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Mastercard to offer BNPL: What does this mean for Afterpay (ASX:APT) and Zip (ASX:Z1P)?

The information technology sector was again one of the hardest hit sectors on Wednesday. The US bond yield hitting a 3 month high of over 1.5% has largely triggered the sell-off in the tech sector.

US buy-now-pay-later (BNPL) giant Affirm Holdings Inc (NASDAQ: AFRM) fell a huge 10.79% on its last day of trading.

The sentiment was also felt in the Australian BNPL market with losses across the board from Afterpay Limited (ASX: APT), Zip Co Limited (ASX: Z1P) and Sezzle Inc (ASX: SZL).

Source: Rask Media APT 2-year share price chart

But the BNPL sell-off hasn’t just happened due to broader tech selling.

The sector has just gotten even more crowded with the announcement that Mastercard Inc (NYSE: MA) will offer its own BNPL offering which will be known as Mastercard Installments.

Mastercard to offer BNPL

Mastercard’s BNPL will soon become available in Australia, the US and the UK and will allow consumers to make equal, interest-free installments.

The financial services giant said that it will work with banks, lenders, fintechs and wallets to allow them to offer a BNPL service both online and in-store.

This means the millions of merchants that already accept Mastercard can be seamlessly integrated with the installment offering. Meanwhile, acquiring banks will now be able to offer installments to their entire merchant base through a simple integration.

In Australia, Qantas Airways Limited (ASX: QAN) and Latitude Group Holdings Ltd (ASX: LFS) will be the first two local partners under the new offering.

Unlike BNPL providers like Afterpay where retailers are not allowed to apply a surcharge to recoup the cost, Mastercard said that it will be allowing retailers to add a surcharge.

Sector heating up

As BNPL is becoming increasingly popular amongst consumers, it makes sense that financial services providers are incorporating it as part of their own offering.

We’ve seen this recently from Commonwealth Bank of Australia (ASX: CBA), PayPal Holdings Inc (NASDAQ: PYPL), Citi and the recent acquisition of Afterpay by Square Inc (NYSE: SQ).

Apple Inc (NASDAQ: AAPL) is even working on its own BNPL offering together with Goldman Sachs.

My take on the BNPL space

I think Square’s recent acquisition of Afterpay is a sign of things to come in terms of sector consolidation.

While I haven’t been particularly bullish on the BNPL sector as a standalone offering, there’s undeniably a lot of optionality involved when it’s incorporated with a much broader financial services company like Square.

The ecosystem could be powerful under an offering such as this. Square can offer merchants POS systems, terminals and banking services. Consumers can pay through its BNPL offering which is then built into its P2P Cash app.

This closed-loop system is clever as it provides a platform with loads of functionality compared to having different providers for say, banking, BNPL, etc.

For more share ideas, click here to read: 2 ASX growth shares I’d buy in a tech downturn.

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Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.
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