The big players in Australian Finance have been streamlining their operations in Australia amid low interest rates and wavering consumer sentiment due to the COVID-19 pandemic. However, companies like Afterpay, Humm & Zip have reaped the rewards of the Buy Now, Pay Later (BNPL) model, which is becoming an increasingly popular alternative consumer credit option. With firms in the sector recording substantial growth in recent years, these platforms have offered an alternative way for shoppers to make retail purchases that is proving attractive to Australian consumers and investors alike.
BNPL platforms essentially offer a short term, no interest loan at the point of sale, allowing consumers to pay for a wide range of goods in installments, usually spanning four to six weeks. The majority of these platforms are free to use, with most firms deriving revenue from late payment fees and merchant fees. Firms using this payment model began to emerge in 2011-2012, while services existed even earlier in other similar, if less accessible, forms. However, US tech giant Square recently initiated a record-breaking acquisition of the Australian-founded Afterpay, which reflects the current excitement around BNPL providers.
Hip to be Square
In what is set to be the largest merger in Australia’s financial history, Square (led by Twitter founder Jack Dorsey) has initiated a $39.0 billion scrip bid deal for Afterpay, which is expected to close in early 2022 pending regulatory approval. The acquisition comes on the back of Afterpay posting significant growth in both its share price and revenue in recent years, leading Australia’s BNPL market. The company recorded an all-time high share price of $158 dollars in early February, increasing from an initial offering of $1 dollar a share upon listing on the ASX in May 2016.
Afterpay, Zip…
While Afterpay is the biggest fish in the pond, several other notable players operate in the Australian BNPL market. For example, Zip has also recorded impressive growth figures, with revenue increasing at an annualised 163.6% over a five-year period, but has fallen short of their major rival by most metrics. Zip serves close to half the customers and merchants that Afterpay recorded. As a result, Zip’s revenue is close to half that of their chief competitor, despite Zip almost doubling their previous year’s result.
…And Everything in Between
Humm Group (Formerly known as Flexigroup) is one of Australia’s more mature fintech institutions, and has also gone all in on BNPL. In late 2020, the group simplified their offering from 23 products to four and rebranded to Humm, their leading BNPL product. Unlike Afterpay and Zip, Humm has not recorded stratospheric growth on the back of the BNPL boom. However, the group benefits from a strong base that has grown consistently since 2006.
Suncorp is one of the latest firms to throw their hat in the BNPL ring, with the regional bank announcing a partnership with Visa to offer their own take on the crediting platform. Suncorp likely made this move in response to falling consumer credit revenue among traditional banks and financiers. As more consumers (particularly the young) ditch plastic credit cards in favour of digital BNPL platforms, more Australian banks will likely experiment in the sector.
Of the big four banks:
- NAB has initiated a BNPL-like platform, under the moniker of the ‘NAB StraightUp Card’ with no interest and a flat monthly fee
- Westpac have partnered with Afterpay
- CBA have launched StepPay, following a standard BNPL model
- ANZ have adopted a different strategy, partnering with Cashrewards to target those consumers who prefer to save rather than spend
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