Two of the hottest themes today in fintech – buy now, pay later (BNPL) and crypto – are often presented by startups as disrupting incumbents, especially in payments. The big credit-card companies such as Mastercard and Visa are fat targets. Both BNPL and mainstream attempts at crypto get mentioned as “credit-card killers”.
Mastercard and Visa will both respond they are no longer credit-card companies. In recent years they have shifted to payment processing more broadly. They are still best known for cards, which remain their mainstays, but by throwing a wider net, they are able to adapt new trends to fit their needs.
Sandeep Malhotra, executive vice president at Mastercard and head of its products and innovation for Asia Pacific, says the firm has the technology to meet any kind of payment situation. Mastercard has announced a new BNPL service that it expects to be marketable today, while building out crypto-related products aimed at growth expected tomorrow.
“The theme is choice,” Malhotra told DigFin. “For the consumer, the merchant, the payer, and the payee.”
Mastercard aims to enable anyone in that spectrum to pay (or be paid) upon checkout, or while browsing, or afterwards, or even in advance via money stored in advance for spending. The payment can come and go among bank accounts, e-wallets, a line of credit, or payment instruments such as a stablecoin.
The use of APIs makes it possible to connect all of these dots in an efficient manner.
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The only requirement, as far as Mastercard is concerned, is that the payment involve a place or an instance in which Mastercard is accepted, be it in card form or electronically through a QR code, a biometric scan, or other mechanism.
“The question is how we take this momentum of new technologies and the buy-now, pay-later trend to connect unknown payers and payees, and unknown consumers with unknown merchants,” Malhotra said.
To that end, the firm has rolled out a product called Pay & Split, aimed at small businesses to give them the option to purchase anything in BNPL-like installments.
BNPL: card killer?
BNPL has been pitched as an attack on credit cards because it is cheaper for borrowers, who often pay no interest. Merchants may pay a premium for BNPL services, but the increase in consumer business makes this worthwhile. BNPL fintech from the likes of AfterPay and Klarna – and now a host of Asian startups such as Atome or Hoolah – appeal to young people or those without access to credit cards or even bank accounts. Many young people look at the typical 25 percent to 28 percent interest rate on credit cards as usurious.
In the U.S., the U.K., and Australia, for example, the expansion of BNPL along with the growing popularity for debit cards has coincided with a drop in credit card usage.
Malhotra says this comparison obscures the fact that both BNPL fintechs and banks are facilitating a loan. If a user pays up in time, she doesn’t pay interest on a card. And a card can deliver rewards and other benefits.
But his bigger point is not that one product is superior, but that consumers probably want the flexibility to mix and match. This approach suits a global giant like Mastercard. The same person might use a credit card to pay for a coffee but will prefer an installment plan for an expensive item; and even then, there are various moments and ways to structure BNPL.
Mastercard is also confident that it can play in the BNPL space because it sees all of these newcomers as now having to compete and differentiate.
“We see retailers providing multiple options,” said Toby Puehse, head of innovation and customer solutions for Asia Pacific. “There will be increased competition [among BNPL providers].”
He also notes that most fintechs have yet to experience a full credit cycle.
As the firm looks to muscle its way into today’s hottest payments trend, it is also keeping an eye on the horizon. To that end it is now enabling crypto acceptance.
Three Asia-based virtual-asset exchanges will launch crypto-funded Mastercard payment cards: Amber Group in Hong Kong, Bitkub in Thailand, and CoinJar in Australia.
This follows Mastercard rolling out a crypto card program to enable these exchanges bring a compliant card to market.
Puehse acknowledges these cards are unlikely to be used regularly for speculative assets such as bitcoin or ether. But Mastercard enables transactions between fiat and crypto, and it is looking at the issuance of central-bank digital currencies and regulated stablecoins as drivers of mainstream use.
“We will be ready to enable use of stablecoins or CBDCs, domestic or cross-border, on Day One,” as these become available, he said.