Why Mastercard Bought a Point-of-Sale Lending Platform
Mastercard’s acquisition of Vyze opens the door for adoption of POS financing in a way acquirers might not be able to achieve.
As banks, merchants, and even tech companies offer consumers new and different ways to pay for stuff, credit card companies are trying to protect their role as the pre-eminent platform for everyday purchases by offering more buy-now-pay-later options.
That’s why MasterCard paid an undisclosed amount this week for the point-of-sale loan platform Vyze, which lets consumers take small, short-term loans for everyday purchases without racking up credit card debt.
Increasing payment options for consumers buying non-essential items is one way MasterCard hopes it can help merchants finance more sales with less risk, and add a new revenue stream as some consumers forgo credit-card purchases.
“By providing additional lenders to merchants we will see increased approval rates, which is great for the merchant, help reduce abandonment at checkout, and for the consumer, it just provides another choice at the point of sale,” Blake Rosenthal, the executive vice president of global acceptance at Mastercard, told Cheddar.
Mastercard, which traditionally processes transactions between banks and retailers, makes money by charging consumers interest and retailers a fee for in-store and online purchases. By getting into the point-of-sale lending business with Vyze, Mastercard can be the direct link between merchants and consumers, taking a percentage of the loan for individual transactions.
It essentially allows MasterCard to facilitate loans directly between consumer and retailer.
“We offer you access, and now your relationship is with that lender,” Rosenthal said. “So what we’ve done is facilitated that matchmaking process, so the lender will email you terms and conditions and information about repayment.”
Vyze touts at least a dozen lenders on its platform, including TD Bank and the online lender Avant, allowing customers access to multiple credit options for a purchase with one, streamlined application.
“We have the opportunity to put our lenders in whatever position we want,” Rosenthal said. “The ideal situation is a lender in the primary position, in the secondary position, and so forth. We also have the opportunity of doing a round robin. There are a lot of different ways that we can present different lenders in the platform.”
Point-of-sales loans haven’t exactly taken off with consumers in the U.S., where debit and credit card purchases still account for nearly half of all transactions. Paying with plastic is easy, and there are plenty of incentives from credit card companies. (In a separate announcement this week, Mastercard introduced new “always-on” benefits to its World and World Elite cardholders that include extra perks when they spend with Lyft, Fandango, Boxed, and Postmates.)
Alternative payment options like Apple Pay, which started in 2014, and Google Wallet, in 2011, have been slow to take off. Only 24 percent of iPhone users in the U.S. use Apple’s electronic payment system, according to research by Loup Ventures.
But the drum beat for POS loans has been growing louder for the last two years as merchants seek ways to increase sales, and consumers demand more transparency from credit providers.
According to Affirm, the leading POS lender, merchants see a 20 percent conversion lift and an 87 percent increase in average order value when customers use its payment option. A study by Forrester reported a 32 percent increase in sales for companies offering POS financing.
Earlier this year, Affirm solidified its partnership with Walmart to provide POS loans to its shoppers, and soon after the announcement raised $316 million, bringing its total funding to more than $800 million. Chase, the largest U.S. bank by assets, has also revealed its own POS lending product, and Square said it would soon pursue its own POS product. Klarna, a Swedish company that received a $20 million investment last year from H&M, plans to expand its POS offerings in the U.S. and has been pushing a flashy ad campaign featuring Snoop Dogg to tease them.
POS products are a way for the young fintech industry to lure millennial customers that the companies believe are distrustful of the traditional banking system, tired of hidden fees, and averse to taking on more debt. Though the POS lending startups offer more transparent loans, they’re still offering debt and risk — it may take time for consumers to grow comfortable with this new payment-financing option.
By getting into the POS financing game now with Vyze, Mastercard could bolster confidence, drive more customer adoption, and increase profits more than an acquiring bank could achieve individually.