude, Openpay, Payright and Zip.
But Consumer advocacy group Choice says there should be rules, not self-regulation, guided by what is in the best interests of people using payment systems for everything from coffee and groceries to solar panels, home appliances and dental work.
By not charging interest on the credit extended to users, BNPL providers are not covered by consumer laws, responsible lending checks, caps on fees and charges, external dispute resolution and hardship requirements.
Financial Rights Legal Centre chief executive Karen Cox said at least one in five Australian consumers was missing payments.
“BNPL companies use a simple but seductive psychological trick to attract customers. Spreading out the cost of an item makes it feel less expensive, but that doesn’t mean you can afford it,” she said.
Gray said Zip – Australia’s most downloaded BNPL app in December and January – would continue to implement its own “higher standards”, particularly around customer suitability.
“Zip has done ID and credit checks on every customer since inception,” he said.
“As a result, we see one in 100 customers late in any month, compared with up to one in six for credit card users that are paying interest and behind with their debt.”
Releasing record results on Thursday, Zip managing director Larry Diamond said the “transformational” six months to end-December was part of a global shift away from the “broken and unfriendly credit card” towards a fairer digital alternative.
PayPal to let Aussies pay later from June
PayPal announced last week that it will offer a buy now, pay later service to Australians from June as it tries to catch up with the likes of Afterpay and Zip.
The payments provider, known for securing sales on eBay, last week said the users of Australia’s 9.1 million PayPal accounts would be able to pay in four instalments.
Like many competing services, shoppers will not be charged interest but will have a late fee deducted if they miss a payment.
This late fee will be $10 for purchases less than $125, and $30 for those worth more than $125.
Like other providers, PayPal said these late fees would only be charged once per purchase – which may limit regulators’ concerns that buy now, pay later services are a costly debt trap.
However, providers of buy now, pay later services make most of their money by charging a fee per sale to the respective business.
PayPal will not charge an additional fee for businesses to use its new service. Its standard fee for businesses making a sale is 2.6 per cent and a 30 cents transaction fee.
Afterpay’s fee, according to analysts, is about 3.8 per cent but can range between three and seven per cent depending on the size of the business.
PayPal last year revealed it intended to provide buy now, pay later services and while it is taking time to become available for Australians, the company’s general manager of payments in Australia, Andrew Toon, said the effort was part of a global rollout.
He acknowledged shoppers already had plenty of services to choose from.
“It’s a busy space but competition is great for consumers,” he said.
RBC Capital Markets analyst Daniel Perlin said buy now, pay later services made up 2.1 per cent of e-commerce spending in 2020.
He expected this percentage to double by 2024.