The Commonwealth Bank of Australia (ASX: CBA) is the latest to muscle in on the booming BNPL space that sent the Afterpay Ltd (ASX: APT) share price rocketing to the moon.
Australia's largest listed bank launched a zero-interest credit card that's aimed to win market share from Afterpay, reported News.com.au.
CBA's move comes a day after National Australia Bank Ltd. (ASX: NAB) issued a card with the same benefits.
Afterpay share price under pressure
The Afterpay share price slumped 2.9% to $73.42 during lunch time trade, although I don't think CBA's offering if really hurting sentiment.
The S&P/ASX 200 Index (Index:^AXJO) lost 0.7% of its value on weak overnight leads from Wall Street. The CBA share price and NAB share price have also lost more than 1% at the time of writing.
How big a threat is CBA and NAB?
The buy-now pay-later (BNPL) solutions from the big banks aren't likely to be as popular as Afterpay, in my view.
For one, the bank cards just lack the "cool" factor that is vital to younger spenders who are driving growth in BNPL.
The other issue is that CBA product attracts a monthly fee, according to the news report. Consumers have to pay $12 a month for a $1,000 limit, $18 a month for $2,000 and $22 per month for $3,000.
What this means is that you are in fact paying an annual "interest rate" of 14.4% if you fully utilised the $1,000 credit limit on the cheapest plan. The NAB solution also charges a monthly fee. So much for zero-interest!
High interest in zero-interest
The banks will argue the maintenance fee is not interest and that consumers can earn rebates at select merchants. The rebates could allow you to recoup the fee (and maybe more), but in my eyes this is an interest charge.
I am not an advocate for Afterpay, but it's worth noting that the fintech doesn't charge any fees unless you miss a payment. Afterpay makes money by charging the merchant, while I suspect the big banks collect payment from both consumers and merchants.
Bigger threat to Afterpay and friends
But there is a more sinister rival Afterpay and its peers like the Zip Co Ltd (ASX: Z1P) share price. This is Elon Musk's previous baby, PayPal, which revolutionised online peer-to-peer payments.
PayPal is very popular and is the dominant payment of choice for online shoppers. It already has the customers and networks to get its BNPL product off to a flying start.
The global market is certainly big enough for several large players to emerge, and Afterpay may cement itself in one of those spots.
But the real question is whether Afterpay can sustain its lofty market premium in the face of stiffening competition.
