The buy-now, pay-later services that let shoppers settle up for their purchases in four interest-free installments have so far been the domain of start-ups. But now a traditional financial player is moving in with an option of its own: Mastercard.
The company announced plans on Tuesday for a new pay-later offering that it said would enable banks, financial technology companies, digital wallets and other lenders to provide a variety of installment payment options to their customers, whether they are making purchases online or in a store.
Given Mastercard’s infrastructure that processes credit and debit payments, the program has the potential to ramp up competition in a segment dominated by upstarts like Afterpay, Sezzle, Klarna and Zip.
“Merchants are able to accept this with zero effort on their part, either for online transactions or in-store,” Craig Vosburg, Mastercard’s chief product officer, said in an interview.
Mastercard said it was already working with several financial institutions, including Barclays, Fifth Third, Huntington, SoFi and Synchrony, to offer products of their own. The program will become available in the first quarter of next year in the United States, as well as in Australia and Britain.
Even existing pay-later players could plug into Mastercard’s program, if they chose to, which could broaden their reach — one of their biggest challenges.
“Mastercard brings its existing global acceptance network to the table, potentially giving buy-now, pay-later solutions the ubiquity they have been seeking,” said Ginger Schmeltzer, a senior analyst for the research and advisory firm Aite-Novarica.
Customers using pay-later options through Mastercard’s program will be provided with preapproved offers through their lender’s mobile banking app, or they may be granted instant approval at checkout. Mastercard will be able to help lenders with the underwriting process: If consumers give consent to the pay-later lender, Mastercard can provide a window into their checking and other transactional accounts — and that information can be considered as part of the approval process.
The pay-later industry had been expanding rapidly before the coronavirus pandemic, but as Americans shifted most of their shopping online during lockdowns and beyond, its growth only accelerated. The little buttons offering the pay-later option are hard to ignore — they’re popping up everywhere as more retailers and providers team up to offer the service integrated into the checkout process.
Amazon, the nation’s largest retailer, recently began a partnership with Affirm, which will provide pay-later options. And Square, the payments firm run by the Twitter chief executive Jack Dorsey, agreed to acquire Afterpay, another provider, for $29 billion in early August, a deal that will open installment payments to millions of small businesses that process sales through Square’s app.
Visa, another payment processor, said it had teamed with several pay-later companies to help them expand and offer new products, including virtual cards. Visa also furnishes technology to Commerce Bank that provides certain Visa cardholders with an installment payment option. Visa said it expected to expand that program to more issuing banks next year.
Pay-later options still account for only 1.7 percent of online sales in the United States, a segment dominated by credit cards, which accounted for 30.4 percent last year, according to Worldpay, a payment processing firm.
But pay-later’s share is expected to nearly triple to 4.8 percent of U.S. sales — or $79.7 billion — by 2024, Worldpay estimates. They’re already more established overseas: Pay-later accounts for 23 percent of online transactions in Sweden and almost 20 percent in Germany, and the method is also popular in Australia, Finland, New Zealand and Norway.
Mastercard’s program will provide consumer protections commonly associated with credit cards, including zero-liability fraud protection and the ability to challenge unrecognized charges, the company said.
“Mastercard is a trusted brand, as are its bank partners, and that counts for a lot with consumers,” Ms. Schmeltzer said. “That being said, brands like Klarna and Afterpay have a large and growing — and apparently very loyal — consumer base. It is going to be a very interesting race to watch.”
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