Mastercard joins BNPL bandwagon

Mastercard is throwing its network and brand clout behind buy now pay later. It just announced a new platform that allows banks and other lenders, as well as mobile wallet developers, to offer BNPL wherever Mastercard is accepted.

BNPL is a burgeoning market that traces its origins to two 20th century phenomena: installment payments and layaway plans. But rather than having to pay in full prior to taking possession of purchases, BNPL customers take instant possession then pay for their purchases over time, generally in weekly or bi-monthly installments. It's an interest-free loan, as long as the borrower keeps up with payments, which usually post to their debit cards or get pulled directly from their checking accounts.

Interest in BNPL has picked up during the COVID pandemic, with cash-strapped consumers drawn to the ease of paying over time without adding costs or fees. BNPL lending volumes rose more than tenfold from 2019 to 2020, from $3 billion to $39 billion, according to Mercator Advisory Group.

BNPL is most commonly used for large-dollar purchases like furniture, jewelry and electronics, but is also frequently offered for smaller-dollar ecommerce purchases.

The BNPL trend has not escaped the notice of leading payments companies (both legacy and fintech). In July 2021, Visa heralded a partnership between Visa Canada, Global Payments and Desjardins, a Quebec-based card issuer, to bring BNPL to eligible cardholders north of the border. Soon after, payments disruptor Square divulged it was shelling out $29 billion to buy leading BNPL provider Afterpay. And in early September, PayPal agreed to pay $2.7 billion for Japanese BNPL firm Paidy.

"BNPL is one of the fastest growing alternative payment models globally—it is transforming the traditional purchasing experience for both consumers and merchants," said Vicky Bindra, chief product officer at FIS, which is partnering with Mastercard in its U.S. rollout.

44 percent of U.S. consumers have used BNPL

Mastercard Installments, as the new platform is called, leverages Mastercard's payment network and its investments in open banking technologies, the company said in a press release. Open banking makes it possible for lenders to access account-level transaction histories for underwriting in support of instant decisions, and to access the consumer's preferred repayment method.

Mastercard Installments is being rolled out in the United States, Australia and the U.K., Mastercard said in a recent press release. The company named six issuing partners in the United States in addition to FIS. Among them are Barclays US, Fifth Third Bank and Huntington Bank.

"At the heart of it, payments come down to choice—and people want more from their money with greater flexibility and control in how they pay and where they shop," said Craig Vosburg, chief product officer at Mastercard.

A recent survey by Credit Karma found 44 percent of Americans have take advantage of a BNPL offer, and 75 percent of that group had used BNPL at least twice.

With Mastercard Installments, consumers can digitally access BNPL offers, either pre-approved through a mobile banking app or through instant approvals during checkout, whether they are shopping online or in-store. It will be offered with the same zero-liability fraud protection and chargeback features commonly associated with Mastercard credit and debit card payments, Mastercard said.

Mastercard Installments supports a variety of flexible installment options, including a zero percent interest pay-in-four model, "without onerous integration into the merchant infrastructure," Mastercard stated in its press release.

Helps acquirers and merchants

Mastercard said its BNPL platform benefits merchants and acquirers by scaling BNPL offerings to "turn convenience into a competitive advantage." Its research has demonstrated that BNPL solutions can boost average sales by 45 percent and reduce cart abandonments by 35 percent, the card brand added.

Mastercard did not disclose merchant pricing. But merchants offering BNPL typically pay fees in the range of 2 to 8 percent, depending on the provider, item type and item price. Some providers charge merchants a flat fee for facilitating BNPL, industry experts noted. Acquirers can offer Mastercard Installments capabilities to their entire portfolios with simple and minimal integration, the company said.

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