CommBank to offer pay later service

The nation's biggest bank, Commonwealth, will offer its own buy now, pay later service to customers from mid-year in a move to challenge Afterpay.

Customers will be able to use debit and credit cards to access the service for purchases between $100 and $1000 and pay in four fortnightly instalments.

Buy now, pay later services have proven popular with young people as they do not charge interest but instead levy late fees for missed payments.

Yet providers such as Afterpay make most of their money from the fees charged to businesses in each sale.

CBA said providers charged about four per cent, which cost businesses hundreds of millions of dollars each year.

Businesses would not pay an additional fee using its service.

Individual CBA customers must apply to use the service and will be assessed before being approved.

While the bank has a huge base of customers to target, RateCity research director Sally Tindall saw limits to the service's appeal.

"This new offering from CBA is likely to erode some of Afterpay's business, however, is unlikely to eclipse it," she said.

Ms Tindall noted one of the requirements was users must have their salary paid to a CBA account.

"(This) could be all too much effort for people who bank elsewhere, especially when there's easier BNPL options on the table," she said.

Ms Tindall also noted the CBA borrowing limit of $1000 was lower than most services.

This is not the bank's first foray into this payment type.

CBA already has a sizeable investment in buy now, pay later provider Klarna, which is also available to people who are not customers of the bank.

Research group IBISWorld last year said the buy now, pay later market in Australia was worth $680 million.

It had grown at an average of 39 per cent for each of the previous five years, the group said, although that rate of growth would slow.

There are a raft of other providers in the industry, such as Humm, Laybuy, Openpay and Zip.

CBA shares were lower by 0.29 per cent to $86.93 at 1550 AEDT.