MasterCard's plans to kill off debit cards

In a flurry of late night press releases from the big Apple last night, MasterCard announced that they are enabling Big Banks to offer BNPL off the shelf.

Why would MasterCard do this?

The answer is Debit cards.

On a $100 transaction, the acquiring Bank can expect the following

• eftpos $0.02
• MasterCard Debit $0.06
• MasterCard Credit $0.80 (Based on CBA Step Pay)

In Australia, we make 800 Million debit transactions per month and this is growing at 30%. By contrast, we make about 280 Million Credit transactions.

Treasury now wants those debit transactions to go down the cheapest pipe which, in all but a few cases is eftpos.

The BNPL players like AfterPay and Zip will crow about this being Validation of the sector and other nonsense. The reality is that they could be the ultimate victims.

In the example above, a merchant can surcharge for the efptos, Debit and Credit transactions but NOT the AfterPay or Zip transactions which retail at 4 to 5 times more.

Sept 28 (Reuters) - Mastercard Inc?(MA.N)?on Tuesday launched a buy now, pay later service, tapping into a market that is threatening to chip away at the dominance of credit cards as a main source of payments.

The buy now, pay later sector got a boost during the COVID-19 pandemic as cash-strapped shoppers were attracted to the service due to the ease of making part-payments for products they bought online or at stores, without additional costs or fees.

That, in turn, has led to a surge in business at some of the biggest players in the market, including Klarna, Affirm Holdings?(AFRM.O), Afterpay Ltd?(APT.AX)and PayPal Holdings Inc?(PYPL.O), while driving a string of big takeover deals.

In August, Square Inc?(SQ.N)?— the payments firm of Twitter Inc?(TWTR.N)?co-founder Jack Dorsey —?bought Afterpay?in a $29 billion deal, while earlier in September, PayPal said it would?acquire Japanese BNPL firm Paidy?in a $2.7 billion deal.

Mastercard said on Tuesday its Mastercard Installments program will allow consumers to pay for online and in-store purchases through equal and interest-free installments, adding that it will be available in markets across the United States, the United Kingdom and Australia.

The buy now, pay later option enables banks, lenders, fintech firms and wallets the ability to offer BNPL solutions, Mastercard said. Customers will also be able to access such offers digitally, pre-approved through the lender's mobile banking app or through instant approval during checkout, it said.

Companies offering buy now, pay later services typically charge merchants a fee for offering small, point-of-sale loans to customers which are paid back in interest-free installments, bypassing credit checks in the process.

Other large companies such as Apple Inc?(AAPL.O)?and Goldman Sachs?(GS.N)are also?reportedly working?on a BNPL offering.

Reporting by Sohini Podder in Bengaluru; editing by Uttaresh.V