Payments startup Finix aims to take on behemoths in the processing space now that it’s been designated an acquirer-processor itself.
The company has tapped banking partner Pathward Financial and is now directly integrated into major card networks Visa, Mastercard, American Express and Discover, Finix announced Tuesday.
The designation cuts out third-party processors and gives Finix a deeper level of involvement in transactions, said CEO and cofounder Richie Serna during an April 28 interview. He also noted perks for merchants, including being able to implement card networks’ innovations more easily and quickly.
To become a processor, San Francisco-based Finix went through compliance certification with Pathward as well as the major card networks. The company last year implemented a bank-level anti-money laundering program when it went from an API provider to a payment facilitator, a spokesperson said.
Finix spent “tens of millions of dollars” to achieve the processor designation, Serna said, but he declined to elaborate further. “It's not just the technical aspects, there's a lot of operational compliance aspects that are very critical to being able to achieve this,” he said. The technical integration was completed in just under six months, he added.
To be sure, the startup is up against payments giants, including the relative newcomer fintech Stripe, as well as legacy processors such as Fiserv and Fidelity National Information Services.
Finix has “a plan of attack” to take a bite out of what Serna called a “massive” market, but he declined to share details of that plan.
The company currently serves the U.S. market but aims to expand internationally, Serna said, although he declined to identify targeted regions for expansion.
Finix pitches its payment capabilities to software services platforms and marketplaces. “The integrated payments space – this intersection of software and payments – is still pretty nascent,” Serna said.
Serna downplayed legacy firms’ ability to serve young software companies that Finix looks to cater to, asserting “it’s us versus Stripe” in trying to serve more complex payment flows that involve multiple buyers, a web app and multiple sellers, with more modern, API-driven technology.
While Stripe has created more of a closed, Apple “iOS-like experience,” Finix has taken more of an open, Google Android-style approach in its pursuit of becoming “a global operating system for fintech,” Serna said.
Finix has targeted the processor designation since its 2016 founding, Serna said. The startup, which has about 135 employees, has raised $133 million in venture capital. A company spokesperson declined to share Finix’s valuation, most recent annual revenue or revenue goals now that it’s a processor.
Finix is the second payments startup Serna has been involved with. Previously, he was an engineer at Balanced, which developed payments APIs for marketplace and software platforms. As that company faced closure in 2015, it worked out a deal with Stripe, which took on Balanced’s customers, TechCrunch reported that year.
For software startups that cater to clients in certain verticals, Finix’s approach offers an opportunity to add payments services. “Once they've nailed that product market fit, then they start to add in payments, because they can naturally upsell to that customer,” Serna said. He mentioned client Beyond, a short-term rental revenue management company, as an example.
Finix seeks to handle the payments component on those companies’ behalf so they don’t have to allocate in-house resources to developing payments infrastructure, Serna said.
The company currently processes “tens of billions of dollars across tens of thousands of merchants,” Serna said, declining to elaborate further. Finix makes money by charging 2.75% plus 30 cents per transaction, or an interchange-plus model, he said.
With the processor designation, Finix could benefit from the improved economics of keeping processing in-house, as well as more seamless integration with card networks, Wolfe Research analysts wrote in a Tuesday note to investor clients. Finix could also offer a better customer experience without relying on “legacy acquiring infrastructure,” the note said.
Additionally, the number of addressable vertical markets Finix can offer its services in will be about five times what it was previously, the analysts added.