Banking

No card required: Mastercard takes buy now/pay later to bank apps

Mastercard is building a bank-driven buy now/pay later platform that allows borrowers to apply for loans via mobile banking, and then use a virtual card to pay the retailer.

Fueled by its $825 million purchase of Finicity last year, the new platform will connect consumers to banks and credit unions by pre-qualifying borrowers for zero-interest installment loans, Mastercard announced Tuesday.

Unlike most BNPL loans, which are offered by the retailer at the point of sale or during checkout online, Mastercard Installments can operate through a cardholder’s mobile banking app. The app gives approved borrowers a virtual card number to fund purchases with participating lenders. Consumers can then repay the loans through the card issuer’s debit card, checking or savings accounts.

In addition to the virtual card number, the BNPL loans can be accessed through using EMVCo’s Click-to-Pay standard — the card networks’ universal “buy button” — bypassing the need to manually enter account data.

Mastercard Installments will roll out early next year in the U.S., U.K. and Australia, with support from U.S. partners including Barclays US Consumer Bank, Fifth Third Bank, Huntington National Bank, Synchrony Financial and FIS, among others, and Latitude Financial in Australia. The plan is to eventually extend the platform to all Mastercard-connected financial institutions through their processors, the company said.

“With open banking tools, we’re giving consumers a convenient way to finance purchases online or at the point of sale in a way that’s complementary to other programs [like credit cards],” said Linda Kirkpatrick, Mastercard’s president for North America.

Mastercard may be a bit late to the rapidly maturing BNPL market, where pioneers including Klarna, Affirm and Afterpay — which Square recently agreed to purchase for $29 billion — already have dominant brand positioning for installment loans.

“Today BNPL providers are going merchant-by-merchant to sign up each participant, but Mastercard Installments accomplishes this through one integration,” said Linda Kirkpatrick, Mastercard’s president for North America.

But the card network hopes to get a leg up by using Finicity’s tools to gain broader visibility into consumers’ finances (with their permission), expanding the prospective base of users whose credit card borrowing may be restricted by traditional credit-scoring models.

“Consumer-provisioned data will give banks and other lenders more insights into consumers’ finances so that they can tailor the terms of installment loan offers,” Kirkpatrick said, noting that Mastercard Installments will still focus on BNPL loans that are commonly repaid in four equal segments.

Oakland, California-based Marqeta, which works with several large BNPL fintechs, will also provide virtual card-issuing services for Mastercard Installments.

Similarly to other BNPL programs, merchants will pay an acquirer fee that’s split between the bank and the acquirer, Kirkpatrick said.

By going after banked customers, Mastercard also aims to set itself apart from Klarna and others that do not necessarily require bank accounts or credit checks for installment loans, according to Kirkpatrick.

“In the broad scheme, BNPL so far only has 1% penetration in the retail market, and we’re creating a way for tens of millions of merchants to bring this new choice to banked consumers,” she said.

Mastercard sees another advantage in the way it will leverage its existing connections to consumers, merchants and banks to streamline the onboarding process for merchants. Banks and credit unions can use Mastercard Installments’ APIs to integrate directly with merchants, bypassing the need to build direct settlement arrangements.

“Today BNPL providers are going merchant-by-merchant to sign up each participant, but Mastercard Installments accomplishes this through one integration,” Kirkpatrick said.

Mastercard also plans to extend its zero-liability protections to consumers using Mastercard Installments as another market differentiator.

Visa also has pre-approved and post-purchase BNPL loan options for credit card issuers, and is working with digital card-issuing platform i2C to expand BNPL offers.

Discover earlier this year announced a partnership with Sezzle to extend BNPL loans to merchants “at the click of a button,” but the product is still in development. Discover invested $30 million in Sezzle late last month.

American Express also provides consumers with options to turn credit card purchases into installment loans through its Pay It Plan It program.

Banks such as Capital One, Citigroup, Chase and Synchrony Financial recently revealed plans to test or roll out their own BNPL loans programs.



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