Commonwealth Bank has unleashed Australia’s latest buy now, pay later competitor StepPay on the market, combining the pay-in-four functionality of competitors like Afterpay with the merchant fee structuring of traditional credit cards.
StepPay, launched Wednesday, marks the first foray into the BNPL sector by one of Australia’s major banks, and an attempt to reverse the tidal wave of young Australians seeking credit card alternatives.
The Sydney Morning Herald reports some 86,000 eligible Commonwealth Bank customers who pre-registered can now access the new StepPay system through their digital wallets, for use anywhere MasterCard payments are accepted.
StepPay, first announced in March, mirrors many features now commonplace in the BNPL sector.
Purchases of more than $100 are automatically split into four even fortnightly payments, with no interest, monthly, nor annual fees charged to the buyer.
Late fees of $10 apply, with StepPay transactions limited until existing repayments are made.
StepPay purchases of under $100 will be taken in single blocks.
However, StepPay transactions will be treated by both Commonwealth Bank and MasterCard as credit card payments, differentiating the new market entry from established players.
Critically, this suggests StepPay transactions will effectively become microloans, payable in four installments.
CommBank says it will conduct responsible lending checks on StepPay applicants before they can rack up pay-in-four debts, unlike BNPL luminaries which have consistently argued they don’t offer credit products at all.
Furthering its argument that BNPL payments are explicit credit products, CommBank says StepPay has a credit limit of up to $1,000.
Even bigger differences are apparent in StepPay’s merchant fee structure.
The Australian Financial Review reports that StepPay’s treatment as a credit card product will see merchants hand over around 1.5% of the value of each transaction, like they would for normal credit card purchases — a significant reduction to the merchant fees charged by many dedicated BNPL operators.
Bigger tweaks come through StepPay’s interchange payment system.
Interchange payments — where a retailer’s bank pays the cardholder’s bank a small fee for facilitating the digital cash transfer — will be considerably higher than for MasterCard’s ordinary credit cards.
The AFR reports CommBank can expect 80c for every $100 processed through StepPay, far higher than the interchange fees it could expect via regular MasterCard credit card and Eftpos debit card transactions.
CommBank would surely hope comparatively lower merchant fees will entice Australian storefronts to adopt StepPay, even if those higher interchange fees eventually filter back to retailers in fees imposed by their own banks.
At face value, CommBank’s in-house offering appears to directly oppose BNPL incumbent Klarna, in which the lender holds a multi-billion dollar stake.
But when the lender announced its foray into the BNPL sector in early 2021, retail banking executive Angus Sullivan said CommBank’s most recent Klarna investment was “an expression of our confidence in its future both worldwide and in Australia and New Zealand.”
Citing CommBank, the AFR reports some 4 million existing customers are eligible for StepPay, suggesting a large built-in market.
Even so, established BNPL titans are less enthused by big bank competitors.
Speaking in March after CommBank’s initial announcement, Nick Molnar, co-founder of the recently-acquired AfterPay, said, “Our core consumers have a lot of distrust for many financial institutions but a huge amount of trust for Afterpay.”