Mastercard enters ‘buy now, pay later’ battle with new installment loan program
The MasterCard logo on a smartphone arranged in Saint Thomas, Virgin Islands.
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Mastercard is jumping into the competitive installment loan space by allowing banks and start-ups to ramp up their own “buy now, pay later” offers.
Credit card giant Mastercard announced Tuesday a new program, “Mastercard Installments”, for U.S. (Australian) and U.K. markets. The program will launch in the first quarter next year. Buyers can split purchases with this increasingly popular lending method, which often allows them to make monthly, almost always interest-free payments.
Mastercard is not able to lend directly to its customers. The Mastercard network serves as an intermediary in credit card and debit card payments. This will permit banks and fintechs, such as Fintechs, to “plug into” the Mastercard program to offer direct loans.
SoFi and Synchrony are just a few of the American consumer banks that plan to make installment loans with Mastercard.
Mastercard’s chief product officer Craig Vosburg stated that “consumers have shown a high degree of interest in this purchase now, and pay later capability.” In a telephone interview. It uses the Mastercard franchise and network to get this product to scale.
Mastercard says that BNPL loans can increase sales by 45% and decrease “cart abandonment”, by an average of 35%. Vosburg, also the president of Mastercard North America said these types of loans are a means for merchants to generate more sales. The loans offer customers an alternative to traditional revolving credits that is more expensive and convenient.
This space is a battlefield for both banks and fintechs.
Jack DorseyIn August, Square bought AfterPay Australia for $29 billion. AffirmAmazon recently announced a partnership with’s Square, which is one of the more well-known firms in the sector. This will allow customers to buy now and pay later on Amazon.
PayPal, Klarna, Mastercard and Fiserv, American Express, Citi and J.P. Morgan Chase are all offering similar lending products. Apple plans to launch installment lending in a partnership with Goldman Sachs, Bloomberg reported. Mastercard rival Visa is developing a similar product.
Max Levchin, CEO of Affirm, believes that installment loans could pose a risk to the traditional players like Mastercard or Visa by reducing revolving credits. Vosburg claimed it was “additive.” Most of the loan payments are Mastercard credit transactions, which means that the company is only charged a minimal fee.
Vosburg explained that Mastercard debit is the most popular method of repaying loans. It’s consistent in our mission to offer choice for consumers and merchants regarding how they wish to be paid.
While many plans have interest-free start, there are differences in how much interest is charged. Mastercard indicated that the lender can decide the interest rate and allow the use of credit cards for installment loans.
Some have also warned of the danger of adding credit or “debt stacking”, which is using traditional forms credit to pay for these installment loans. Credit bureaus are not required to report some pay-later offers. These loans are offered by companies that claim they can use data to evaluate creditworthiness more accurately than traditional FICO scores.
Vosburg stated that lenders don’t like to give loans that aren’t repayable and that they don’t wish to do that. Vosburg added that the company is actively working on improving visibility to information regarding a consumer’s ability to repay a loan.
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