The payment niche may be ‘too small’ to regulate, but it hasn’t stopped all and sundry from squeezing in as Citibank gets ready to dive into buy now, pay later.
The $192 billion bank revealed on Wednesday it will trial its long-awaited BNPL feature in Australia in October, with a view to roll it out globally later.
Called Spot, the bank will split purchases of up to $1,000 into four fortnightly repayments and will be accepted everywhere Mastercard is available.
“This is a global first for Citi, and we’re confident that success in the Australian market could lead to a worldwide rollout of the new payment method,” Australian head of cards and loans Choong Yu Lum said.
“We are excited to enter the buy now pay later market with an offering that will be compelling for customers and merchants.”
While customers won’t be charged interest, fees will be applied to any late repayments. Additionally, customers will be given the option to split purchases over $200 into eight repayments, extending their repayment schedule for a flat fee of $10.
While largely similar to existing options, the ability to use anywhere like Zip without having to sign up individual merchants would appear to be Spot’s biggest advantage. Similarly customers will be able to link their account to any bank account of their choosing.
In a further bid to amass a waiting list of interested customers, the bank is offering $25 gift cards for early sign-ups and a chance to win $1,000 shopping sprees.
It comes the same week Square made a $39 billion bid for Afterpay, the largest local platform, shaking up a local BNPL market which has grown increasingly crowded.
To date, players have entirely sidestepped local regulation, substituting mandatory requirements for voluntary pledges. So too have they managed to prevent retailers from passing on costs of the payment method to customers, with the Reserve Bank (RBA) maintaining it hasn’t become common enough to oversee.
The entry of hundred-billion-dollar banks and trillion-dollar tech companies, and the rollout of their own products to millions of established customers, may force policymakers to reconsider.
Meanwhile, critics of the sector have suggested the limited scope for further growth will only squeeze out local players which lack significant differentiation or competitive moats.
Others have speculated that more buyouts could follow, while platforms themselves are claiming these new entries by big financial institutions only legitimise the payment method further.
All theories may have some truth to them. Citibank says its research indicates 98% of Australians are aware of BNPL but only around one in four actually use it.
“How Australians use credit is evolving, and there remains an opportunity for new players to step in and listen to consumers who are sending a clear message they want innovative payment solutions to help them manage their finances,” Lum said.
Similarly, the idea that BNPL is increasingly a feature that larger financial institutions offer, as opposed to a standalone product, seems to be gaining traction.
Separate research from RFI points to a maturing of the sector as overall use plateaus with consumers increasingly using multiple platforms. The finding is consistent with the RBA’s own research which points to little loyalty to individual BNPL options.
All in all, it would appear banks and other payment providers may simply see it as just another add-on.
“As consumers and retailers continue to shift their payment preferences and behaviours, providing choice in how to pay and get paid has never been more important,” Surin Fernando, Mastercard Australia vice president of business development, said.
It cuts with Citibank’s broader local strategy, announcing in April it would withdraw consumer banking services from Australia and a handful of other markets.