Damien Venuto: Death of the credit card? Not so fast

OPINION:

Developments this week have again shown that predictions on the diminishing power of banks and the credit card sector have been grossly overestimated.

Westpac announced that it was entering into a joint venture with buy-now-pay later (BNPL) company Hummgroup in a move that sees the launch of the Bundll platform in New Zealand.

Hummgroup already has a global partnership with Mastercard, which enables all Bundll customers to use the BNPL service wherever they like.

The clincher behind the move lies in the established strength of the Mastercard network, which essentially negates the need for sign-up from individual retailers independently. It means the customers could opt for BNPL wherever leading credit cards are accepted and retailers won’t have to change anything to become part of the system. It plays directly into human nature, which strongly suggests that convenience always reigns supreme when it comes to technology.

As Hummgroup’s deputy group CEO Chris Lamers explained: “Westpac NZ will reap the benefits of having an innovative and customer-driven BNPL offering without having to build the product themselves.”

This move follows on from ASB parent company Commonwealth Bank of Australia last year announcing a partnership with Swedish payments and credit provider Klarna.

In a further development in this space, Apple is reported to be working with Goldman Sachs on a BNPL service that will let shoppers pay for purchases in instalments.

The collaboration between the tech company and the investment bank has some history, with the pair working together on the launch of the Apple Card credit card in 2019.

However, the service, set to be dubbed Apple Pay later, won’t be linked to the credit card and users will instead be able to use it as a payment option through the Apple Pay system whether they have a credit card or not. Goldman Sachs will serve as the lender for the loans needed to make the system possible.

The move sent immediate shock waves through the BNPL scene, with the Financial Times reporting that Afterpay and Zip of Australia and US-listed Affirm all lost about a tenth of their equity value after the launch.

Meanwhile, Apple saw its share price rise around two per cent in response to the company’s belated move into a market tipped for enormous growth in coming years.

Payment processing company Worldpay estimates BNPL services accounting for around 2.1 per cent of global online purchases at the moment, but this is projected to double by 2024.

Phil Pomford, general manager for global eCommerce for the APAC region, at FIS, has made the even bolder prediction that BNPL schemes will outstrip credit card payments by 2024.

Having sat on the sidelines and watched this space evolve, the incumbents are now making their moves and engaging in the old trick of disrupting the disruptors.

This isn’t unusual in the technology space. Established firms will often observe the development of a sector and then either look to acquire the main player or find a way to move into a similar area.

It’s often about allowing the market to evolve beyond the early adopter phase that restricts use to a small niche of users.

Facebook, Apple and Amazon have all perfected this art, keeping an eye on competitors and then pouncing when the opportunity is ripe.

The underlying point here is that the banks were never going to allow a group of upstarts to commandeer their long-established cash cow so easily.

BNPL has had a relatively low bar for entry for quite some time, and credit incumbents were biding their time and observing the space.

On the one hand, this allowed the BNPL companies to grow quickly and establish decent networks.

But no matter how big they are today, they’re little more than bird prints on the path of giants like Westpac, Commonwealth Bank, Goldman Sachs or Apple.

It remains true that BNPL payment plans might overtake traditional credit card payments in the coming decade, but it would take a brave person to bet against the bulk of the overall credit sitting anywhere beyond the confines of the banking industry.

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