Type

Thesis

Published

October 2021

Reading time

4 minutes

Powering the next generation of payments

Why we’re investing in Finix.

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Today, Finix announced its $35MM Series B financing to continue to enable technology companies to own and monetize their payments. We at Activant are proud to invest, alongside Sequoia Capital, Acrew Capital, Bain Capital Ventures, Homebrew, and others.

Type

Thesis

Published

October 2021

Reading time

4 minutes

It’s no secret that more money is flowing through technology platforms than ever before: in the U.S. alone, software-initiated payments are growing at 4x the rate of traditional payments volume and are expected to hit $154BN in revenue by 2027. (Source: BCG)

The driving force behind this explosive growth is the rise of digital ecosystems, marketplaces, and verticalized software. This is something we’ve all experienced as consumers: we’ve moved from finding a vacation rental home on horizontal lead-gen platforms like Craigslist, which facilitated online discovery but where bookings took place offline, to vertical transactional platforms like Airbnb where the entire bookings and payments experience is embedded within a single platform.

This evolution in the buying experience has been closely tied to advancements in the payment infrastructure underneath. At the turn of the millennium, PayPal bridged the trust gap for consumers buying goods online but required merchants and platforms to relinquish control over the majority of their checkout experience (since PayPal required consumers to leave the merchant website to pay). In the 2010s, Stripe pioneered the outsourced payment facilitator model that offered merchants and platforms elegant APIs to easily enable payments and keep the consumer within their checkout flow. This was for better and for worse, as it shielded software platforms from aspects of payments like merchant underwriting and settlement in favor of speed and simplicity.

But as software companies have scaled and competition around product experience has increased, the need to gain greater control over the user experience has reached a tipping point; today, existing third-party payment facilitator models can no longer accommodate modern tech platforms.

Software companies today have a tough job providing exceptional experiences to the multiple stakeholders involved in the payments flow. This is something we’ve seen across several companies in our portfolio; be it powering an omnichannel merchant to provide a seamless payment experience to their customer or the collection of payments on a shipment of goods and the corresponding disbursement to a driver. Building a best-in-class product today requires owning the payments stack, as the flow of funds is core to the overall workflow and the specific user experience.

However, up until now, the process of taking the payments stack in-house has been long and expensive. Software companies had to hire large, costly payments teams, build the technology themselves, and go through tedious onboarding and compliance processes, resulting in considerable ongoing expense: a $3–5MM upfront investment, 2–3 years of development, and north of $2MM/year in ongoing maintenance.

Finix solves this problem by allowing software companies to become payment facilitators themselves and own the payments stack.

With Finix, software companies can quickly and cost-effectively take payments in-house by becoming their own payment facilitator (think to become a vertical-specific Stripe), through a modular API-based platform.

By becoming a payment facilitator, software companies can regain control over all aspects of the payments stack while remaining industry compliant and without running into tech debt down the line. They can control the flow of funds by managing payment terms, disbursement limits, and much more for individual merchants. Further, software companies can make use of new technologies like push-to-card disbursements which speed up the process of getting merchants or the “supply-side” paid, reduces working capital constraints, and improves the overall merchant experience.

Further, Finix allows software companies to monetize payments like never before, unlocking enormous value and boosting their fundamental unit economics. Instead of surrendering revenue to third-party providers, software platforms can instead capture this volume as revenue and increase their take-rate from roughly 15–20bps today to north of 65bps with Finix, resulting in millions of dollars in incremental revenue.

Finix is uniquely positioned to become the single omnichannel payments partner for rapidly scaling tech platforms.

As the payments landscape continues to evolve, we believe that Finix’s modular and developer-friendly infrastructure approach will allow them to unlock even greater untapped value across market verticals. In many old-school B2B markets, for example, complex business relationships exist between manufacturers, distributors, retailers, and buyers. One-size-fits-all payments infrastructure simply doesn’t cut it; instead, payment terms need to be customizable, granular, and multi-channel. Finix is uniquely positioned to become the single omnichannel payments partner for rapidly scaling tech platforms.

Activant is incredibly excited to partner with the Finix team as they transform the payments and commerce landscape by flipping the economics in favor of those creating user value. We believe Finix can be the transformative payments company of the next decade, like PayPal and Stripe were before them.

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