Citi, the fifth largest provider of credit cards in Australia plans to launch the buy now pay later (BNPL) service in the region by the third quarter of the year.
Citi’s new BNPL service will compete with Afterpay and Zip
The BNPL business that will run through a MasterCard proposition will compete with the existing service providers, Afterpay and Zip by undercutting the fee charges. The new service will be offered under a new brand, separate from Citi, but the name was not revealed.
The new service option comes after the Commonwealth Bank said it would invest $100 million in Klarna to become Klarna’s exclusive partner in Australia. Various businesses are also eyeing the BNPL market. Flexigroup launched a platform known as Humm while the credit card giant Visa is developing an installment payments product.
Alan Machet, CEO at Citi Australia’s consumer banking said the new product showed that Citi is keeping up with the evolving face of credit. “We are confident that this offer will be compelling in the local market for both consumers and merchants.”
Citi Australia is adding this new service after developing a deferred payments system available to its credit card customers. It allowed consumers to portion their significant purchases that are made on larger lines of credit.
Citi has joined the global payments giant PayPal in issuing a white-label credit card. The zero-fee card has an annual interest rate of 20.99% and was made available from mid-July. It earns points with every eligible purchase.
Citi plans to launch this new service before October. With the new product, consumers can pay in four instalments over six weeks. They can opt to pay a small amount fee to gain access to longer-term payment plans for their purchases. To access the service, customers need to log in or create a Kogan.com account, which gives information on the hottest deals, earn points and manage e-vouchers. Enrol your Citi credit card, and select to pay with instalments at the checkout, with offers to pay over 3, 12, 18 or 24 months displayed in real-time.
The BNPL service can be used wherever the MasterCard is accepted, locally or abroad, and consumers will be able to link any deposit account.
Citi targets the 35 to 45-year old demographic and its secondary market are younger consumers.
“While perceptions might be that BNPL is for a very young audience, we do think this product is appealing for a broad spectrum of adults,” Machet said.
The bank also plans to expand the services for higher lines. “People are going to start there in BNPL, from a small ticket perspective. When they look into the bigger line of credit for holidays or school fees, that is when you click into the responsible line of credit card,” he added.
Choong Yu Lum, head of cards and loans at Citi said, “The BNPL sector has seen rapid growth, increasing five-fold in the last two years. It’s great for consumers to have a number of players offering BNPL options. At Citi, we target consumers who are more comfortable using a traditional lender”.
Afterpay charges merchants a 30¢ fixed transaction fee plus a commission on the sales value ranging from 3 to 7%, higher than the cost of taking payments from credit cards. Credit card payments range from 0.6% to 1.5%. Citi’s BNPL option that runs on the MasterCard propositions provides a transparent alternative.