Citi Australia is angling for a piece of the fast-growing buy now, pay later market, with a new instalment loan product that will initially charge customers a flat fee instead of interest.
As the runaway success of Afterpay sparks a series of other schemes that allow customers to make purchases while delaying payment, Citi on Monday launched a partnership with online retailer Kogan.com that allows its existing credit card customers to take out instalment loans at the point of sale.
It comes after Commonwealth Bank this month said it would invest US$100 million in a stake in Klarna, a rival to Afterpay in the United States market, and it would be Klarna’s exclusive partner in Australia.
Other businesses eyeing off the buy now, pay later market include Sezzle, which listed on the ASX in July, while long-standing consumer credit operate Flexigroup has also launched a platform called Humm.
Global credit card giant Visa also said in June it was developing an instalment payments product.
Unlike Afterpay, Citi’s offering is only open to customers who have a credit card with the bank, and they will only be able to access finance within their existing credit limit.
Citi’s head of cards and loans, Choong Yu Lum, highlighted the “rapid” growth in this sector, and said the bank planned to roll out the offering to a wider range of retailers.
“We think that a lot of the big four are trying to race towards participating in the space of buy now, pay later,” Mr Lum said.
He said the bank’s research suggested customers were aware of buy now, pay later schemes, but many people would prefer to take up such a service from a traditional lender.\
“The buy now pay later sector has seen rapid growth, increasing five-fold in the last two years alone, according to data from ASIC. This highlights that consumers want more ways to manage their payments, and we’re proud to be the first bank in Australia to enter this sector,” Mr Lum said
Under Citi’s offering, customers will be able to pay back the loan over terms of 3 months, one year, 18 months or two years.
Citi said it would not charge interest on these loans initially, and Mr Lum indicated the future pricing of the loans would depend on how customers responded.
Citi said it would charge a one-off fee, calculated as a percentage of the purchase price. These fees range from 0.5 per cent for a three month loan, to 2 per cent for a one year loan, to 5 per cent for an 18 month or two year loan.
Citi, the fifth largest credit card issuer in Australia, already allows credit card customers to choose an instalment loan, and Mr Lum said this offering had experienced six-fold growth in the past year.
Mr Lum cited survey data showing most millennial consumers were concerned about debt, and he said younger generations had also been the main users of buy now, pay later products.
This article was first published by The Sydney Morning Herald and The Age. Read the original here.
Business Insider Emails & Alerts
Site highlights each day to your inbox.