Chargebacks

A Merchant's Guide to Mastercard Installments

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The last roadblock to conversion isn’t always your price point, your product features, or the persuasiveness of your sales pitch. Sometimes, it comes down to whether or not you accept the kind of payment the customer wants to make. For big purchases especially, an offer of financing from the merchant can make or break the deal.

The easiest way for many merchants to extend this option is to offer a Buy Now, Pay Later installment payment plan through a service like Mastercard Installments. What is the Mastercard Installment Payment Service, and what do merchants need to know about using it to offer BNPL to their customers?

New call-to-actionHaving the patience to wait for delayed gratification is a useful life skill, but let’s be honest. Most of the time, when we want something, we want it right away. This fact of human nature is a big reason for the existence of credit cards. Today’s up and coming consumer generation may be wary of big financial institutions and afraid to take on debt, but they still want to be able to buy things without paying the full cash price up front.

Buy Now, Pay Later schemes have risen to meet this demand, offering consumers the chance to have a product shipped or take it home without having to pay for it until some length of time afterward.

The popularity of BNPL has skyrocketed in recent years, with the lending volume in 2020 more than ten times what it was the previous year. BNPL was already on an upward trend before the COVID-19 pandemic, but with lockdowns forcing consumers to reevaluate their shopping habits, adoption has accelerated.

Since its popularity started increasing, the BNPL landscape has been in a state of evolution. Merchants, lenders, and third-party providers have all taken a hand in creating innovative new BNPL frameworks.

Now, the big dogs are stepping into the game, with Mastercard rolling out its Mastercard Installment Payment Service, a solution intended to make BNPL accessible to an even wider range of merchants and consumers.

How Do Buy Now, Pay Later Plans Work?

A BNPL plan is a deal between a merchant and a customer in which the customer is able to purchase an item with either no initial payment at all or with only a partial down payment. Instead, they agree to pay for the purchase on an extended timetable, either in a set number of installments to be paid on a regular schedule or as a lump sum to be paid in full by a specified date. Usually, BNPL plans do not charge interest.

BNPL loans are easier to qualify for than traditional loans and usually will only require a soft credit check for approval. Customers can request the BNPL option at checkout and be approved on the spot.

Bad BNPL deals exist, and things can get complicated when late payments or product returns occur, but under the right conditions, BNPL can be beneficial for both merchants and consumers, allowing an easy, flexible way to pay that doesn’t end up costing an arm and a leg in monthly interest charges.

What Is Mastercard Installments?

Normally, it’s up to the merchant to decide whether or not to offer BNPL payment options, with the plan itself being provided by either the merchant, their acquiring bank, or a third-party payment service.

Mastercard’s solution, formally known as the Mastercard Installment Payment Service, is a program that makes BNPL available to issuing banks, lenders, digital wallet platforms, and other fintech providers by leveraging the existing Mastercard acceptance network.

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyIssuers and other providers can use API integrations to get it working seamlessly with their existing payment systems, allowing all of their cardholders and end users to choose the Mastercard Installments BNPL payment option on eligible purchases.

On the consumer side, customers can get pre-approved for BNPL purchases through their Mastercard issuer’s mobile banking app, or request instant approval while they’re checking out. They can even convert a regular Mastercard purchase into a BNPL plan after the fact. One potential benefit of Mastercard Installments is that it allows the customer’s Mastercard account history to be factored into the approval process, which can help increase approval rates—and by extension, sales and revenue for the merchant.

What Do Merchants Need to Know about Mastercard Installments?

Mastercard has assured its cardholders that they will continue to provide them with zero liability fraud protection on their BNPL purchases, along with the right to dispute BNPL charges that they don’t recognize.

Many existing BNPL plans require opt-in and integration on the merchant’s end. Mastercard Installments is different in that the negotiation of the plan is entirely between the customer and their issuer. This is advantageous for the merchant in that it allows them to gain the benefits of BNPL sales without having to bear responsibility for providing the infrastructure and managing the payments.

Because Mastercard Installments purchases are settled for the full amount to the merchant, however, there’s no reason they can’t be treated like regular Mastercard transactions when it comes to disputes.

This means that merchants will still have to be on the lookout for chargebacks on BNPL payments made through Mastercard Installments, which is not always the case with other BNPL solutions. Merchants must continue to scan for fraud, exercise caution, and maintain complete transaction records with respect to these payments.

This doesn’t mean that chargebacks are any more likely on Mastercard Installments purchases, but merchants always should review their data to see if there are any significant correlations between particular purchasing scenarios and chargebacks.

Conclusion

Mastercard Installments expands the reach of BNPL coverage to a far broader range of consumers by making it accessible independent of any choice or action on the merchant’s part. In theory, this arrangement doesn’t impact the merchant’s finances and should cause problems, but whenever the card networks and other big players introduce new rules or technologies there can be unintended consequences.

The best path for merchants is to stay informed, follow the guidelines the card networks and acquirers put out, and document everything. You have to stay alert to keep ahead of chargebacks when the landscape is always shifting around you, but it’s worth making every possible effort to protect your reputation and revenue.



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