Consumers have long had options to pay for high-value purchases through monthly installments, but payments providers — from PayPal to Mastercard — have typically focused on other ways to lift purchase volume.
Most of the efforts have been in the business-to-consumer category, but San Jose-based Insto says there is an opportunity for large person-to-person transactions that are not often considered to use installment options.
"If you are selling a truck to a friend, you can't use most other services to offer payment installments, but this is what we focus on," said Bruce Chen, CEO of Insto.
The Insto app also helps those in marketplace settings — artists, crafters and micro merchants — be able to offer installment or scheduled payments to their buyers.
In partnering with Stripe for payment processing and Experian for validation and credit screening, Insto says it has a solid offering in place. Insto operates as payment agnostic, supporting debit, credit card and bank account payments, while also working to eventually include Venmo and Google Wallet.
Underneath the marketing, Insto sounds more like a loan for customers of small merchants, said Richard Oglesby, president of AZ Payments Group and a senior analyst at Double Diamond Payments Research.
"Although the app store shows this is a general-purpose product, the Insto website indicates it has a target toward the sales of art," Oglesby said. "Art purchases make sense for this solution, and that can be a lucrative market. If Insto takes a highly focused approach to growing in the right segments, it stands a decent chance [in the U.S.]."
After a year of testing, Insto is now integrated with Experian for credit screening and is compliant with Payment Card Industry security standards, Chen said.
For now, Insto is staying away from the crowded B-to-C installment payment provider field, preferring to come to the table with what it considers a far less common consumer offering. After all, B-to-C installments are supported through PayPal, Splitit, Affirm, FuturePay and others.
Mastercard and Verifone moved into installment payments in the U.K earlier this month, enabling the consumer to choose an installment option at the point of sale through Verifone terminals offering the service.
U.K. media outlets were advising consumers to be sure they understand the fees for installment offerings at the point of sale, a place where they might typically have the time to weigh the costs of splitting up their payments.
Mastercard execs told the Daily Mail it expected banks would charge a lower rate than usual in return for guaranteed monthly payments from customers, but it did not have the power to tell banks what to do with pricing. Mastercard also said only customers who had agreed beforehand with their bank that they were interested in repayment plans would be offered this service at the checkout and that the costs would be fully explained to them.
Mastercard did not respond to an inquiry from PaymentsSource prior to deadline.
Insto is hoping to have a clean approach to its service's fee structure.
Those passing the identification verification and credit screening are eligible for a $3,000 limit in installment payments through Insto. A second level of certification allows up to a $12,000 limit. Those categorized as VIP sellers can raise a limit to upwards of $100,000.
"We replace the APR with a service charge, as our model is not lending; it is a seller finance model," Chen said. "We put a small service charge on each payment, depending on length of payment."
Insto charges a 2.99% fee on payments in the one-to-three month range, and 6.99% on those from 10 to 12 months to cover risk. At one level of service, Insto compensates the seller for transactions up to $3,000 if the buyer defaults on final payments.
The Insto app, available for iOS or Android devices, allows consumers to use a "scheduled payments" option in which they can schedule weekly recurring payments or semi-monthly payments. For those payments, Insto charges a flat 3% fee.
Though it plans to operate in the U.S. first and examine other markets later, Insto has been establishing partnerships with banks in Taiwan and hopes to secure one in Japan soon.
Because banks are in the lending business, they will be interested if a third party will sell loans on their behalf, AZ Payments' Oglesby said.
"Any bank is interested in high-volume, high-quality loans," he added. "Most banks would listen [to Insto] and most likely offer a performance-based package on high-quality loans."
Ultimately, success with bank partners isn't about stirring interest ahead of time as much as it is "delivering real business back to the banks" that sign on, Oglesby said.