Mastercard is reportedly seeking to share the financial burden of its losses from the failure of Banco Master with some of Brazil’s largest payment processors. The card network is asking these processors to cover half of the costs incurred after Banco Master’s FinTech subsidiary, Will Financeira, collapsed.
Network on the Hook for Reimbursing Acquirers
Will Financeira had issued cards that operated on Mastercard’s network. The subsequent collapse of Will Financeira has left Mastercard responsible for reimbursing merchant acquirers for approximately 5 billion reais (around $997 million) in cardholder payments. According to Bloomberg, Mastercard has already paid out roughly half of this amount.
Mastercard is now proposing a plan to recoup its own expenditures before disbursing further funds to the acquirers. The proposal, seen in a draft contract by unnamed sources, suggests using funds collected from card customers to reimburse Mastercard itself. The company did not immediately respond to requests for comment.
Regulatory Shift and Contractual Disputes
The situation arises in the context of new rules adopted by Brazil’s central bank. These regulations place responsibility on payment networks to ensure the payment of all transactions to the receiving user. However, Mastercard has informed merchant acquirers that it believes these rules should not apply in the case of Will Financeira’s collapse.
Mastercard’s argument, according to the report, is that Will Financeira failed in January, and card firms had until May to adapt to the new regulations. This stance suggests a potential dispute over the applicability of the new regulatory framework to past events.
Acquirers Push Back on Responsibility
Major Brazilian acquirers have voiced strong opposition to Mastercard’s proposal. Cielo, one of the acquirers that received the draft contract, stated that merchant acquirers are not responsible for these payments. “Acquirers could not, cannot, and will not be able to choose the issuers that are part of the payment scheme, nor are they responsible for the guarantees linked to the transactions,” Cielo communicated, as reported by Bloomberg.
Banco Master’s Downfall
Banco Master’s operational halt was initiated in November, when Brazil’s central bank intervened, appointing a liquidator to manage creditor claims and asset sales. On the same day, the bank’s controlling shareholder was arrested. Banco Master had reportedly been experiencing liquidity challenges for months, having expanded rapidly by offering high-yield debt through investment platforms.
The central bank ordered the liquidation of Will Financeira in January, as part of broader measures to address illiquid institutions connected to Banco Master. Earlier in January, Mastercard had announced the suspension of Will Bank cards from its network, citing non-compliance with settlement schedules under its payments arrangement.
The ongoing discussions between Mastercard and Brazilian processors highlight the complex financial repercussions of fintech failures and the evolving responsibilities within the payment ecosystem, particularly in light of new regulatory mandates.
