Will mounting competition break the Afterpay (ASX:APT) share price?

Will the Afterpay (ASX: APT) share price continue to thrive as more rivals, including The Commonwealth Bank (ASX: CBA), enter the BNPL space?

| More on:
A goldfish jumps out of a crowded fishbowl into another empty bowl, indicating an ASX market leader with a strong share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Commonwealth Bank of Australia (ASX: CBA) is the latest player wanting a piece of the buy now, pay later (BNPL) pie.

As BNPL becomes an increasingly crowded space, will this pose a threat to the Afterpay Ltd (ASX: APT) share price? 

CBA's new BNPL product 

CBA's BNPL product allows its customers to create a digital Mastercard via the CommBank app, which is accepted anywhere that accepts Mastercard. Customers can use the card for everyday spend for transactions less than $100 and pay in four fortnightly instalments for transactions higher than $100.

The bank aims to roll out its new product in the second half of the year, making it available up to 4 million of its customers. As for merchants, a report in the Australian Financial Review (AFR) has indicated that CBA will charge 1.4% compared to Afterpay's average 3.8%. 

Goldman thinks Afterpay will continue to be the BNPL king 

Goldman Sachs took a deep dive into the critical success factors for BNPL service providers on 17 March. In this report, the broker maintained a neutral stance on the Afterpay share price with a $127.70 target price. 

Mounting competition may be a concern for many investors, but Goldman believes that there "is enough potential growth for several scaled players". 

In the case of BNPL in Australia, the broker highlights the critical early mover advantage for Afterpay. Afterpay has already amassed 47% of the BNPL customer base, but more importantly, it "facilitates 66% of the industry's GMV and makes 76% of the industry's Net Transaction Profits". 

Goldman thinks that while the new CBA product might offer a lower transaction cost to merchants, Afterpay "has likely aggregated a user base that is possibly different to the user base that CBA may appeal to".

The broker also notes that recent launches of Klarna and the National Australia Bank Ltd (ASX: NAB) no-interest card have yet to impact Afterpay's growth performance. 

Looking over at the US market, Goldman notes that the December 2020 quarter suggests a current market penetration of 3-8% for BNPL transactions.

The broker estimates a potential A$160 billion to A$410 billion gross merchandise value (GMV) opportunity should market penetration increase to 10-25% in relevant retail categories. To add some perspective, Afterpay's first-half FY21 North American GMV was A$4.25 billion. 

Could history repeat itself?

There has been a steady stream of big players entering the BNPL for the past few years. The Afterpay share price has always been able to shrug off the short-term negative sentiment associated with increasing competition.

In 2016, MasterCard announced its own MasterCard instalment product, which it described as an innovative way to pay, which offers consumers flexible and convenient access to funds when needed. 

In 2019, JPMorgan began offering a point-of-sale (POS) finance feature in its Chase mobile app, while MasterCard acquired Vyze, a consumer financing solutions business, to pursue the same market. 

In late 2020, CBA and NAB both launched a no-interest credit card to combat BNPL.

CommBank Neo and NAB's StraightUp card would provide customers with up to $3,000 of credit with no interest payments, no late payments and no foreign currency fees but with a fixed, monthly fee. 

In light of increasing competition, Afterpay delivered more explosive growth in its 1H21 results. These results highlight a 106% increase in underlying sales to $9.8 billion, while revenue increased 108% to $374.2 million.

Surging sales and revenue translated to a significant 521% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to $47.9 million. 

More recently, Afterpay continues to take leadership in the BNPL sector after launching in France, Spain and Italy

Should you invest $1,000 in Commonwealth Bank Of Australia right now?

Before you buy Commonwealth Bank Of Australia shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Commonwealth Bank Of Australia wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Excited couple celebrating success while looking at smartphone.
Broker Notes

Bell Potter names the best ASX 200 stocks to buy in May

The broker is feeling bullish on these names this month. Let's find out why.

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Opinions

Investing in high-yield ASX stocks has two major negatives

High-yield stocks do have downsides.

Read more »

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a happy finish to the week for ASX shares this Friday.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Share Market News

ASX shares in April: 8 key takeaways according to Macquarie

Here are eight key takeaways from April, according to a new note from the broker.

Read more »

Woman looking at a phone with stock market bars in the background.
Share Market News

Market outlook: Should I 'sell in May and go away'?

May is the time to sell... If you believe in fairytales.

Read more »

Five young people sit in a row having fun and interacting with their mobile phones.
Share Gainers

5 ASX All Ords stocks rocketing higher this week

Investors sent these five ASX All Ords stocks soaring this week. But why?

Read more »