payments
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UK’s Paysend raises $125M at a $700M+ valuation to expand its all-in-one payments platform
With more people than ever before going online to pay for things and pay each other, startups that are building the infrastructure that enables these actions continue to get a lot of attention.
In the latest development, Paysend, a fintech that has built a mobile-based payments platform — which currently offers international money transfers, global accounts, and business banking and e-commerce for SMBs — has picked up some money of its own. The London-based startup has closed a round of $125 million, a sizable Series B that the company’s CEO and founder Ronnie Millar said it will be using to continue expanding its business geographically, to hire more people, and to continue building more fintech products.
The funding is being led by One Peak, with Infravia Growth Capital, Hermes GPE, previous backer Plug and Play and others participating.
Millar said Paysend is not disclosing valuation today but described it as a “substantial kick-up” and “a great step forward in our position ahead toward unicorn status.”
From what I understand though, the company was valued at $160 million in its previous round, and its core metrics have gone up 4.5x. Doing some basic math, that gives the company a valuation of around $720 million, a figure that a source close to the company did not dispute when I brought it up.
Something that likely caught investors’ attention is that Paysend has grown to the size it is today — it currently has 3.7 million consumer customers using its transfer and global account services, and 17,000 small business customers, and is now available in 110 receiving countries — in less than four years and $50 million in funding.
There are a couple of notable things about Paysend and its position in the market today, the first being the competitive landscape.
On paper, Paysend appears to offer many of the same features as a number of other fintechs: money transfer, global payments, and banking and e-commerce services for smaller businesses are all well-trodden areas with companies like Wise (formerly “TransferWise”), PayPal, Revolut, and so many others also providing either all or a range of these services.
To me, the fact that any one company relatively off the tech radar can grow to the size that it has speaks about the opportunity in the market for more than just one or two, or maybe five, dominant players.
Considering just remittances alone, the WorldBank in April said that flows just to low- and middle-income countries stood at $540 million last year, and that was with a dip in volumes due to COVID-19. The cut that companies like Paysend make in providing services to send money is, of course, significantly smaller than that — business models include commission charges, flat fees or making money off exchange rates; Paysend charges £1 per transfer in the U.K. More than that, the overall volumes, and the opportunity to build more services for that audience, are why we’re likely to see a lot of companies with ambitions to serve that market.
Services for small businesses, and tapping into the opportunity to provide more e-commerce tools at a time when more business and sales are being conducted online, is similarly crowded but also massive.
Indeed, Paysend points out that there is still a lot of growing and evolution left to do. Citing McKinsey research, it notes that some 70% of international payments are currently still cash-to-cash, with fees averaging up to 5.2% per transaction, and timing taking up to an hour each for sender and recipient to complete transfers. (Paysend claims it can cut fees by up to 60%.)
This brings us to the second point about Paysend: How it’s built its services. The fintech world today leans heavily on APIs: Companies that are knitting together a lot of complexity and packaging it into APIs that are used by others who bypass needing to build those tools themselves, instead integrating them and adding better user experience and responsive personalization around them. Paysend is a little different from these, with a vertically integrated approach, having itself built everything that it uses from the ground up.
Millar — a Scottish repeat entrepreneur (his previous company Paywizard, which has rebranded to Singula, is a specialist in pay-TV subscriber management) — notes that Paysend has built both its processing and acquiring facilities. “Because we have built everything in-house it lets us see what the consumer needs and uses, and to deliver that at a lower cost basis,” he said. “It’s much more cost-efficient and we pass that savings on to the consumer. We designed our technology to be in complete control of it. It’s the most profitable approach, too, from a business point of view.”
That being said, he confirmed that Paysend itself is not yet profitable, but investors believe it’s making the right moves to get there. To be clear, Paysend actually does partner with other companies, including those providing APIs, to improve its services. In April, Plaid and Paysend announced they were working together to power open banking transfers, reducing the time to initiate and receive money.
“We are excited by Paysend’s enormous growth potential in a massive market, benefiting from a rapid acceleration in the adoption of digital payments,” said Humbert de Liedekerke, managing partner at One Peak Partners, in a statement. “In particular, we are seeing strong opportunities as Paysend moves beyond consumers to serve business customers and expands its international footprint to address a growing need for fast, easy and low-cost cross-border digital payments. Paysend has built an exceptional payment platform by maintaining an unwavering focus on its customers and constantly innovating. We are excited to back the entire Paysend team in their next phase of explosive growth.”
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Why did Bill.com pay $2.5B for Divvy?
As expected, Bill.com is buying Divvy, the Utah-based corporate spend management startup that competes with Brex, Ramp and Airbase. The total purchase price of around $2.5 billion is substantially above the company’s roughly $1.6 billion post-money valuation that Divvy set during its $165 million, January 2021 funding round.
Divvy’s growth rate tells us that the company did not sell due to performance weakness.
Per Bill.com, the transaction includes $625 million in cash, with the rest of the consideration coming in the form of stock in Divvy’s new parent company.
Bill.com also reported its quarterly results today: Its Q1 included revenues of $59.7 million, above expectations of $54.63 million. The company’s adjusted loss per share of $0.02 also exceeded expectations, with the street expecting a sharper $0.07 per share deficit.
The better-than-anticipated results and the acquisition news combined to boost the value of Bill.com by more than 13% in after-hours trading.
Luckily for us, Bill.com released a deck that provides a number of financial metrics relating to its purchase of Divvy. This will not only allow us to better understand the value of the unicorn at exit, but also its competitors, against which we now have a set of metrics to bring to bear. So, this afternoon, let’s unpack the deal to gain a better understanding of the huge exit and the value of Divvy’s richly funded competitors.
Divvy by the numbers
The following numbers come from the Bill.com deck on the deal, which you can read here. Here are the core figures we care about:
- “~$100 million annualized revenue,” calculated using the company’s March results multiplied by 12. That puts Divvy’s March, 2021 revenues at around $8.3 million.
- “>100% revenue growth YoY,” again calculated by leaning on the company’s March results. So, we can’t be sure that its full Q1 2021 growth was over the 100% mark. Still having its most recent Q1 month generate a three-figure growth rate is good. It also lets us know that the company did no more than $4 million or so in March 2020 revenue.
- “~$4 billion annualized TPV,” or total payment volume. Again, this is a March number annualized.
This lets us price the company somewhat. Divvy sold for around 25x its current revenue rate. That’s a software-level multiple, implying that the company has either incredibly strong gross margins, or Bill.com had to pay a multiples-premium to buy the company’s future growth today. I suspect the latter more than the former, but we’ll have to scout for more data when Divvy shows up in Bill.com results after the deal closes; that data is a few quarters away.
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HoneyBook raises $155M at $1B+ valuation to help SMBs, freelancers manage their businesses
HoneyBook, which has built out a client experience and financial management platform for service-based small businesses and freelancers, announced today that it has raised $155 million in a Series D round led by Durable Capital Partners LP.
Tiger Global Management, Battery Ventures, Zeev Ventures, 01 Advisors as well as existing backers Norwest Venture Partners and Citi Ventures also participated in the financing, which brings the San Francisco-based company’s valuation to over $1 billion. With the latest round, HoneyBook has now raised $248 million since its 2013 inception. The Series D is a big jump from the $28 million that HoneyBook raised in March 2019.
When the COVID-19 pandemic hit last year, HoneyBook’s leadership team was concerned about the potential impact on their business and braced themselves for a drop in revenue.
Rather than lay off people, they instead asked everyone to take a pay cut, and that included the executive team, who cut theirs “by double” the rest of the staff.
“I remember it was terrifying. We knew that our customers’ businesses were going to be impacted dramatically, and would impact ours at the same time dramatically,” recalls CEO Oz Alon. “We had to make some hard decisions.”
But the resilience of HoneyBook’s customer base surprised even the company, who ended up reinstating those salaries just a few months later. And, as corporate layoffs driven by the COVID-19 pandemic led to more people deciding to start their own businesses, HoneyBook saw a big surge in demand.
“Our members who saw a hit in demand went out and found demand in another thing,” Oz said. As a result, HoneyBook ended up doubling its number of members on its SaaS platform and tripling its annual recurring revenue (ARR) over the past 12 months. Members booked more than $1 billion in business on the platform in the past nine months alone.
HoneyBook combines on its platform tools like billing, contracts and client communication, with the goal of helping business owners stay organized. Since its inception, service providers across the U.S. and Canada such as graphic designers, event planners, digital marketers and photographers have booked more than $3 billion in business on its platform. And as the pandemic had more people shift to doing more things online, HoneyBook prepared to help its members adapt by being armed with digital tools.
Image Credits: HoneyBook
“Clients now expect streamlined communication, seamless payments, and the same level of exceptional service online that they were used to receiving from business owners in person,” Alon said.
Oz co-founded HoneyBook with wife Naama and longtime friend Dror Shimoni. Oz and Naama were both small business owners themselves at one time, so they had firsthand insight on the pain points of running a service-based business.
HoneyBook’s software not only helps SMBs do more business, but helps them “convert potentials to actual clients,” Oz said.
“We help them communicate with potential clients so they can win their business, and then help them manage the relationship so they can keep them,” Naama said.
The company plans to use its new capital toward continued product development and to “dramatically” boost its 103-person headcount across its New York and Tel Aviv offices.
“We’re seeing so much demand for additional services and products, so we definitely want to invest and create better ways for our members to present themselves online,” Alon told TechCrunch. “We’re also seeing demand for financial products and the ability to access capital faster. So that’s just a few of the things we plan to invest in.”
The company also wants to make its platform “more customizable” for different categories and verticals.
Chelsea Stoner, general partner at Battery Ventures, said her firm recognized that the expansive market of productivity tools to serve small businesses and entrepreneurs was “a market of discrete and separate productivity tools.”
HoneyBook, she said, is a true platform for SMBs, “providing a huge array of functionality in one cohesive UX.”
“It unites and connects every task for the solopreneurs, from creating and distributing marketing collateral, to organizing and executing proposals, to sending invoices and collecting payments,” Stoner said. “The company is constantly innovating and iterating in response to its members; we also see a lot of opportunity with payments going forward…And, due to COVID-19 and other factors, the company is sitting on pent-up demand that will accelerate growth even more.”
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alt.bank, Brazil’s latest fintech targeting the unbanked, raises $5.5M
It looks like everyone and their mother is trying to reinvent the Brazilian banking system. Earlier this year we wrote about Nubank’s $400 million Series G, last month there was the PicPay IPO filing and today, alt.bank, a Brazilian neobank, announced a $5.5 million Series A led by Union Square Ventures (USV).
It’s no secret that the Brazilian banking system has been poised for disruption, considering the sector’s little attention to customer service and exorbitant fee structure that’s left most Brazilians unbanked, and alt.bank is just the latest company trying to take home a piece of the pie.
Following Nubank’s strategy of launching a bank with colors that are very un-bank-like, signaling that they do things differently, alt.bank similarly launched its first financial product in 2019 — a fluorescent-yellow debit card which the locals have endearingly dubbed, “o amarelinho,” meaning, “the little yellow card.”
The company, founded by serial entrepreneur Brad Liebmann, follows the founder’s $480 million exit of Simply Business, which was acquired by U.S. insurance giant Travelers in 2017.
Unlike many fintechs, alt.bank has a strong social mission and pays commissions for referrals that last for the customer’s lifetime.
“Most fintechs just help wealthy people get wealthier, so I thought let’s do something with a social mission,” Liebmann told TechCrunch in an interview.
To drive home the mission, and really target the unbanked, Liebman and his team of 80 employees have designed an app that can be used by the illiterate. Instead of words, users can follow color-coded prompts to complete a transaction. The company also plans to launch credit products soon.
According to the company, close to a million people have downloaded the android app since launch, but Liebman declined to disclose how many active users the company actually has.
Today, the company’s core offerings include the debit card, a prepaid credit card, Pix (similar to Zelle), a savings account and even telemedicine visits via a partnership with Dr. Consulta, a network of healthcare clinics throughout the country. The prepaid credit card is key because online stores in Brazil don’t accept debit card purchases.
In addition to the perk of ongoing commissions, alt.bank has also partnered with three major drugstores, allowing their users to get 5-30% off any item at the stores, including medication.
While the company is based in São Paulo and São Carlos, Liebmann and his family are currently based in London due to regulations around the pandemic.
The investment in alt.bank marks USV’s first investment in South America, solidifying a trend by other major U.S. investors such as Sequoia who only in the last several years have started looking to LatAm for deals.
“The bar was high for our first investment in South America,” said Union Square Ventures partner John Buttrick. “The combination of the alt.bank business model and world-class management team enticed us to expand our geographic focus to help build the leading digital bank targeting the 100 million Brazilians who are currently being neglected by traditional lenders,” he added in a statement.
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PicPay, the Brazilian mobile payments platform, files for an IPO on Nasdaq
Brazilian mobile payments app PicPay filed on Wednesday an F-1 with the Securities and Exchange Commission (SEC) for an IPO valued at up to $100 million. The company plans to list on the Nasdaq under the ticker symbol PICS.
PicPay operates largely as a financial services platform that includes a credit card, a digital wallet similar to that of Apple Pay, a Venmo-style P2P payments element, e-commerce and social networking features.
“We want to transform the way people and companies interact, make transactions, and communicate in an intelligent, connected, and simple experience,” said José Antonio Batista, CEO of PicPay, in a statement.
While the company is based in São Paulo now and operates across Brazil, PicPay originally launched in Vitoria in 2012, a coastal city north of Rio. In 2015 the company was acquired by the group J&F Investimentos SA, a holding company owned by Brazilian billionaire brothers Wesley and Joesley Batista, which also own the gigantic meatpacker JBS SA.
According to the company’s registration statement, J&F was involved in the biggest corruption scandal in Brazil’s history, known as The Car Wash, and in 2017 entered into a plea deal with the Brazilian Federal Prosecutor. In December 2020 the company agreed to pay a fine of $1.5 billion and contribute an extra $442.6 million to social projects in Brazil. That being said, J&F continues to be a powerful conglomerate in the country, positioning itself as a strong backer for PicPay.
2020 was an explosive year for PicPay as the company saw its active userbase grow from 28.4 million to 36 million as of March 2021. According to the company’s 2020 financial report, which PicPay shared with TechCrunch, the company’s revenues also grew drastically from $15.5 million in 2019, to $71 million in 2020. The company is not yet profitable, however, and PicPay shelled out $146 million in 2020 to fuel its growth.
“We believe that the growth of our base and user engagement in our ecosystem demonstrates the scalability of our business model and reveals a great opportunity to generate more value for these customers,” Batista added.
Fintech is one of the most popular sectors in Brazil today, because there’s a lot of room for improvement in the region. The country has traditionally been controlled by four major banks, which have been slow to adapt to technology and also charge very high fees.
PicPay’s IPO is being led by Banco Bradesco BBI, Banco BTG Pactual, Santander Investment Securities Inc., and Barclays Capital Inc.
*The Brazilian Real was valued at 5.50 to $1 USD on the date of publication.
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Signal tests payments in the UK using MobileCoin
Encrypted chat app Signal is adding payments to the services it provides, a long-expected move and one the company is taking its time on. A U.K.-only beta program will allow users to trade the cryptocurrency MobileCoin quickly, easily, and most importantly, privately.
If you’re in the U.K., or have some way to appear to be, you’ll notice a new Signal Payments feature in the app when you update. All you need to do to use it is link a MobileCoin wallet after you buy some on the cryptocurrency exchange FTX, the only one that lists it right now.
Once you link up, you’ll be able to instantly send MOB to anyone else with a linked wallet, pretty much as easily as you’d send a chat. (No word on when the beta will expand to other countries or currencies.)
Just as Signal doesn’t have any kind of access to the messages you send or calls you make, your payments are totally private. MobileCoin, which Signal has been working with for a couple years now, was built from the ground up for speed and privacy, using a zero-knowledge proof system and other innovations to make it as easy as Venmo but as secure as … well, Signal. You can read more about their approach in this paper (PDF).
MobileCoin just snagged a little over $11 million in funding last month as rumors swirled that this integration was nearing readiness. Further whispers propelled the value of MOB into the stratosphere as well, nice for those holding it but not for people who want to use it to pay someone back for a meal. All of a sudden you’ve given your friend a Benjamin (or perhaps now, in the U.K., a Turing) for no good reason, or that the sandwich has depreciated precipitously since lunchtime.
There’s no reason you have to hold the currency, of course, but swapping it for stable or fiat currencies every time seems a chore. Speaking to Wired, Signal co-founder Moxie Marlinspike envisioned an automatic trade-out system, though he is rarely so free with information like that if it is something under active development.
While there is some risk that getting involved with cryptocurrency, with the field’s mixed reputation, may dilute or pollute the goodwill Signal has developed as a secure and disinterested service provider, the team there seems to think it’s inevitable. After all, if popular payment services are being monitored the same way your email and social media are, perhaps we ought to nip this one in the bud and go end-to-end encrypted as quickly as possible.
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Clubhouse launches payments so creators can make money
Clubhouse, a one-year-old social audio app reportedly valued at $1 billion, will now allow users to send money to their favorite creators — or speakers — on the platform. In a blog post, the startup announced the new monetization feature, Clubhouse Payments, as the “the first of many features that allow creators to get paid directly on Clubhouse.”
Clubhouse declined to comment. Paul Davison, the co-founder of Clubhouse, mentioned in the company’s latest town hall that the startup wants to focus on direct monetization on creators, instead of advertisements.
Here’s how it will work: A user can send a payment in Clubhouse by going to the profile of the creator to whom they want to give money. If the creator has the feature enabled, the user will be able to tap “Send Money” and enter an amount. It’s like a virtual tip jar, or a Clubhouse-branded version of Venmo (although the payments feature doesn’t currently let the user send a personalized message along with the money).
.@joinClubhouse
@stripe pic.twitter.com/u7kXXdPXU7
— edwin (@edwinwee) April 5, 2021
“100% of the payment will go to the creator. The person sending the money will also be charged a small card processing fee, which will go directly to our payment processing partner, Stripe,” the post reads. “Clubhouse will take nothing.”
Stripe CEO Patrick Collison tweeted shortly after the blog post went up that “It’s cool to see a new social platform focus first on participant income rather than internalized monetization / advertising.”
When the startup raised a Series B led by Andreessen Horowitz in January, part of the reported $100 million funding was said to go to a creator grant program. The program would be used to “support emerging Clubhouse creators,” according to a blog post. It’s unclear how they define emerging, but cultivating influencers (and rewarding them with money) is one way the startup is promoting high-quality content on its platform.
The synergies here are obvious. A Clubhouse creator can now get tips for a great show, or raise money for a great cause, while also being rewarded by the platform itself for being a recurring host.
The fact that Clubhouse’s first attempt at monetization includes no percentage cut of its own is certainly noteworthy. Monetization, or Clubhouse’s lack thereof, has been a topic of discussion about the buzzy startup since it took off in the early pandemic months. While it currently relies on venture capital to keep the wheels churning, it will need to make money eventually in order to be a self-sustaining business.
Creator monetization, with a cut for the platform, has led to the growth of large businesses. Cameo, a startup that sends personalized messages from creators and celebrities, takes about a 25% cut of each video sold on its platform. The startup reached unicorn status last week with a $100 million raise. OnlyFans, another platform that helps creators directly raise money from fans in exchange for paywalled contact, is projecting $1 billion in revenue for 2021.
Clubhouse’s payments feature will first be tested by a “small test group” starting today, but it is unclear who is in this group. Eventually, the payments feature will be rolled out to other users in waves.
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Uruguayan payments startup dLocal quadruples valuation to $5B with $150M raise
Cross-border payments startup dLocal has raised $150 million at a $5 billion valuation, less than seven months after securing $200 million at a $1.2 billion valuation.
This means that the five-year-old Uruguayan company has effectively quadrupled its valuation in a matter of months.
Alkeon Capital led the latest round, which also included participation from BOND, D1 Capital Partners and Tiger Global. General Atlantic led its previous round, which closed last September and made dLocal Uruguay’s first unicorn and one of Latin American’s highest-valued startups.
DLocal connects global enterprise merchants with “billions” of emerging market consumers in 29 countries across Asia-Pacific, the Middle East, Latin America and Africa. More than 325 global merchants, including e-commerce retailers, SaaS companies, online travel providers and marketplaces use dLocal to accept over 600 local payment methods. They also use its platform to issue payments to their contractors, agents and sellers. Some of dLocal’s customers include Amazon, Booking.com, Dropbox, GoDaddy, MailChimp, Microsoft, Spotify, TripAdvisor, Uber and Zara.
In conjunction with this latest round, dLocal has named Sumita Pandit to the role of COO. Pandit is former global head of fintech and managing director for JP Morgan, and also worked at Goldman Sachs.
“Sumita is a highly respected and accomplished fintech investment banker, and she’s played a pivotal role advising some of the world’s most successful fintech companies as they’ve scaled to become global leaders,” said dLocal CEO Sebastián Kanovich in a written statement.
Meanwhile, former COO Jacobo Singer has been promoted to president of dLocal.
The company plans to use its new capital to enhance its technology and continue to expand geographically.
Alkeon General Partner Deepak Ravichandran believes that emerging markets represent some of the fastest growth opportunities in digital payments.
“However, as global merchants look to access these markets, they are often faced with a complex web of local payment methods, cross-border regulations, and other operational roadblocks,” he said in a written statement. “dLocal’s unique platform empowers merchants with a single integrated payment solution, to reach billions of customers, accept payments, send payouts, and settle funds globally.”
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PPRO extends latest round to $270M, adding JPMorgan and Eldridge to grow its localized payments platform
In January, localized payments provider PPRO became the latest fintech-as-a-service startup to hit a billion-dollar valuation when it closed $180 million in funding. As a mark of how payments and e-commerce continue to be major areas of focus in the global economy, today PPRO is extending that round by another $90 million and adding in two new investors to its cap table.
The financing is coming by way of strategic backing from JPMorgan Chase and Eldridge (which is the second time this week the PE firm has been in the news for making a major investment in an enterprise tech company: earlier this week Eldridge was one of the leads on a $475 million round for real-time intelligence provider Dataminr).
The enlarged $270 million round — the January tranche was from Eurazeo Growth, Sprints Capital and Wellington Management — includes both primary and secondary capital, and this latest tranche is part of the secondary element, PPRO CEO Simon Black confirmed to me. Prior to this, London-based PPRO (pronounced “P-pro”) raised $50 million in August 2020 from Sprints, Citi and HPE Growth; and in 2018 it raised $50 million led by strategic investor PayPal.
PPRO’s core product is a set of APIs that e-commerce companies can integrate into their check-outs to accept payments in whatever local methods and currencies consumers prefer, removing the need for PPRO customers to build those complex and messy integrations themselves. Its business has boomed in the last year as one of the bigger providers of that localized payment technology, with transaction volumes up 60% in 2020 to $11 billion in processed payments.
JPMorgan Chase, meanwhile, is one of the world’s financial giants, providing banking and credit cards among its many other services. The idea is that it wants to build more payment services around its existing relationships and expand its payment business globally, working more closely with PPRO as part of that. There are two main areas where PPRO could figure: to help its credit card business gain more ubiquity as a payment method in more parts of the globe; and to be a service provider for its business banking customers to help them expand in more markets with more flexible, localized payments.
“We are extending into payments and we are looking to double down on addressing the needs of our clients and their clients, which can be consumers, suppliers or marketplace sellers,” said Sanjay Saraf, managing director and Global Head of the Integrated Payments Group at JPMorgan Chase, in an interview. “That last mile becomes important from a customer service perspective.”
In particular, the U.S. company is hoping to double down on its business and footprint in Latin America and Asia Pacific, two emerging markets still seeing a lot of growth in e-commerce, in particular compared to more developed, penetrated and mature markets like the U.S.
This latest round of financing underscores two trends of the moment in fintech.
First, it points to how active the e-commerce market has become — a trend fueled not in small part by the COVID-19 pandemic, and the resulting shift people have made to carrying out everyday tasks online. Second, it’s a sign of how global financial services companies are looking for ways to remain relevant in every market, tapping into more innovations from fintech startups to get there.
The problem, as it exists, is that payments remains a very fragmented business.
The standard methods that a person might use to pay for goods or services online in one country — for example a credit card in the U.S. — might differ drastically from the preferred methods when selling in another — for example, in Belgium one popular format is Bancontact (where you visit a new screen to authorize a transfer from directly from your bank checking account).
As with other payments and fintech-as-a-service startups, the attraction of using PPRO is that it has built a lot of those integrations at the backend and packaged them up as a service, taking away a lot of the complexity, in its case of identifying and integrating each of those payment methods manually, and making it something that can be done seamlessly and quickly.
JPMorgan is now one of several other partners. Those relationships work in both directions, providing partners a way to expand their consumer-facing products, and to help them work with more businesses in more markets. (Similar, I suspect, to how JPMorgan will work with it, too.)
Others in PPRO’s network of 100 large global customers include PayPal, Citi, Mastercard Payment Gateway Services, Mollie and Worldpay, which use PPRO’s APIs for a variety of functions, including localised gateway, processing and merchant acquirer services.
It is also not the only one that has identified the opportunity to simplify this part of the payment process and of other complex financial transactions that rely on localized approaches. Others in the same area include Rapyd, Mambu, Thought Machine, Temenos, Edera, Adyen, Stripe and newer players like Unit, with many of these raising very large amounts of money in recent times to double down on what is currently a rapidly expanding market.
The past year has been “an acceleration of a trend, where behaviors are being reinforced,” said Black in an interview. “At the consumer level, we are buying so many more products and services online, and we value convenience more than ever, which translates to a real strengthening of more demand for local payments.”
And while emerging technologies like cryptocurrency continue to see a lot of buzz, this is not at all where mass-market activity is for now. “The big trend is mobile wallets, not bitcoin,” Black said.
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Feedzai raises $200M at a $1B+ valuation for AI tools to fight financial fraud
On the heels of Jumio announcing a $150 million injection this week to continue building out its AI-based ID verification and anti-money laundering platform, another startup in the space is levelling up. Feedzai, which provides banks, others in the financial sector, and any company managing payments online with AI tools to spot and fight fraud — its cornerstone service involves super-quick (3 millisecond) checks happening in the background while transactions are being made — has announced a Series D of $200 million. It said that the new financing is being made at a valuation of over $1 billion.
The round is being led by KKR, with Sapphire Ventures and strategic backer Citi Ventures — both past investors — also participating. Feedzai said it will be using the funds for further R&D and product development, to expand into more markets outside the U.S. — it was originally founded in Portugal but now is based out of San Mateo — and towards business development, specifically via partnerships to integrate and sell its tools.
One of those partners looks to be Citi itself:
“Citi is committed to advancing global payments anchored on transparency, efficiency, and control, and our partnership with Feedzai is allowing us to provide customers with technology that seamlessly balances agility and security,” said Manish Kohli, global head of Payments and Receivables, with Citi’s Treasury and Trade Solutions, in a statement.
This latest round comes nearly four years after Feedzai raised its Series C, a $50 million round led by an unnamed investor and with an undisclosed valuation. Sapphire also participated in that round. It has now raised some $182 million to date.
Feedzai’s funding is happening at a time when the need for fraud protection for those managing transactions online has reached a high watermark, leading to a rush of customers for companies in the field.
Feedzai says that its customers include four of the five largest banks in North America, 80% of the world’s Fortune 500 companies, 154 million individual and business taxpayers in the U.S., and has processed $9 billion in online transactions for two of the world’s most valuable athletic brands. In total its reach covers some 800 million customers of businesses that use its services.
In addition to Citibank, its customers include Fiserv, Santander, SoFi and Standard Chartered’s Mox.
While money laundering, fraud and other kinds of illicit financial activity were already problems then, in the interim, the problem has only compounded, not least because of how much activity has shifted online, accelerating especially in the last year of pandemic-driven lockdowns. That’s been exacerbated also by a general rise in cybercrime — of which financial fraud remains the biggest component and motivator.
Within that bigger trend, solutions based on artificial intelligence have really emerged as critical to the task of identifying and fighting those illicit activities. Not only is that because AI solutions are able to make calculations and take actions and simply process more than non-AI based tools, or humans for that matter, but they are then able to go head to head with much of the fraud taking place, which itself is being built out on AI-based platforms and requires more sophistication to identify and combat.
For banking customers, Feedzai’s approach has been disruptive in part because of how it has conceived of the problem: It has built solutions that can be used across different scenarios, making them more powerful since the AI system is subsequently “learning” from more data. This is in contrast to how many financial service providers had conceived and tackled the issue in the past.
“Until now banks have used solutions based on verticals,” Nuno Sebastiao, co-founder and CEO of Feedzai, said in the past to TechCrunch. “The fraud solution you have for an ATM wouldn’t be the same fraud solution you would use for online banking which wouldn’t be the same fraud solution you would have for a voice call center.” As these companies have refreshed their systems, many have taken a more agnostic approach like the kind Feedzai has built.
The scale of the issue is clear, and unfortunately also something many of us have experienced firsthand. Feedzai says its data indicates that the last quarter of 2020 shows consumers saw a 650% increase in account takeover scams, a 600% in impersonation scams and a 250% increase in online banking fraud attacks versus the first quarter of 2020. (Those periods are, essentially, before-pandemic and during-pandemic comparisons.)
“The past 12 months have accelerated the world’s dependency on electronic financial services – from online banking to mobile payments, and in turn have increased fraud and money laundering activity. Our services are in more demand than ever,” said Sebastiao in a statement today.
Indeed, yesterday, when I covered Jumio’s $150 million round, I said I wouldn’t consider its funding to be an outlier (even though Jumio made clear it was the largest funding to date in its space): the fast follow from Feedzai, with an even higher amount of financing, really does underscore the trend at the moment.
In addition to these two, one of Feedzai’s biggest competitors, Kount, was acquired by credit ratings giant Equifax earlier this year for $640 million to move deeper into the space. (And related to that field, in the area of identity management, which goes hand-in-hand with tools for laundering and fraud, Okta acquired Auth0 for $6.5 billion.)
Other big rounds for startups in the wider space have included ForgeRock ($96 million round), Onfido ($100 million), Payfone ($100 million), ComplyAdvantage ($50 million), Ripjar ($36.8 million) Truework ($30 million), Zeotap ($18 million) and Persona ($17.5 million).
KKR’s involvement in this round is notable as another example of a private equity firm getting in earlier with venture rounds with fast-scaling startups, similar to Great Hill’s investment in Jumio yesterday and a number of other examples. The firm says it’s making this investment out of its Next Generation Technology Growth Fund II, which is focused on making growth equity investment opportunities in the technology space.
“Feedzai offers a powerful solution to one of the biggest challenges we are facing today: financial crime in the digital age. Global commerce depends on future-proof technologies capable of dealing with a rapidly evolving threat landscape. At the same time, consumers rightfully demand a great customer experience, in addition to strong security layers when using banking or payments services,” said Stephen Shanley, managing director at KKR, in a statement
“We believe Feedzai’s platform uniquely meets these expectations and more, and we are looking forward to working with Nuno and the rest of the team to expand their offering even further,” added Spencer Chavez, principal at KKR.
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