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Finix, a startup that enables other startups to manage their payments stack in-house, just nabbed $35 million in a Series B led by Sequoia Capital.
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Finix offers an alternative for businesses who want to process payments. Instead of relying on — and paying — the likes of Stripe or Square to process your payments, businesses can buy a payments stack from Finix.
- The startup’s CEO told Business Insider that by using Finix’ payments stack, businesses can access the revenue that comes from processing payments without the heavy infrastructure investment of building out the tech itself.
- Pat Grady, a partner at Sequoia, likened the state of payments today to that of cloud computing 15 years ago.
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A startup that provides companies with the infrastructure needed to handle payments in-house just closed a $35 million Series B led by Sequoia Capital.
Finix offers the back-end technology required to bring a payments system in-house. Traditionally, firms looking to send and receive payments outsource the process completely to third parties, such as Square or Stripe, or build the systems on their own from the ground up.
Finix, which has raised $55 million in total from the likes of Visa, Bain Capital Ventures, and Insight Partners, licenses the tools and solutions necessary for firms such as small business lender Kabbage and point-of-sale startup Lightspeed to build out their own payments systems.
“You’re starting to see all these vertical SaaS companies and all these software companies bringing their payments in house to turn that into a profit center,” Richie Serna, CEO at Finix, told Business Insider.
“And so when we think about our product, it was really about, how do you deconstruct the payment company and rebuild it within a software company?”
The revenue that can be generated via payments processing — where companies typically charge 1% of each transaction — isn’t a paltry sum either. Look no further than Stripe and Square. The former was valued at $35 billion after a $250 million funding round in September 2019. The latter, created by Twitter CEO Jack Dorsey, went public in 2015 and has a market cap of roughly $33.3 billion.
Meanwhile, internal build-outs of payments systems aren’t ideal either, Serna said, as they tend to be costly and time consuming. Even companies that handle a significant volume of transactions — Serna said they have a number of customers with transaction volumes in the billions of dollars — are choosing to replace their internally built payments system.
“[They] are realizing that’s not the best place to dedicate their engineering resources,” Serna said. “They’d rather have somebody completely dedicated to doing something like that. So they can reassign those engineers to the UX and the UI, their core competency.”
Pat Grady, partner at Sequoia, told Business Insider the payments space reminds him of where cloud computing was 15 years ago. As companies began offering their services in the cloud, they had one of three options: build and maintain their own data centers, completely outsource the offering or work with Amazon Web Services.
Just like AWS, Finix gives customers the best of both worlds, Grady said, allowing them flexibility and control when it comes to how they handle payments without the having to build out the entire tech stack.
Finix has a long way to go to match AWS, the world’s largest cloud business that booked nearly $10 billion in revenue in the fourth quarter of 2019. However, as Grady points out, the addressable market for payments ($2 trillion) is far larger than software ($500 billion).
Grady also pointed to Visa’s intention to buy startup Plaid for $5.3 billion in January as a sign of the growing importance of fintechs enabling companies via back-end technology.
“Financial infrastructure has become a real thing,” Grady said. “It’s become a first-class citizen. And I think Finix is the next great example of that wave.”
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