CBA, NAB may have missed the mark on new cards, as instalment battle intensifies

Remember the zero per cent balance transfer craze and the banks piling into that more than a decade ago? This looks like the latest iteration.

The buy now pay later instalment wars are heating up globally, but the latest push back from two of the major domestic banks may prove a flop.

This week both National Australia Bank and Commonwealth Bank — with the usual fanfare — have talked up their latest play to get younger customers using more of their products.

While the no-interest credit card options are a good way of avoiding the late fees at buy now pay later services such as Afterpay and Zip, this columnist isn’t convinced that a monthly fee model will catch on.

Both NAB and CBA are offering customers up to $3000 of credit, without interest charged, but that is replaced with a monthly fee when the card is used.

It will be interesting to see whether ANZ and Westpac follow suit, or if it’s just the latest gimmick in the payments market to convince customers to do more with the incumbents.

Remember the zero per cent balance transfer craze and the banks piling into that more than a decade ago? This looks like the latest iteration.

To its credit, CBA has linked the new card to its reward partners meaning the monthly fees can be offset via cashback offers at retailers. But CBA’s card for retail customers won’t be available until late 2020, and strangely it has an age criteria of at least 21 years old for access to the rewards program.

But again, customers have to do the due diligence and read the fine print at CBA and NAB to understand how these new cards work.

Payments stalwart Grant Halverson from McLean Roche Consulting isn’t buying the banks’ latest move in the sector and thinks it s a flawed strategy.

“The basic consumer view is Millennials and Gen Zs hate credit cards and don’t like debt, so why will they pay $120 a year in fees for a basic credit card?”

His analysis of Reserve Bank data shows, though, that credit card numbers in Australia peaked in early 2017.

Credit cards on issue stand at 16.9 million, 2 million lower than a year earlier. And Australian consumers have cancelled 5.28 million cards since mid-2017.

Interestingly, CBA has an exposure to the buy now pay later market through its stake and partnership with Sweden’s Klarna, while Westpac has a stake in ASX-listed Zip.

The more interesting dynamics in the space have to do with PayPal pushing into the sector with its Pay-in-4 instalment option, while Citigroup has partnered with Amazon to ensure it has a dominant seat at the table.

The strategic manoeuvring is far from over.

Austrac update

Staying on PayPal, the payments giant is said to have lobbed an external audit report — conducted by EY Australia — with financial crimes regulator Austrac last month.

The Australian revealed in May that Austrac’s enforcement unit was considering legal action against PayPal for hundreds of millions of potential breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act.

Austrac forced the appointment of the external auditor to PayPal a year ago to start a detailed probe of its compliance with local anti-money-laundering and counter-terrorism financing laws. The regulator is expected now to spend months trawling through the audit to decide whether legal action is warranted.

Afterpay went through a similar process with Austrac involving an external audit. That spurred the company to bolster its compliance processes and work to fix any issues.

Austrac is likely to have an update on the Afterpay matter soon, which will no doubt be closely scrutinised by investors.

Meanwhile, Westpac is awaiting a revised Austrac statement of claim as the parties prepare to square off in court over the bank’s more than 23 million breaches of financial crimes laws.

Austrac is said to be pushing for a $1.5bn penalty from the Peter King-led bank, while Westpac has set aside $900m.

Wirecard’s grind

The sale of scandal-ridden Wirecard’s local operations is getting close to finalisation.

This column understands payments group Till — which counts Meriton, 7-Eleven and Ticketek as customers — is putting the finishing touches on an agreement to takeover Wirecard’s merchant acquiring portfolio.

Wirecard locally has started informing its merchant customers of the expected changeover.

Administrators are still also negotiating with potential buyers over the sale of the broader Australian entity and its licences. One group that was in the mix was London-based Railsbank, which has separately agreed to acquire Wirecard Card Solutions, the German group’s UK arm.

Globally, Wirecard started insolvency proceedings for a spate of its sprawling entities in June. The saga, which has led to the arrest of executives offshore, was largely due to alleged fraud and a missing 1.9bn euros ($3.1bn).

Wirecard’s local administrator BDO was keeping mum on the situation on Thursday.

BDO business restructuring partner Andrew Fielding said: “The process for the sale of the business is ongoing, but we are not yet in a position to provide further details.”

The domestic sale has implications for other financial institutions and banks that draw on Wirecard systems and products.

Westpac has a small exposure to Wirecard, although not via lending, Bendigo and Adelaide Bank runs the group’s products but on its own systems, and payments group Cuscal counts Wirecard as a third-party provider.

Industry superannuation fund-owned bank ME has previously said its customers won’t be impacted by the Wirecard issues, even though it uses third-party software licensed from a NZ company that was acquired by the German group.