Mastercard enters battle with new “Buy now, pay later” installment loan program

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Mastercard is entering the competitive installment loan space by allowing banks and start-ups to increase their unique “buy now, pay later” offers.

The credit card giants on Tuesday announced a new program called “Mastercard Payments” for the US, Australian and UK markets. It will start 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 is not rented directly to customers. The network acts as an intermediary in the credit and debit card payment process. In this case, banks and fintechs will be able to “plug in” the Mastercard program and offer loans directly.

Barclays’ US Consumer Bank, SoFi, Synchrony and Marqeta are one of the companies that said they plan to use Mastercard to roll out installment loans.

“Consumers are very interested in this purchase right now and can pay later,” Craig Bosberg, MasterCard chief product officer, said in a telephone interview. “We will leverage the power of the network and the Mastercard franchise to market it on a large scale. “

According to Mastercard, so-called BNPL loans increase sales by 45% on average and reduce “cart abandonment” by 35%. Vosburg, North American president of Mastercard, said merchants see these types of loans as a way to boost sales. On the other hand, clients tend to use these loans as cheaper and more convenient loans to replace traditional revolving credits.

This space is a battleground for banks and fintechs.

Jack Dorsey Square announced in August a $ 29 billion deal to acquire Australian company AfterPay as part of an expansion into space. One of the first leading companies in the field, Affirm recently partnered with Amazon to provide the ability to buy now and pay later on an ecommerce site.

PayPal, Klarna, Mastercard and Fiserv, American Express, Citi, and JP Morgan Chase all offer similar loan products. According to Bloomberg, Apple plans to partner with Goldman Sachs to start the payouts. Mastercard rival Visa is developing a similar product.

CEO Max Levchin is one of those who argues that the installment loan may pose a threat to traditional card players like Mastercard and Visa by cutting revolving credits. But Bosberg said it was “additive”. Many of the payments made to fund a loan tend to be MasterCard credit transactions where the company charges a small fee.

“Our programs and other programs have a high penetration rate as people choose MasterCard debit cards as their means of repayment,” Vosburg said. “This is in line with our mission to provide both consumers with choices in how they pay and merchants with how they pay. “

Plans vary when it comes to interest payments, but many can start without interest. Mastercard said it is up to the lender to decide on interest rates and whether or not to allow the use of credit cards to fund installment loans.

Others have warned of the risks of additional credit and so-called “debt stacking” or using traditional forms of credit to fund these installment loans. Some subsequent payment offers will also not be reported to the credit bureau. The companies offering these loans say they can use the data to assess creditworthiness against traditional FICO scores.

“Lenders don’t want to extend loans they can’t repay, and they don’t want lenders to do so, so we are actively working to improve the visibility of information on consumers’ ability to repay their loans. “Said Bosberg.

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