The MasterCard logo on a smartphone in St Thomas, Virgin Islands.
Gabi Jones | Bloomberg | Getty Images
MasterCard By allowing banks and start-ups to increase their “buy first, pay later” offers, they are entering the fiercely competitive field of installment loans.
The credit card giant announced on Tuesday a new plan called “Mastercard Installment Payment” for the US, Australia and UK markets, which will be launched in the first quarter of next year. The increasingly popular loan method allows buyers to purchase by monthly apportionment, usually interest-free payments.
Mastercard does not lend to customers directly. Its network acts as an intermediary in the credit and debit card payment process. In this case, it will enable banks and fintech companies to “plug in” the MasterCard program and provide loans directly.
Barclays U.S. Consumer Bank, SoFi, Synchrony and Marqeta said they plan to use MasterCard to launch instalment loans.
Craig Vosburg, MasterCard’s chief product officer, said in a telephone interview: “Consumers have shown a high degree of interest in this ability to buy before you pay.” “It uses the power of the MasterCard network and franchise to push it on a large scale. To the market.”
According to MasterCard, so-called BNPL loans increased sales by an average of 45% and reduced “shopping cart abandonment” by 35%. Fort Worth is also the president of Mastercard North America, and he said that merchants see this type of loan as a way to drive more sales. At the same time, customers tend to use these loans as a cheaper and more convenient alternative to traditional revolving credit.
This field has become a battlefield for banks and financial technology companies.
Jack DorseyIn August, Square announced the acquisition of the Australian company AfterPay for US$29 billion to enter the field. confirm, One of the earliest and well-known companies in this field, recently cooperated with Amazon to provide a “buy first, pay later” option on e-commerce sites.
Paypal, Klarna, MasterCard And Featherf, American Express, Citi with JPMorgan Both provide similar loan products. Apple Plan to cooperate with the following institutions to launch instalment loans Goldman Sachs, Bloomberg reported.Mastercard’s competitor Visa is develop Similar products.
Affirm CEO Max Levchin is one of those who believe that installment loans may pose a threat to traditional card merchants such as MasterCard and Visa by weakening revolving credit. But Vosburg said it was an “additive.” Many payments to fund loans are often MasterCard credit card transactions, and the company charges a small fee.
“We see that in our plan and other plans, the prevalence of people choosing a Mastercard debit card as a method of repayment is high,” Fort Worth said. “This is consistent with our mission, which is to provide consumers with a choice of payment methods and provide merchants with a choice of payment methods.”
Plans differ in terms of interest payments, although many plans start interest-free. Mastercard stated that the interest rate and whether credit cards are allowed to fund instalment loans are up to the lender.
Others warned about the risks of additional credit and the so-called “debt accumulation”—or the use of traditional forms of credit to fund these installment loans. Some postpaid products will not be reported to the credit bureau. The companies that provide these loans say they are able to use data to better assess the value of credit compared to traditional FICO scores.
“Lenders don’t want to extend loans that cannot be repaid, and we don’t want to see lenders do so-so we are actively working to increase the visibility of information about consumers’ ability to repay loans,” Fort Worth said.
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