Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) could face big competition from Commonwealth Bank of Australia (ASX: CBA).
Afterpay Touch and Zip Co are two of Australia’s largest buy now, pay later operators. It allows customers to split up the payments for purchases and services.
What Has Happened Today?
Most investors would have been looking at the profit numbers and the dividend declared by Commonwealth Bank in its annual report for the 2019 financial year.
However, there was also something else that could send shivers through the shareholders of Afterpay and Zip Co as well as management.
The major bank announced that as part of its strategy to lead in retail and commercial banking, it has signed an agreement with Klarna, which is a global payments provider with more than 60 million customers and 130,000 merchants. Klarna generated revenue of US$627 million in 2018.
CBA has invested $100 million in parent Klarna Holding AB as part of its US$460 million capital raising. Why did CBA do that? Well, CBA will become Klarna’s exclusive partner in Australia and New Zealand and intends to further invest at the parent and local level to support the partnership.
How Big Could This Be?
Klarna isn’t a major presence in Australia like Afterpay and Zip are, the incumbents certainly have a major advantage there.
However, Commonwealth Bank has now become very incentivised to make Klarna a success in Australia. Klarna now has a very large backer to expand here, and there are plenty of CBA point of sale terminals that could be used to market Klarna’s services.
I’ve always been worried about what might happen to Afterpay if a large competitor gets in on the act and this could be that problem. However, Afterpay has a loyal customer base and strong brand power. We’ll soon see how important a brand name is in the buy now, pay later industry.
For that reason, I’m not a buyer of Afterpay shares, I’d much prefer investing in the reliable shares in the free report below.
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