Of course, since venture firms provide the seed capital that helps startups scale, they’re also in the business of seeding trends.
Tripp Shriner, a partner at Point72 Ventures, told Karen Webster of PYMNTS that investing in the infrastructure that integrates payments and credits into workflows is paying off — for venture capital (VC) firms, yes, but also for the financial services industry in general.
Pain points are alleviated and consumers gain access to digital services and products that hit them where they want to be hit. The providers strengthen customer loyalty and new sources of income.
The investments that count will be the investments that disrupt existing infrastructure and continue the digital transformation of how businesses interact with consumers.
Point72, Shriner said, has found an opportunity to make a number of investments (disclosed and undisclosed) in smaller companies that are modernizing various parts of the payments stack. These emerging companies are focused on everything from the transactions themselves to payment processing, as well as improving workflows with next-gen robotics, algorithms and manufacturing.
Contrary to popular belief, however, he said cryptocurrencies are not ready for prime-time payments — despite crypto having a place in the investment landscape.
He told Webster that at a high level, “payments are going to be more holistic compared to what we’ve seen in the past where modernization was just applied to the ‘top’ level.”
Related: Americans want a super app – some more than others
The holistic approach
This holistic approach is made possible by the continuous convergence of software and financial services, which enables digitally-minded newcomers to offer all kinds of payment functionality to their own customers. Shriner, whose own focus is FinTech, said Point72’s recent investments in enterprise software have focused on companies that integrated financial services from the start.
In one example, he said the firm invested in Luck, a company focused on media talent management — and offering a workflow solution that gets payments to artists, actors and other talent. There’s another holding that Shriner calls “LinkedIn for the creator economy,” which matches brands with influencers for marketing campaigns.
As for other examples, Cortina, which smooths out the logistical complexities of selling multiple branded products on one storefront (through backend integrations), said in February that it raised $6 million in a seed funding round from multiple investors, including Point72 have.
Shriner said the above investments “are FinTech-neighbors but play firmly in e-commerce,” in a way that leverages data to create a curated, personalized interaction with end users — and without worrying about the supply chain or to do inventory management.
This convergence could include consumer or small business banking and lending as a service, new financial products, or financial services workflows. Earlier this year, to cite just one example, Monite, which helps automate accounts payable (`) and accounts receivable (AR) processes and enable embedded finance, raised $5 million in a funding round led by Point72 .
Continue reading: Berlin-based FinTech Monite raises $5 million for its B2B financial management platform
Shriner said of embedded finance, “People will stay engaged to do whatever activity they need to do.”
Simplifying things for the end user is key, but a lot needs to happen behind the scenes to streamline workflows. He found that midsize and larger companies no longer have the desire to become systems integrators who have to deal with ERP (Enterprise Resource Planning) systems and PDF and Excel spreadsheets.
What was clunky before COVID-19 became friction as people started working from home (and they will continue to work from home, of course).
For companies, he said: “You see the trend to make processes simpler and to have everything in one place.”
Shaping the connected economy
These investments and seed rounds are all variations on a theme. The combination of trade and financial services is helping shape the connected economy, and FinTechs are bringing payments to a variety of industries.
Convergence also means some seismic shift for traditional financial institutions. FinTechs have been using technology to build customer-centric brands that mine and monetize data without the risks previously common with payments — namely, onboarding, underwriting, and finding bank sponsors.
Call it the emergence of the Payment Facilitator (PayFAC)-as-a-service model, an area where Point72 is investing more capital.
“With every enterprise software vendor we speak to these days, if [becoming a PayFAC] If it’s not on their product roadmap from day one, it’s probably in the second year that they know it’s something they want to do,” Shriner said. He pointed to Shopify as a prime example, where payments are becoming an increasingly important part of sales dynamics.
Offering new ways to monetize payments represents a shift for FinTechs. Not long ago, here was a neobank offering an investment app. There was another neobank offering up-lending products elsewhere – and a third neobank? Well, they offered a debit card in a high-tech shell.
“These things are coming together now, and everyone’s trying to become the primary system of engagement,” Shriner said.
Banks are at greatest risk of being disrupted as neobanks, and others are struggling to become that single point of contact, whether for payments or improving accounting. Shriner said enterprise customers don’t really need to select banks as the default provider, as they now have a range of modules or financial service providers that can be embedded into the workflow.
See also: Embedded Finance streamlines expense management for EU SMEs
At the high level, banks are most vulnerable when it comes to serving small business customers. What small businesses want is credit – and many of the FinTechs lend to small businesses by offering eCommerce-like services that give them access to working capital and a range of different credit offerings.
As Shriner warned, “Just look at the creation of new accounts that go to the neobanks – there’s plenty of that where, even if I’m one of the big US banks, I can’t refuse.”
This is especially true for direct selling firms, which are innovating on the product side of banking and evolving into more fully-fledged financial services providers.
Shriner said there’s room for retailers to become FinTechs, with Walmart being the best example of meaningful change. This retail giant has had cash in and cash out capabilities for years and has strong brand affinity. The jury is still out on whether this affinity will encourage consumers to start their primary banking relationship with Walmart.
There is a lot of interest, holistically, in new forms of financial services being driven through the current macro and pandemic challenges. Of course, many of these aspiring upstarts have had successful initial public offerings (IPOs) or been bought by larger companies at staggering take-home prices.
Of the seeding rounds that have come to market with ever-growing millions of dollars in funding, Shriner said the skyrocketing numbers are a function of supply and demand. Investors are willing to commit more seed capital if they are confident that the payoff — through high acquisitions and valuations — will be even more meaningful down the road.
Multiples have declined somewhat in recent months, but Point72, for its part, has refrained from committing ever larger sums just because its peers have, Shriner said.
With a nod to the trends prevailing in VC, he said that crypto is always in the headlines and is watched and considered by Point72. He added that digital offerings have a chance as an asset class, but not yet as a payment method.
The company made its first investments in crypto in 2021, helping to lead a $22 million Series A round for crypto research firm Messari. Point72, he said, is focused on investing in the bridge between crypto and traditional finance, helping FIs embrace crypto as an asset class and provide entry and exit ramps for transactions.
Shriner said that in the connected economy, “everything is really starting to converge, and at least from an investment perspective, we’ve focused on the companies that are the infrastructure providers that are enabling that convergence.”
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NEW PYMNTS DATA: WHY PATIENT PORTALS BECOME TABLE INSERTS FOR CONSUMERS
About: Patient portals are now a must for healthcare providers – so much so that 61% of patients interested in using the tools say they would switch to a healthcare provider that offers one. For Accessing Healthcare: Easing Digital Frictions In The Patient Journey, a collaboration between PYMNTS and Experian Health, PYMNTS surveyed 2,333 consumers to learn how healthcare providers can alleviate digital pain points to improve patient care and satisfaction.
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