Mastercard jumps into the buy now, pay later space in a big way

·4 min read

As the buy now, pay later (BNPL) market heats up, Mastercard (MA) is jumping into the fray with a new product offering.

The credit card giant announced on Tuesday "Mastercard Installments" for U.S., Australian, and UK markets, offering consumers a 0% interest, pay-in-four-installments model that's similar to the rest of the BNPL players in the industry. 

As more established companies like Mastercard get into this space, by launching new products, through partnerships, or via acquisitions, "we do expect that buy now, pay later will become ubiquitous, just given the utility that it's demonstrated over the last year or so," Mark Palmer, an analyst at BTIG, said in an interview with Yahoo Finance. "I believe it's inevitable that ubiquity is the endgame... what we're seeing now is just another step in that direction."

Mastercard's BNPL product will be available in the first quarter of next year, with plans to scale the program to other regions and markets through 2022. Users will be able to use the BNPL service at more than 70 million merchants through their lender's mobile banking app or through instant approval during checkout, according to Mastercard. Pre-approved installments can be used directly on a company's website and can also be stored in digital wallets. 

NEW YORK, NEW YORK - SEPTEMBER 09: A view of the Afterpay register during the REVOLVE Gallery NYFW Presentation And Pop-up at Hudson Yards on September 09, 2021 in New York City. (Photo by Bryan Bedder/Getty Images for REVOLVE)
A view of the Afterpay register during the REVOLVE Gallery NYFW Presentation And Pop-up at Hudson Yards on September 09, 2021 in New York City. (Photo by Bryan Bedder/Getty Images for REVOLVE)

BNPL users will also have consumer protections embedded in the product, such as zero liability fraud protection and the ability to challenge unrecognized claims.

Mastercard will work with Barclays US (BCS), Fifth Third (FITB), FIS (FIS), Galileo, Huntington (HBAN), Marqeta, SoFi (SOFI), and Synchrony (SYF) in the U.S., and with Qantas Loyalty and Latitude in Australia on the BNPL program.

Chiro Aikat, executive vice president of products and innovation at Mastercard, told Yahoo Finance that the company wanted to provide "greater choice" to consumers with its BNPL offering. Aikat added that the company expects BNPL to gain market share of the payments space from 2.1% in 2020 to 4.2% in 2024.

The 'increasingly blurry' line between BNPL and credits cards

Bank of America analysts previously noted that the BNPL model is “attacking and disrupting the traditional credit card business.” And while the amounts spent are comparatively smaller, “the sector is rapidly gaining share.”

Splitting payments — as opposed to bulk purchases on credit cards that would accrue interest until being paid — is built on the premise that there is a “shift away from credit to debit,” Nicholas Molnar, co-founder and U.S. CEO of Afterpay, previously told Yahoo Finance.

"Buy now, pay later represents an interesting alternative to using credit cards, particularly for those who don't have access to credit or [are] simply not interested in using credit cards," Palmer said.

The BNPL market is getting increasingly crowded as more established names are trying to gain a deeper foothold in the emerging BNPL payment model. Visa (V), for instance, offers a similar service to Mastercard.

In August, Square (SQ) announced a giant $29 billion deal to buy Australian BNPL operator AfterPay. Amazon (AMZN) also entered the space by partnering with Affirm (AFRM), an American player. 

Jorge Olivera (L) of Stems Floral uses a Square Inc. credit card reader for a customer as they buy flowers ahead of the Valentine's Day holiday at the Southern California Flower Market on February 12, 2021 in Los Angeles, California. - While some florists note an increased demand for socially distant gifts, the Covid-19 pandemic has impacted global supply chains and shut down most large events including weddings where flowers are popular. The Valentine's Day and Mother's Day holidays are historically the two busiest days of the year for floral businesses. (Photo by Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)
Jorge Olivera (L) of Stems Floral uses a Square Inc. credit card reader for a customer as they buy flowers ahead of the Valentine's Day holiday at the Southern California Flower Market on February 12, 2021 in Los Angeles, California. (Photo by Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)

Swedish payments firm Klarna, previously valued at $46 billion, and Affirm have also made deep inroads into the BNPL market over the years, as has PayPal (PYPL), which offers the pay-in-four-installments option. And Bloomberg reported that tech giant Apple (AAPL) is also working on a BNPL offering in partnership with Goldman Sachs.

Palmer said that he expects the overarching trend to be that BNPL becomes part of a larger suite of offerings from established players, such as PayPal and Square.

"So we're not surprised to see the credit card networks getting involved in this regard," he added, "simply because buy now, pay later represents an alternative to traditional credit cards, and helps to round out that offering."

As for the standalone BNPL companies that remain like Klarna, Palmer believed that they could become an acquisition target, "or they will build their own super apps because... buy now, pay later is not going to be the focus of or the singular focus of a company going forward, it's going to be a function within a larger context."

In any case, with Mastercard's entry into the space, the "line between credit cards and buy now pay later is getting increasingly blurry," Ted Rossman, a senior industry analyst at CreditCards.com, said in a statement. 

Rossman added that BNPL "is poised for another banner holiday season, extending the e-commerce gains from last year and pushing deeper into the in-store experience."

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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