Today, Finix raised $17.5 million to help companies bring payment processing in-house to lower the costs that traditionally come with the service. The Series A round was led by Bain Capital Ventures, with participation from Insight Venture Partners, Aspect Ventures, and Visa. Existing investors Homebrew, Precursor Ventures, and Act One Ventures also joined in.
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“Payments is a blackbox to basically everybody,” said CEO Richie Serna. “[Because of that] historically, a lot of money has been made in this industry.” Payment processing is convoluted, esoteric, and has deep nuances, which is why Finix says it is creating payment processing infrastructure-as-a-service.
Then, Toast and MINDBODY add payment processing on top of that infrastructure, which Serna said requires “a heavy lift” of API-building, merchant onboard, and a process that costs anywhere between “2 to 3 million dollars.” Sometimes, they go to a company like Stripe to do that – which takes processing fees, atop of existing transaction fees.
Finix helps startups avoid taking Stripe-size fees atop of fees, by helping them go in-house. So as Finix’s vice president of growth, Jareau Wadé, explained, this is Finix’s way of shaking “up the lucrative but static payments industry but in a very un-Stripelike way.”
Part of Finix’s ability to do so comes from the fact that it works with larger, sometimes public, software companies processing over $50 million in transactions per year, Wadé said.
A company can pay Finix through a monthly subscription fee to power basic processing, and then it can add its own front-end user interface.
Finix is another company in the payment processing market, saturated with both startups and incumbents. The market can be broken up in two buckets: payment features, and payments plumbing, writes head of data science at DataBright Dwayne Gefferie in a Medium post.
Payment feature companies include those that work on top of traditional payment infrastructure and bank transfers, like ApplePay, Square, or Revel. Payment plumbing, which includes startups like Stripe and Finix, sell their platform as a service, and reduce the time it takes for a merchant to go to market, which Serna said it part of their appeal.
How It Works
Here’s Serna’s description of how he gets customers to join Finix. Stripe is able to take a percentage of any transactions its customers — merchants — make. It does this on top of other transaction fees that come from working with networks and banks.
With money going on a per-transaction-basis, you can imagine that with scaling comes more spending.
“We want to turn payment into profit” for these companies, said Serna. With Finix, companies can keep that money they would’ve had to give to Stripe per transaction, and add it to their top line revenue.
Why This Matters
So in other words, Finix wants to make that cost center into a new source of gross profit. For SaaS companies, decreasing cost of revenue spend ups their total gross margin, which in turn, can help total gross profit. And who doesn’t want that? Taking processes like payment in-house is perhaps one method to achieving that.
For some balance, we caught up with Zuora, another SaaS company that provides payment tech to other SaaS companies, and it said “anecdotally, it doesn’t seem like price is much of a determining factor when companies are selecting a payment service provider. It tends to be a mix of functionality, regional coverage, relationships with acquiring banks and fees.”
That in mind, the challenge for Finix would be less about emphasizing its cost-saving, and more sharing that it has partnerships with banks and network providers.
Finix is another company amid what feels like a speedy commoditization of the payment industry. Beyond the San Francisco company, two other payment companies, both from Europe, raised money through debt and equity today, respectively: SumUp and Curve.
Illustration: Li-Anne Dias.