Mastercard Inc. MA is dipping its toes in the burgeoning buy now pay later (BNPL) space with the launch of its service Mastercard Installments. BNPL is a kind of financing option, which allows customers to make payments for their purchases in installments according to the terms of the offer. This arrangement works in favour of merchants as well as shoppers. While the buyers can afford high-value purchases by splitting their payments, the merchants gain from high sales.
Mastercard Installments will first hit the markets of the United States, Australia and the United Kingdom (UK). The company is working with Barclays US, Fifth Third Bancorp (FITB), FIS, Galileo, Huntington, Marqeta, SoFi and Synchrony Financial SYF in the United States and with Qantas Loyalty and Latitude in Australia.
The new solution will enable consumers to digitally access the BNPL offers, either pre-approved through their lender’s mobile banking app or via an instant approval during checkout.
The BNPL service offered by Mastercard is likely to take off smoothly, given the integration into its trusted network. The brand weightage and security of services provided by the company are sure to attract customers.
BNPL services have been a huge attraction among buyers, especially after the COVID-19, which induced financial distress. Moreover, BNPL has an edge over credit cards in terms of its acceptability among the users who look to avoid hefty expenses and those who do not qualify for credit cards.
The BNPL is an exploding space and even though the installment payments facility has been in existence since long ago, it was earlier structured in a traditional way, carrying an interest, late payment and other additional charges. The BNPL trend got accelerated owing to trust issues in legacy financial institutions. The new-age customers, mainly Gen Z and millennials, seek payment options that are easy, transparent, interest-free and dispersed via a digital medium and mobile phones. And the BNPL fits the bill perfectly here.
The BNPL market is expanding fast. According to Worldpay’s 2020 Global Payments report, “buy now pay later” is the fastest growing e-commerce payment method, globally. In North America, the BNPL market share is expected to triple to 3% of the e-commerce payments market by 2023. In other regions, such as EMEA, “buy now pay later” already accounts for almost 6% of the e-commerce payment market and is expected to grow to almost 10% by 2023.
This vast market opportunity is attracting players and heating up competition. The same is underscored by the recent deals announced. The payments company PayPal Holdings, Inc. PYPL is also exploring this sector. Another company Square, Inc. SQ, recently announced a $29-billion acquisition of the Australian firm Afterpay, a rival of Affirm. The major company in the BNPL space is the Swedish startup named Klarna, which holds the number one spot, followed by AfterPay and Affirm.
Mastercard is investing where the future lies. Recently, it announced that it will acquire the open banking technology provider Aiia to penetrate the open banking space, which marks a revolution in traditional banking. It also plans to buy CipherTrace, a block chain analytics startup.
To keep abreast of the new technological advancements in the industry is imperative to stay relevant in the same space. Mastercard is hitting the right notes to drive growth in the long term.
The stock currently carries a Zacks Rank #3 (Hold) and has slipped 1.7% year to date compared with the industry’s decline of 11.4%.
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