Westpac pushes deeper into BNPL with interest-free instalments option for credit card customers
Westpac has shrugged off concerns about a looming increase in bad debts to forge deeper into the buy now, pay later space with an option for credit card customers to pay in instalments.
Westpac has shrugged off concerns about a looming increase in bad debts to forge deeper into the buy now, pay later space, in a move which allows the bank’s existing credit card customers to pay in instalments.
The bank is rolling out a service for existing credit card customers that provides the option to use their current limit to pay for goods and services in instalments, incurring no interest. The option is only available for purchases greater than $100 and there is no cap on the amount, as long as it sits within a customer’s unused credit card credit limit.
Westpac announced the move on Monday evening against the backdrop of 3.25 percentage points in rate hikes since May, taking the cash rate to 3.35 per cent. It also comes as high inflation creates cost of living pressures for households and borrowers.
Westpac’s consumer finance managing director Steve Rubenstein said the bank was confident in the BNPL move, given most customers were meeting their credit card repayments and all had endured a lending assessment to obtain their limit.
“We’re not really seeing any material signs of stress in our overall card book at the moment, and all the customers have the existing limit and have previously been assessed for that limit,” he added. “It’s not new credit, it’s about really providing customers with more flexibility and control and that’s one of the things the buy now, pay later uptake has really taught us is that the idea of having that structure, breaking down the payments into smaller amounts and paying them off quickly … that resonates well with customers, particularly the younger demographic.”
Mr Rubenstein said Westpac’s market research and customer feedback suggested the instalment payment option would appeal to about half of its credit card customer base. The new option provides customers with a new digital card linked to their existing credit card and bank account, with the latter being where the instalments are deducted from if the customer opts in. There are no late fees on the BNPL option, but if an instalment is not paid the debt is transferred to the existing credit card account where it can incur interest and late fees. The digital card also still gains benefits from the linked credit card such as reward points.
Mr Rubenstein said Westpac was aiming to provide customers “flexibility while lending responsibly”.
Westpac has a toehold in BNPL-style products already. In late 2021, the bank rolled out a specific interest-free credit card that levies a $10 fee at the end of every month if customers have not paid their outstanding balance on the previous statement in full by the due date. A year earlier, Westpac sold out of its stake in ASX-listed Zip as valuations in the sector ballooned.
Westpac’s head of consumer and business banking Chris de Bruin said of the new instalment option: “The payment landscape has changed and customers have told us they like the option of making payments in instalments. This new feature provides that flexibility.”
Westpac’s bigger push into instalment products comes as debate rages over a proposed regulatory model for the BNPL sector, as Treasury considers which of three models to move ahead with.
Interested parties, including Westpac, made submissions to a consultation that has spurred wide-ranging views on the best way forward. Afterpay accused banks of trying to stifle competition through their support of proposed tough BNPL regulation, and called for consumer protection and financial inclusion to be at the centre of any reform.
The BNPL giant’s submission endorsed the least onerous regulatory option on the sector, and aspects of the middle-ground model.
Treasury’s first BNPL regulatory option would amend the Credit Act to impose an industry-specific requirement for BNPL providers to check that a product was not unaffordable. That would rely on co-regulation and the strengthening of an existing industry code, but BNPL players would not require a licence.
The second option requires players to obtain and keep a credit licence, and abide by responsible lending rules, specific to BNPL products. That would see firms determine if instalment products were unsuitable for consumers. Treasury’s third option would regulate the sector in the same way as other credit products, such as home loans and credit cards. That requires players to hold a licence and conduct responsible lending checks to assess whether a customer can afford repayments.
Westpac has thrown its support behind the third model and called for reforms to disallow consumers to pay BNPL debts with credit cards.
NAB shares tumble 8pc on earnings drop
The big four bank’s shares took a big hit after it saw higher expenses and arrears in the first quarter, as margins were squeezed.
Sell or stay: Brookfield assesses potential $3bn La Trobe exit
The global investment giant is considering exiting its investment in non-bank lender La Trobe Financial, after fielding interest in the asset worth up to $3bn, sources say.