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


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

Gaby Jones | Bloomberg | Getty Images

MasterCard jumps into the competitive installment loan space by allowing banks and start-ups to develop their own “buy now, pay later” offerings.

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

Mastercard does not lend directly to customers. Its network acts as an intermediary in the payment process for 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 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 phone interview. “He’s using the power of the network and the Mastercard franchise to market this on a massive scale.”

BNPL loans increase sales by 45% on average, and reduce “cart abandonment” by 35%, according to Mastercard. Vosburg said merchants view these types of loans as a way to generate more sales. Customers, meanwhile, tend to turn 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 part of a foray into space. To affirmone of the oldest and best-known companies in the space, recently partnered with Amazon for a buy-it-now, pay-later option on the e-commerce site.

PayPalKlarna, MasterCard and Fiserv, American Express, Town and JPMorgan Chase all offer similar loan products. Apple plans to launch installment loans in partnership with Goldman Sachs, reported Bloomberg. Mastercard’s competitor, Visa, is development a similar product.

Affirm CEO Max Levchin is among those who have argued that installment lending could pose a threat to traditional card players, like Mastercard and Visa, by reducing revolving credit. But Vosburg said it was “additive.” Most of the payments made to fund the loans tend to be a Mastercard credit transaction, in which the company takes a small fee.

“We’re seeing a high prevalence, in our program and others, of people choosing Mastercard debit as a means of repayment,” Vosburg said. “This is in line with our mission to give consumers choice in terms of payment method and merchants in terms of payment method.”

The plans differ in terms of interest payments, although many start out interest-free. Mastercard said it was up to the lender to decide the rate and whether or not to allow credit cards to be used to fund installment loans.

Others have warned of added credit risk and so-called “debt piling” – or using traditional forms of credit to fund these installment loans. Some Pay Later offers are also not reported to the credit bureaus. The companies offering these loans say they are able to use the data to assess creditworthiness better than a traditional FICO score.

“Lenders don’t want to make loans that can’t be repaid, and we don’t want to see lenders do that – so we’re actively working to improve the visibility of information about a consumer’s ability to repay a loan,” Vosburg said.

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