22 Jun 5 FinTechs to Watch: Payments
FinTech has grown in leaps and bounds over the past few years, bringing together newly developed technologies like blockchain, machine learning and cloud technology to improve many aspects of our daily lives.
At YBF, we have been actively developing the FinTech community in Melbourne by collaborating with Fintech Australia, Fintech Victoria and Next Money Melbourne. We’ve also helped build and invest in FinTech startups like Clover (which democratises participation in the stock market) and a soon-to-launch financial wellness startup. So we tend to keep a close eye on the fintech scene.
In the payments subsector of fintech, we’ve identified 5 start-ups that you need to know about. Whether they tackle international payments, purchase repayment or fraud, these five companies are noticeably advancing how the financial services industry operates.
1. FRAUGSTER (Fraud – Germany)
Fraud is a global problem. In 2016, 15.4 million people were victims of fraud or identity theft. Losses totalled an estimated $16 billion around the world. That’s an average of $1039 lost per person, without even considering the unquantifiable stress associated with fraud.
Enter Fraugster, a German-Israeli startup using artificial intelligence (AI) to detect and eliminate payment fraud. Built to combat the outdated technology used in the payment risk market, Fraugster’s self-learning algorithm mimics a human analysts’ thought processes in real-time to give decisions in as little as 15 milliseconds.
Fraugster’s algorithm is constantly learning. With each new transaction entry and subsequent data points, the system becomes stronger as the engine reinvents itself. This provides the company with a unique value proposition: detecting fraud before it even occurs.
The company is already handling almost $15 billion in transaction volume, with a very notable customer – Visa – on its books. Several thousand other international merchants and payment providers make up the rest.
Having begun 2017 by securing $5 million in funding, plans to expand internationally are now underway.
2. AIRWALLEX (International Payments – Australia)
Another startup revolutionising the way payments are made is Airwallex. Headquartered here in Melbourne, the company has offices in China, Hong Kong and London, with plans to continue expanding internationally to Indonesia, Malaysia and Taiwan.
Its aim is to make international payments as cheap and simple as domestic payments. As the Airwallex cross-border payments platform is faster and cheaper than the current systems run by major banks, a substantial portion of its clients are global institutions. Airwallex sees itself as the ‘pipes’ to support these companies’ large volume transactions. Meanwhile, it provides smaller clients operating across borders financial access to markets that may have been previously out of reach.
Import payments, staff payments and sending money back home are all examples of transfers that, in the founder’s eyes, carry unnecessary fees with inflated margins. Instead, Airwallex offers the best mid-market point on currency trade, using a combination of algorithms, data analytics and quantitative models to work around market volatility. The outcome? A transparent platform which showcases fees prior to a transfer being made. Although its transfer-cost-reduction goals mirror those of other startups such as Transferwise, the platforms differ in that money actually crosses the border with Airwallex.
Having secured AUD$4.5million last year from Chinese VC firm Gobi Partners, Gravity VC and prominent angel investors, Airwallex has just come off a Series A round of AUD$17.4million. Backers include VC firm Sequoia Capital’s Chinese arm, Mastercard and Tencent Holdings, the 4th largest internet company in the world and owner of WeChat.
In addition to this, Airwallex has a licence in China to conduct international transactions. Not even massive multinationals such as Western Union have been able to secure this privilege. All of these factors point towards a company to keep an eye on.
3. SETL (Financial Market Settlements – United Kingdom)
A little-known inefficiency in the financial market is the ‘T+2’ time lag, or 2 business days post-transaction, gap between trade and settlement globally. Such transactions create more than a week of time loss, just in processing time.
This is the problem case that Setl was created to fix. Setl is a blockchain powered technology company that allows for instant multi-currency institutional payments and settlements.
With Sir David Walker – the former Executive Director of the Bank of England – as Chairman and an undisclosed investment by Deloitte, the company stands upon robust foundation. It already processes 1.3 billion “blocks” per day and has given the ASX competition on clearing and settling equities by attempting to build and deploy a cheaper post-trading system. The founder has been quoted as saying the information handled by the system can easily withstand the entire Australian equities market.
February 2017 saw the opening of its Global Engineering Centre to support its international expansion. Despite a worldwide workforce numbering less than 50, the system output in transactions is 26 million times that. It enables market participants to move cash and assets directly between each other, facilitating the immediate and final settlement of market transactions.
By maintaining a permissioned, distributed ledger of ownership and transaction records, SETL greatly simplifies the process of matching, custody, settlement, registration and transaction reporting.
4. AFTERPAY (Retail Payments – Australia)
Living paycheck-to-paycheck is hard enough. Add in a birthday, a broken sofa to replace, or a new pair of shoes for the kids, and it can blow your budget out of the water.
This is where Afterpay comes in.
Designed as a ‘shop now, pay later’ system, Sydney company Afterpay allows customers to buy items immediately. The company makes payment on behalf of the customer, with the customer paying back in four equal fortnightly instalments. With no interest or added fees, the customer now has the option to pay off the item in intervals as opposed to a lump sum upfront – at no extra cost.
By covering all fraud and credit risk, Afterpay also eases retailer concerns. The value proposition to merchants is that Afterpay converts customers that would have otherwise not followed through on their purchase, generating more sales from their existing customer base and creating new customers. Afterpay’s revenue then comes from taking a cut from the merchant for each sale made through their service.
Its ingenuity lies in its simplicity – all you need to set up an account is a nominated debit or credit card. Despite no credit checks, risk of unpaid debt is mitigated by late fees. If no debt is repaid by the end of the period, Afterpay automatically cancels further transactions for customers. This prevents the accumulation of bad debt.
So far thousands of retailers (including giants like Myer, Big W, and Topshop) have adopted the payment method in stores across Australia, capturing a previously untapped market. With an average purchase size of $150, Afterpay generated more than $6 million in the second half of 2016 alone. An additional $1.2 million came in late fees from customers. Although some customers could not make their repayments, the $700,000 write off amounts to a net transaction loss less than 1% of payments.
Afterpay’s numbers and track record bodes well for the future. Add in a proven ability to scale and its recent international deal with NZ marketplace website Trade Me, and AfterPay is going places.
5. I2C PAYMENTS (Custom Payment Programs – United States)
Traditionally, responding to changing market needs has been slow within the static payments industry. The rise of Cloud technologies has helped remedy this, harnessed by start-ups like i2c to create multiple payment and integrated commerce solutions for several markets, especially financial institutions.
i2c’s core premise is Cloud-based ‘Agile Payment Processing’. The best analogy for the solution is Lego bricks; a unique, highly configurable payments processing model made of several different ‘components’ which can be mixed and matched, tailored by each user to provide customised solutions based on the needs of the respective market segment.
Being cloud-based on a singular global platform, it supports any card payment program in plastic, virtual or mobile form. It also permits the building of new features or programs within a ‘sandbox’, quickly and cost effectively testing and bringing them to market. Not only inherently secure, it allows for rapid scaling. This same product, once satisfying to the issuer, can be made available to all customers immediately.
One application example is a system that responds in real-time to a customer. Based specifically on their purchase history and geo-location, it provides them digital coupons via their smartphone at a retail outlet. This could be applied automatically at checkout without any involvement by the merchant. Such personalisation to each customer in real-time enhances customer loyalty and engagement, encouraging them to spend more.
Operating across 216 countries, i2c has been continuously innovating the payments system since its foundation in 2001, and is currently on the path to $1 billion in revenue.
If you are a Melbourne-based FinTech and would like to get connected to our ecosystem of industry leaders, entrepreneurs, thinkers and community builders, join us at our next money community and feel free to reach out to us via firstname.lastname@example.org if you’d like to learn more about how we can support your Fintech startup.