Mastercard enters ‘buy now, pay later’ battle with new installment loan program
The MasterCard logo on a smartphone disposed in Saint Thomas, Virgin Islands.
Gabby Jones | Bloomberg | Getty Images
Mastercard is entering the competitive installment loan space by allowing banks and start-ups to scale up their own “buy now, pay later” offers.
The payments giant on Tuesday announced a new program called “Mastercard Payments” for the US, Australian and UK markets, which will go live in the first quarter of next year. The increasingly popular style of loan allows buyers to split their purchases through monthly payments, often without interest.
Mastercard does not lend directly to customers. Its network acts as an intermediary in the process of paying credit and debit cards. In this case, it will allow banks and fintechs to “connect” to the Mastercard program and offer loans directly.
US consumer bank Barclays, SoFi, Synchrony and Marqeta are among those who have said they plan to use Mastercard to roll out installment loans.
“Consumers are showing great interest in this ability to buy now, pay later,” Craig Vosburg, chief product officer at Mastercard, said in a telephone interview. “It is using the power of the Mastercard network and franchise to market it on a large scale. “
The so-called BNPL loans increase sales by 45% on average, and reduce “cart abandonment” by 35%, according to Mastercard. Vosburg said marketers see these types of loans as a way to generate more sales. Customers, on the other hand, tend to look to these loans as cheaper and more convenient alternatives to traditional revolving credit.
Space has become a battleground for banks and fintechs.
Jack Dorsey’s Square announced a $ 29 billion deal in August to buy Australian company AfterPay as a foray into space. Affirm, one of the oldest and best-known companies in the industry, recently partnered with Amazon for a buy-now and check-out option on the ecommerce site.
PayPal, Klarna, Mastercard and Fiserv, American Express, Citi, and JP Morgan Chase all offer similar loan products. Apple plans to launch installment loans as part of a partnership with Goldman Sachs, Bloomberg reported. The rival of Mastercard Visa is development a similar product.
Claiming CEO Max Levchin is among those who have argued that the installment loan could be a threat to traditional card players, like Mastercard and Visa, by cutting revolving credit. But Vosburg said it was “additive”. Most of the payments made to fund loans tend to be a Mastercard credit transaction, in which the company charges a small fee.
“We are seeing a high prevalence, in our program and others, of people choosing Debit Mastercard as a means of repayment,” Vosburg said. “This is in line with our mission to provide choice for both consumers in terms of payment method and merchants in terms of payment method. “
The plans differ in terms of interest payments, although many are initially interest-free. Mastercard said it is up to the lender to decide the rate and whether or not to allow credit cards to be used to fund installment loans.
Others cautioned against the risk of additional credit and what is called “debt stacking” – or using traditional forms of credit to fund these installment loans. Some late payment offers are also not reported to the credit bureaus. The companies offering these loans say they are able to use data to assess creditworthiness better than a traditional FICO score.
“Lenders don’t want to extend loans that can’t be repaid, and we don’t want to see lenders doing that – so we’re actively working to improve the visibility of information on consumers’ ability to repay a loan,” he said. declared Vosbourg.
Subscribe to CNBC PRO for exclusive news and analysis, and live business day programming from around the world.