The Afterpay Ltd (ASX: APT) share price took a hit in afternoon trade after news broke that Commonwealth Bank of Australia (ASX: CBA) is launching its own buy now, pay later (BNPL) product.
Following the announcement, shares fell as much as 2.5% before staggering back. At the time of writing the Afterpay share price is up 0.4% to $112.20.
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Afterpay's fiercest Australian challenger yet?
This afternoon's price movement comes after Commonwealth Bank revealed its new CommBank BNPL product, reported by The Australian Financial Review. The offering will enable its 4 million retail banking customers to pay in four instalments anywhere Mastercard is accepted.
The real crunch factor is merchants won't need to pay any more than the traditional card fees on CBA's BNPL product – a significantly lower cost than approximate 4% currently charged by competitors such as Afterpay and Zip Co Ltd (ASX: Z1P).
Commonwealth Bank's offering will be available for purchasing a broad range of items, including household bills and groceries. At present, the service will accommodate payments between $100 to $1,000 across four fortnightly transactions.
Unlike Afterpay, CommBank will conduct credit checks on its customers. As Commonwealth Bank group executive for retail banking services, Angus Sullivan stated, "We are going to treat it like it is credit." This is a classification that Afterpay and other buy now pay later providers refute.
Klarna and CBA, it's complicated
Making everything a tad more complicated, the CommBank BNPL is a separate offering to Swedish-based BNPL, Klarna. In July last year, CommBank invested US$300 million into Klarna and built-in an onboarding for it directly into the Aussie banking app.
Despite growing rapidly in the United States, Klarna hasn't been able to replicate quite the same success in Australia.
Afterpay share price boils down as competition heats up
The Afterpay share price has certainly felt the pinch from a recent push from competitors. Over the last month, Afterpay's fall from grace has erased more than 25%. If the tech selloff in February wasn't enough, the news of Paypal (NASDAQ: PYPL) bringing 'pay in four' to Aussie shores added further pressure.
However, to keep it all in context, Afterpay's share price is still up more than 380% in 12 months. As a result, Afterpay's market capitalisation has grown to one-fifth of Commonwealth Bank's $153 billion size.
