Australia's biggest lender to take on Afterpay, PayPal in buy now, pay later race

Commonwealth Bank of Australia on Wednesday became the first major lender in the country to offer its own "buy now, pay later" (BNPL) service, taking on U.S. payments giant PayPal and Afterpay with the promise of lower fees.

The move sets the stage for a race to sign up shoppers and stores in a country that is home to many of the world's largest providers of BNPL finance as stay-at-home orders sent more people shopping online.

Australia's so-called Big Four banks have acknowledged the rising popularity of BNPL, but none had so far entered the space with their own service.

CBA, Australia's biggest bank, is expected to launch the service in the middle of this year, coinciding with the entry of PayPal in a market where BNPL regulation is thin and adoption is high.

The lender's new financing service will split payments into four instalments every two weeks with a A$1,000 limit and will be available alongside Klarna, a Swedish payments firm in which CBA holds a small stake.

The bank had also participated in the recent funding round of Klarna, which is widely rumoured to be considering a U.S. public listing.

"We have developed a close collaboration with CBA in a highly valued partnership over the last year and we continue to focus on the growth of that offering," Klarna said in a statement to Reuters.

CBA said it will only charge the "standard merchant fees" that it does for credit cards. BNPL providers such as Afterpay typically charge merchants around 4%.

"Unlike some other BNPL providers which may charge a high fee, there are no additional fees to businesses when customers choose to pay with CommBank's BNPL," Angus Sullivan, CBA group executive for retail banking services, said.

Afterpay was not immediately available for comment on CBA's entry, while No.3 lender Westpac Banking Corp declined to comment.

Afterpay is likely to launch savings accounts in partnership with No.3 lender Westpac in the second half of the year.