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Mastercard Installments' buy now, pay later (BNPL) platform, a technical solution that allows banks to create their own BNPL solutions, is about to come to market in the United States, Australia and the UK.
The prospect of banks across the UK developing their own BNPL services using Mastercard’s new platform is further evidence of the steep rise of — and demand for — BNPL services and is bound to attract the attention of regulators. HM Treasury promised to regulate BNPL back in February 2021, although no timetable for this has yet appeared. However, unlike many BNPL offerings, Mastercard believes the way that its services will be introduced by banks will fall within existing credit regulation.
When asked about the regulated nature of Mastercard's offering, if any, a spokesman for the firm told VIXIO that ordinary Financial Conduct Authority (FCA) credit rules applied in the UK.
"This is going to be based off a pre-agreed credit line between the individual and the credit provider, the bank. At the point of sale it might feel similar to a Klarna-type transaction, but it will be a pre-approved credit line. So it's all regulated, working within existing credit regulation.
"The model in which we're trying to build — a pre-approved credit model — wouldn't differ from the mechanism that is there when you're applying for credit, should you wish to use it. It's not falling between two stools like other types of BNPL mechanisms that offer you a form of credit, but it's not an unsecured loan in the eyes of the UK regulator."
When asked to describe the platform, the spokesman stressed the freedom that it gave banks to charge their customers if and when they pleased.
"This is a solution that is bank-universal, so they don't have to be Mastercard-issuing banks. They issue their own instalment-type proposition. The choice will be theirs. The cost of the proposition to the end user — whether it is interest cost, or a monthly fee — sits with the bank. It's an alternative to the Klarna merchant model or a credit-card transaction paid over two, four or six months.”
The way BNPL services typically operate is by the merchant offering the service through its acquirer or other third-party wallets. By doing so, they often disintermediate the banks from their customers. This solution and others aim to help banks reclaim their market position as end-to-end payment providers. The fact that that service will be based on an agreed line of credit which they underwrite and for which they manage the customer risk could give them a competitive advantage if regulators come down hard on as-yet unregulated BNPL providers.
This is because these future services will potentially fall within existing consumer credit regulation so will not likely be subject to the cost and disruption of future regulatory scrutiny that could fall upon other BNPL services. Consumers could also be incentivised to choose their bank’s BNPL option as it could offer better protections.
