Retailers mull their own BNPL plays

British high street retailer John Lewis is pursuing its own BNPL offering. Picture: AFP

Global payments giants and several major banks are armed for battle in the buy now, pay later sector, but the big question is will Australia’s large retailers wade into the tussle?

In Britain, department store John Lewis last month partnered with BNP Paribas to kick off its own buy now, pay later product for big purchases.

And there is talk Marks & Spencer is plotting a similar path.

Closer to home, the payments teams at Wesfarmers and Woolworths would be assessing their options, as would the likes of Myer and David Jones.

The buy now, pay later model is starting to filter into a range of sectors.

Qantas, for example, is weighing up how it can keep allowing frequent flyer points to be earned on buy now, pay later transactions after a high-profile partnership with Afterpay ended in March.

Sweden’s Klarna this month announced a points partnership with Wesfarmers and Coles-owned Flybuys.

You’d have to think at some point large retailers will begin to push back against the BNPL ­giants such as Afterpay and Zip, given the hefty commissions charged.

Two of the major banks have already taken up positions, with Commonwealth Bank opting to launch a broadside at established buy now, pay later operators with its own product that charges retailers the same fee as a credit card transaction.

CBA’s merchant fees for credit card payments average 1.4 per cent.

Westpac has taken a different view and formed a partnership with Afterpay, to provide the burgeoning group with banking products.

It may only be a matter of time before the large domestic retail groups start getting directly involved in buy now, pay later too.

While they may be paying fees of less than 4 per cent for Afterpay, some small businesses are paying 6 per cent or more. That creates a lot of pressure on margins, unless the new sales being generated from the channel are enough to outstrip the cost.

One business canvassed by this column said it was paying Afterpay a fee of 6.8 per cent per transaction.

The merchant said while the payments group was “quick and efficient” to deal with, in this case sales leads by Afterpay were negligible with the bulk stemming from social media.

The business owner also said Afterpay’s claims that it was more akin to an internet platform or aggregation model, rather than a payments or credit group, was “window dressing”. She highlighted that the BNPL firm’s website just redirected customers to the brand’s own online site.

Flybuys announced a partnership with Klarna this month.

There is no doubt some businesses benefit from the marketing and leads that Afterpay provides, but for others the cost benefit analysis is less clear.

Another option that is being drawn on by some retailers is using a white label BNPL option that provides the system fronted with your own brand.

One of those is Limepay, which provides a range of payment services including the technology and infrastructure for retailers and other merchants to provide their own branded BNPL service.

The company now has more than 120 merchants using its platform, including Accor, EB Games and Puma and property group Domain will start using Limepay to facilitate sellers paying marketing costs to real estate agents.

Limepay co-founder and revenue chief Dan Peters said while retailers may see a “sugar hit of revenue” from a marketplace BNPL operator, that could erode long-term customer loyalty and the direct relationship.

“Merchants are constantly fighting this battle.”

A recent study commissioned by Limepay and delivered by Forrester Consulting, found that a large customer reported a rise in average order value and lower levels of customers abandoning their online shopping cart when they used their own branded BNPL product. It also found the customer repurchase rate almost doubled.

The competitive dynamics in buy now, pay later will be nothing short of fascinating to watch.

Revenue sources for BNPL providers. Source: ASIC

More time for Farrell

Treasury has quietly agreed to a one month extension for King & Wood Mallesons partner Scott Farrell to submit his formal Review of the Australian Payments System.

The report was due to be lodged with the department and Treasurer Josh Frydenberg in April, but that date has slipped to May.

Treasury told this column Farrell, supported by the secretariat, had requested an additional month to complete the report.

The initial time-frame for a quick review, starting in October and being lodged in April, was always going to be tough.

Reviewing the regulatory architecture of the Australian payments system as technology and consumer preferences rapidly evolve, and gauging the views of many parties and vested interests is a big job.

The significance of the one-month extension means any deliberations or hints at policy changes won’t make this federal budget cycle.

Either way, the retail payments market is set for a landmark 2021 as Treasury receives the Farrell review and the central bank separately conducts a deep dive into infrastructure, policy and technology. BPAY, Eftpos and the New Payments Platform are also pushing ahead with a three-way merger.

Among other topics, the Treasury review was seeking feedback on different regulatory models in Britain, Singapore and New Zealand, suggesting the Reserve Bank may lose oversight of the payments sector.

The government wants the examination of the regulatory architecture of the payments system to assess whether it is “fit-for-purpose” and responsive to changes in technology and demand.