MasterCard is jumping into the competitive installment loan space by allowing banks and start-ups to expand their unique “Buy Now, Pay Later” offers.
The credit card giant on Tuesday announced a new program called “MasterCard Installments” for the US, Australian and UK markets. It will start in the first quarter of next year. The increasingly popular lending style allows buyers to split their purchases through monthly, often interest-free payments.
MasterCard is not rented out 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 provide loans directly.
Barclays’ US consumer bank, SoFi, Synchronous and Marketa are among the companies that said they plan to use MasterCard to deploy installment loans.
“Consumers are very interested in this purchase right now and can pay later,” Craig Bosberg, MasterCard’s chief product officer, said in a telephone interview. “We will leverage the power of the Mastercard network and franchise to bring this to the mass market.”
According to Mastercard, so-called BNPL loans increase sales by an average of 45% and reduce “cart abandonment” by 35%. Vosberg, MasterCard’s North American president, said merchants see these types of loans as a way to increase sales. On the other hand, customers use these loans as cheaper and more convenient loans to replace traditional revolving credit.
This place is a battleground for both banks and fintechs.
Jack Dorsey Square announced a $29 billion deal in August to acquire Australian company Afterpay as part of its expansion into the space. Affirm, one of the earliest majors in the sector, recently partnered with Amazon to offer the option to shop now and pay later on the e-commerce 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 rolling out installments. Mastercard’s rival Visa is developing a similar product.
CEO Max Levchin is one of those who argue that installment lending could pose a threat to traditional card players such as MasterCard and Visa by removing revolving credit. But Bosberg said it was “additive”. Many payments made to finance debt are MasterCard credit transactions where the company collects a small fee.
“Our programs and other programs have high admission rates because of those who choose the MasterCard debit card as a means of repayment,” Vosberg said. “This is in line with our mission to both give consumers how they want to pay, and merchants how they want to be paid.”
Plans vary with respect to interest payments, but many can be started 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 finance installment loans.
Others have warned about the risks of additional debt and what is 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 bureaus. The companies that offer these loans say they can use the data on traditional FICO scores to assess creditworthiness.
“Lenders don’t want to extend loans they can’t repay, and they don’t want lenders to see that, so we’re actively working to improve the visibility of information about consumers’ ability to repay loans. are.” Bosberg said.
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