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Mastercard announced on Sept. 28 it’s wading into the deferred payments business with its flagship “Buy Now, Pay Later” program.
Buy now, pay later (BNPL) has become a trend in recent years with fintech companies like Klarna and Affirm, allowing consumers to break up purchases into interest-free installments.
BNPL programs vary in execution, but most offer a similar model. Businesses partner with BNPL companies, which then facilitate a payment plan at the end of a transaction.
For example, if a consumer makes a large purchase at an electronics store, they may be offered an option at checkout to break their purchase up into four interest-free installments. The customer won’t be charged any additional fees if they pay the installments back on time and in full.
The future of credit cards meets deferred payment programs
According to Mastercard, its BNPL program will provide consumers with a “seamless experience” that offers “more payment options wherever they shop.” The new program won’t require consumers to go through additional steps at the end of their transaction and is backed by Mastercard’s zero liability protection.
“The line between credit cards and buy now, pay later is getting increasingly blurry,” explained Bankrate’s senior industry analyst Ted Rossman. “Many consumers are drawn to instant gratification, easy access and predictable installments.”
Mastercard believes its new BNPL program will benefit not only consumers but also merchants and lenders. Mastercard offers merchants and small businesses a way to quickly enter the buy now, pay later ecosystem without the burden of upfront costs or liability of going it alone in a relatively new payment environment.
For consumers, the benefit of BNPL comes in the form of convenience. For merchants, Mastercard promises security and scalability.
“The blending of the physical and digital is a huge trend in retail,” says Rossman. “Buy now, pay later companies have done a great job selling their solutions to merchants. Even though they generally charge higher processing fees than credit card issuers, buy now, pay later companies have gotten merchants to buy in on a narrative that they sell more stuff when they offer buy now, pay later to their customers.”
The bottom line
If current trends are any indication, buy now, pay later systems are here to stay. “Affirm has announced plans for a debit card, whereas traditional financial institutions such as American Express, Chase, Citi, Goldman Sachs, Visa, Capital One, Bank of America and Wells Fargo are in various stages of implementing or considering pushes into buy now, pay later,” says Rossman. “We’re getting closer to a moment in time when buy now, pay later could be considered less of a category unto its own and more of a common, everyday payment method.”