Commonwealth Bank of Australia (ASX: CBA) CEO Matt Comyn has hit out at Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P), and other buy now, pay later (BNPL) providers. Testifying before the House Standing Committee on Economics, Comyn didn't mince his words when talking about the increasingly popular sector.
"I would acknowledge the work and innovation that they've undertaken to build such a, in some instances, large and successful company, and avoiding all of that regulation is quite a feat," Mr Comyn said in response to questions about the BNPL sector.
Commonwealth Bank, however, is also a member of that industry. Through its investment in Swedish company Klarna, and its yet to be launched CommBank branded service, Australia's largest bank seems prepared to fight Afterpay and Zip on all fronts.
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Increase BNPL regulations – Commonwealth Bank CEO
Comyn took several swipes at his company's BNPL competitors of the course of his testimony on Friday.
Late fees and financial stress
When discussing late fees, Comyn compared and contrasted Commonwealth Bank's proposed offer to that of Afterpay.
"We have a $10 late payment fee, capped at $120 per year," Comyn said. He then went on to compare the fee to Afterpay's, which charges up to a $68 late fee per purchase.
Comyn also claimed BNPL consumers face higher rates of financial hardship and larger arrears than credit card users.
Merchant fees
Comyn accused BNPL providers of leaning on credit card users.
"Non BNPL users are subsidising BNPL users," Comyn said in relation to the inability of businesses to pass on merchant fees from Afterpay or Zip to customers.
Comyn said companies like Afterpay and Zip are charging very high merchant fees of up to 7%. In comparison, Commonwealth Bank will only charge a few of around 1%. Credit card fees are even less, at approximately 0.5%.
"I also think it's appropriate for merchants to be entitled, contractually, to pass on those costs to the consumer."
Other regulations
Comyn also hit out at what he sees as BNPL providers being able to skirt financial regulations.
"[BNPL providers] rely on an exclusion [in the National Consumer Credit Protection Act] that was drafted many years before the category of [BNPL] existed."
Comyn singled out comprehensive credit reporting laws, which BNPL providers like Afterpay are exempt from, and consumer data retention laws as areas BNPL providers should face stricter regulation.
"I don't think it's unreasonable given the size of the market, the scale of the individual players, in one instance being an ASX 20 company, to make an investment in understanding their customers' circumstances and financial position," he said.
The ASX 20 company in question is Afterpay.
"Some of these payment companies have an enormous amount of data. I don't know why they are able to avoid [data retention] regulations," Comyn added.
At the end of his testimony, Comyn said the BNPL space, which generates $10 billion per year, is too big to avoid regulation.
"I think they are beyond a point where at least the legislative and regulatory framework that's applied to that sector needs to be comprehensively reviewed."
Afterpay and Zip respond
A spokesperson for Afterpay refuted the Commonwealth Bank's assertions when approached for comment by Motley Fool Australia.
Citing Alphabeta research from 2020, the spokesperson claimed Afterpay only has a gross loss rate of 0.7%. Additionally, the spokesperson stated 98% of payments and 90% of purchases incur no late fees, and 70% of customers had never paid a late fee.
Finally, the company's representative said Afterpay customers pay fees of only 1.2% — "significantly lower than users of other financial services."
Zip also responded strongly to Comyn's accusations when asked about them by Motley Fool Australia.
"Zip has always put responsibility front and centre of our business model and, as a result, our 1.74% bad debt rate is industry leading.
"Zip has done credit checks since day one on all applications and we do not have a business model built off late fees.
"Only 1/100 Zip Pay customers is late each month compared with 1/6 for a bank credit card. Because of this due diligence, Zip makes less than 1% of its revenue from late fees.
"Also, unlike credit cards, Zip, and all BNPLs signed up to the BNPL Code of Practice, agreed that if a customer is late in a repayment, their account is locked until the debt is cleared. They cannot keep spending and get into a debt spiral (unlike the bank credit cards)."
*Editor's note: this article was updated to include Afterpay's response, which was received after initial publication.
