Mastercard enters the battle of “buy now, pay later” with a new installment loan program

The MasterCard logo on a smartphone in Saint Thomas, Virgin Islands.

Gabby Jones | Bloomberg | Getty Images

Mastercard is jumping into the competitive installment loan space by allowing banks and startups to launch their own “buy now, pay later” offers.

The payment giant announced on Tuesday a new program called “Mastercard Rates” for the US, Australian and UK markets, which should go live in the first quarter of next year. The increasingly popular credit style allows buyers to split purchases through monthly, often interest-free, payments.

Mastercard does not issue loans directly to customers. His network acts as a middleman in the payment process for credit and debit cards. In this case, banks and fintechs will be able to join the Mastercard program and offer loans directly.

US consumer bank Barclays, SoFi, Synchrony and Marqeta are among those planning to use Mastercard to introduce installment loans.

“Consumers are very interested in this opportunity to buy now, pay later,” said Craig Vosburg, Chief Product Officer at Mastercard, in a telephone interview. “It leverages the power of the Mastercard network and franchise to bring this to market on a large scale.”

So-called BNPL loans increase sales by an average of 45% and, according to Mastercard, reduce “shopping cart abandonment” by 35%. Vosburg said dealers see this type of credit as a way to get more sales. Customers now tend to use these loans as cheaper and more convenient alternatives to traditional revolving loans.

The room has become a battlefield for banks and fintechs alike.

Jack Dorsey’s Square announced a $ 29 billion deal in August to purchase Australian company AfterPay as a foray into space. Affirm, one of the early and better known companies in the space, recently teamed up with Amazon to purchase the “Buy Now, Pay Later” option on the ecommerce site.

PayPal, Klarna, Mastercard and Fiserv, American Express, Citi and JP Morgan Chase all offer similar credit products. Apple plans to launch installment loans in partnership with Goldman Sachs, Bloomberg reported. Mastercard competitor Visa is developing a similar product.

Affirm CEO Max Levchin is one of those who has argued that installment loans could pose a threat to traditional card players like Mastercard and Visa by reducing revolving loans. But Vosburg said it was “additive”. Many of the payments to fund the loans are typically a Mastercard loan transaction and the company charges a small fee.

“We’re seeing a high prevalence in our and other programs when people choose Mastercard Debit as a means of repayment,” said Vosburg. “It is in line with our mission to provide choices for both consumers in terms of payment method and retailers in terms of payment method.”

The plans differ in terms of interest payments, although many are interest-free initially. Mastercard said it is up to the lender to decide the interest rate and whether to allow credit cards to be used to fund installment loans.

Others warn of the risk of additional loans and so-called “debt stacking” – or the use of traditional forms of credit to finance these installment loans. Also, some pay later offers are not reported to credit bureaus. Companies that offer these loans say they have better data assessments for creditworthiness than a traditional FICO score.

“Lenders don’t want to make loans that are not repayable, and we don’t want lenders to do so – so we are actively working to improve the visibility of information about consumers’ ability to repay a loan. “Said Vosburg.

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