Andreessen Horowitz once predicted that “every company will be a fintech company”. Venture capitalists may be known for making slightly grandiose predictions, but recently it seems like many of the firm’s peers are starting to agree.
The result has been a flood of money into start-ups that provide the tools for any company to begin offering financial services.
Instead of building consumer-facing apps, these start-ups largely trade in so-called application programming interfaces — APIs — which plug into a company’s code and give it the ability to accept payments or perform any number of financial transactions. A growing number of the companies embrace the moniker of “banking as a service”, a play on the concept of “software as a service”.
API specialist Plaid is expected to raise a significant round of financing later this year after antitrust concerns squashed a $5.3bn sale to Visa. Investors are likely to give it an even higher price tag, according to one person familiar with the company’s thinking.
The concept has also drawn repeat entrepreneurs such as Peter Hazlehurst, the former head of Uber Money. Last month his new start-up Synctera raised $12.4m in a seed financing round led by Lightspeed Venture Partners and backed by high-profile industry figures such as Max Levchin, Affirm’s founder, and Zach Perret, Plaid chief executive.
Mr Hazlehurst said Synctera is trying to expand the market for the “partner banks” that underpin many US fintech companies. It provides an API and other services that allow small community banks to hold deposits gathered by fintech start-ups lacking their own banking licence. Synctera will then take a share of the revenue the partner banks receive from the fintech through sources such as interchange fees on branded debit cards.
It also wants to help connect would-be fintechs to suitable partners. Mr Hazlehurst said he received one or two inquiries per day from new start-ups trying to offer banking services, as well as interest from bigger corporations moving into finance.
“What it feels a lot like is [the] transformation that happened in the 50s and 60s where all the big companies ended up creating credit unions for their employees,” Mr Hazlehurst said.
One Andreessen investment, Colorado-based Moov, has developed an open source library of code that companies can use to send, receive and store money. Moov chief executive Wade Arnold said major banks, as well as payments companies such as PayPal and Square, had used the company’s freely available code.
Moov’s investors are now betting it can build a big business on its open source foundations. In December, it raised $27m in a round led by Andreessen with participation from 37 other backers, only three months after it secured initial seed financing.
Moov charges companies for handling risk, compliance and regulatory services related to how they use the product.
“Nobody puts on their website that their site is hosted at AWS,” Mr Arnold said, referring to Amazon’s cloud computing subsidiary. “It just needs to work, and we think we’re similar in that way.”
Some investors have raised concerns that the area is becoming overcrowded. Part of the appeal of the sector is trying to find the next Stripe, the San Francisco-based payments company that has held talks with investors about a round of financing that would value it at $100bn. Stripe itself has recently introduced a product that allows companies to set up business banking accounts using APIs, posing a threat to smaller start-ups providing similar services.
Still, many venture capitalists remain bullish.
Sean Park, founder of fintech venture capital firm Anthemis, said that in 15 to 20 years, “basically every component of the financial stack will be an API”, comparing the adoption of partner banking and APIs to the shift to cloud storage systems in the past two decades.
“We’re maybe five years into that, where now it’s obvious this is a thing and it’s here to stay,” Mr Park said. “But we’re still figuring out what the right . . . business models are. It hasn’t been fully understood yet.”
Company name: Previse
When founded: 2016
Where based: London
CEO: Paul Christensen
What do you sell, and who do you sell it to: We sell an AI-driven, automated early payments solution to corporates, so suppliers can be paid upfront without chasing for payment.
How did you get started: We recognised how painful B2B payments are and started applying machine learning to make them data-driven, frictionless, and fairer.
Amount of money raised so far: $25m
Valuation at latest fundraising: Not disclosed
Major shareholders: Mastercard, Bessemer, Augmentum, Hambro Perks, Reefknot, founders, employees
There are lots of fintechs out there — what makes you so special: No other solution exists to get suppliers paid as quickly or easily — same day, instantly.
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