Has the BNPL war been won by Mastercard?

When Apple launched Apple Pay Later, the tech giant joined a growing list of brands looking to capitalise on the mounting Buy Now, Pay Later (BNPL) movement. Viewed as an industry disruptor, it has knocked fintech upstarts like Klarna,Affirm, and Afterpay into touch, forcing their valuations to plummet. 

Partly through the brand’s ability to access cheap funding through its own balance sheet, but also because it has access to an existing customer base in excess of 1 billion, giving them such a significant advantage over all potential competitors. It’s a move that has made the industry sit up and pay attention. Not just because of its impact. But because of its model. And its choice of business partner – Mastercard. 

The race for BNPL supremacy 

With digital BNPL solutions being estimated to be worth $4 rn by 2030, for more than a decade now, there has been a slow race between existing card schemes to corner the BNPL market for the tech era, with Visa and Mastercard being the main players. Both providers invested in creating infrastructure that would allow banks to provide instalment services to their existing cardholders pre-purchase, at point of sale and post-purchase.

After a largely comparable development stage, with global piloting and trials, both officially launched in 2021. The reality though, was that there was little to differentiate between the two with both card issuers largely mirroring each other's offering. But then Apple opted to work with  Mastercard, a deal that by card payment volume at least, Visa should have won. This victory for Mastercard has largely gone unnoticed.   

Mastercard and Apple Pay Later

A wholly owned subsidiary of Apple will be responsible for credit underwriting and extending loans to users of Apple Pay Later.  Apple has partnered with Mastercard, which interacts with the merchants and offers a white label BNPL product called Installments, while Goldman Sachs will be the technical issuer of the loans and is the official BIN (bank identification number) sponsor.  

By utilising Mastercard’s BNPL capabilities, but using their own underwriting algorithms and balance sheets, Apple has created a truly innovative model that candidly, sets the standard of how established businesses (and banks) should have been working with fintech all along. And in the process, they have all but crowned Mastercard as leaders in the digital BNPL field. 

How did Mastercard originate its BNPL coup?

The sticking point for digital BNPL has been getting banks and other partners (such as the hugely fragmented point of sale providers) on board. The products have been ready. The consumers have been waiting. But the banks saw little need to leverage another solution that held the potential to cannibalise the revenue stream created by their existing revolving credit lines. 

Visa made the mistake of opting to play the long game, waiting for banks to see the promise and accept the inevitable change that customer demand would eventually bring. Mastercard, on the other hand, took a more proactive approach, executing an investment strategy that fostered genuine competitive capability, and enabled them to learn how to further develop their product in the process. 

They invested in Pine Labs, one of Asia's leading merchant commerce platforms, in January 2020. Two years on, Mastercard, DBS Bank, and Pine Labs announced that they had partnered to launch ‘Mastercard Installments with Pine Labs’, a new program that would allow credit cardholders to pay via interest-free instalments at merchants with the ‘Pay Later’ identifier, simply by presenting their cards at checkout.  

Just like their partnership with Apple, it was something completely unheard of before. A stroke of strategic brilliance that has further played into Mastercard’s move toward digital BNPL dominance. 

Historically, Mastercard has been the underdog. 

Of course, it was a massively successful underdog with an enormous presence on the global financial stage. But it was still the David to Visa’s Goliath, having less than half of Visa’s market share, and Visa representing 50 per cent of all credit balances. 

But like David, Mastercard has begun to assert its authority, with digital BNPL being its catapult and stone. And while the deal with Apple can arguably be credited with cementing Mastercard’s success, the foresight, positioning, and sheer corporate acumen of Mastercard should not be overlooked. Because it is Mastercard’s flexibility and determination that made their solution fit for Apple’s purpose. And right now, they’ve become a very exciting brand to watch. 

The views and opinions expressed are not necessarily those of AltFi.