Mastercard makes its BNPL debut, potentially upsetting the industry at a critical juncture


The news: Mastercard announced a proprietary buy now, pay later (BNPL) offering that will launch in the United States, the United Kingdom, and Australia in early 2022. The network intends to use the program to expand payment options.

How it works: Mastercard Installments will rely heavily on technology obtained through the acquisitions of Finicity and Aiia. By updating their acquiring software, it enables all Mastercard merchants to offer installments via direct integration into their own platforms.

  • Customers can apply through banks, lenders, and other financial institutions—or directly at the point of sale (POS)—and receive installment options powered by partners such as Barclays US, FIS, Marqeta, and Synchrony.
  • Customers who are approved will be presented with an installment option from a partner lender, which is typically four interest-free payments.
  • Customers will eventually be able to save their preapproved installment plans in digital wallets or on merchant websites and use them later.

The big picture: BNPL use is on the rise. In the United States, the number of users is expected to increase from 45.1 million this year to 76.6 million in 2025, posing a significant threat to card volume and providing impetus for payment titans to get involved.

  • Affirm, Afterpay, Klarna, and PayPal are the market leaders in the BNPL space. Even if Mastercard's program allows these players to use its rails, pressure from payments behemoths could squeeze them and make the space even more competitive, particularly in light of increasing consolidation. These behemoths may also have an advantage in attracting older demographics, where BNPL has a much lower penetration, by relying on their brands and familiarity to ease consumer concerns.
  • Rising threats may be one of the reasons why so many digital-first BNPL providers have recently shifted their focus to merchant services. Introducing new features and making acquisitions may help them strengthen merchant relationships ahead of the arrival of behemoths with the potential to undercut existing players with their scale.

Quotable: “Everything we do in terms of product is driven by consumer choice.” They don't dislike BNPL as it is now, but they want greater acceptance, as well as more choice and flexibility in who they work with, including the financial institutions with which they already have relationships. “Our goal was to network-size BNPL and leverage the power of our network to bring scale,” explained Mastercard EVP Chiro Aikat to Insider Intelligence.

Why it could alter the game: Mastercard is a latecomer, which always presents challenges, but its program has a few unique features that may help it get off to a good start.

Reach. According to PYMNTS, Mastercard has 78 million merchants, giving it a massive starting point. This could make the technology extremely accessible, especially given its ease of integration, which could appeal to merchants looking to reduce time to market and partnerships, according to Aikat.

Underwriting. According to Credit Karma, one-third of BNPL users in the United States have fallen behind on their payments. This risk has kept banks from pursuing the technology, in addition to discouraging users. Mastercard determines repayment terms based on cash flow insights and other information, and it defers to its lending partners the decision on interest rates and whether customers can use credit cards to finance loans.This could provide FIs with a more secure way to enter the space.

Regulation. With government pressure looming across markets, Mastercard's decision to collaborate with established banks and acquiring partners may help it stay abreast of future regulations more effectively and avoid feeling the pinch.