While venture capital firms provide the seed capital that helps startups grow, they are naturally also responsible for initiating trends.
Tripp Shrinerpartner at Point72 Venturestold Karen Webster of PYMNTS that investing in infrastructure that integrates payments and credits into workflows pays dividends – for venture capitalists (VCs), yes, but also for the industry as a whole financial services.
Pain points are mitigated and consumers have access to digital services and products that meet them where they want to be met. Suppliers cement customer loyalty and new revenue streams.
The investments that will matter will be those that disrupt existing infrastructure and continue the digital transformation of how businesses interact with consumers.
Point72, Shriner said, has found opportunity by making a range of investments (disclosed and undisclosed) in small companies that are modernizing different parts of the payments stack. These fledgling companies are focused on everything from transactions themselves to payment processing, as well as improving workflows with next-gen robotics, algorithms and manufacturing.
However, contrary to what might be conventional wisdom, he said cryptocurrencies are not ready for prime time payments – although crypto has its place in the investment landscape.
He told Webster that at a high level, “payments become more holistic compared to what we’ve seen historically, that’s where the modernization comes in at the ‘top’ layer.”
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The holistic approach
This holistic approach is made possible by the continued convergence of software and financial services, allowing digital-focused startups to offer their own customers all kinds of payment functionality. Shriner, who focuses on FinTech, said Point72’s recent investments in enterprise software have focused on companies that have integrated financial services early on.
In one example, he said the company invested in Luck, a company that focuses on media talent management, offering a workflow solution that helps payments get through to artists, actors and other talent. There’s another holding that Shriner called “LinkedIn for the creator economy” that matches brands with influencers for marketing campaigns.
As with other examples, Cortina, which alleviates the logistical complexity of selling multiple branded products on a single storefront (through backend integrations), said in February that it raised $6 million in a seed funding round from multiple investors, including Point72.
Shriner said the aforementioned investments are “adjacent to FinTech but play firmly in e-commerce” in ways that leverage data to create curated, personalized interaction with end users — and without worrying about the supply chain. or inventory management.
This convergence could include banking and lending as a service for consumers or small businesses, new financial products or financial services workflows. Earlier this year, to cite just one example, Monite, which helps automate Accounts Payable (AP) and Accounts Receivable (AR) processes and enables integrated finance, raised $5 million in a funding round led by Point72.
Read more: Berlin FinTech Monite raises $5 million for its B2B financial management platform
Speaking of embedded finance, Shriner said, “People are going to stay engaged in order to do whatever activity they need.”
Simplifying things for the end consumer is key, but there is still a lot to be done behind the scenes to streamline workflows. Medium and large companies, he noted, no longer want to become systems integrators, struggling with enterprise resource planning (ERP) systems and PDF and Excel spreadsheets.
What was awkward before COVID-19 has ended up rife with friction as people have started working from home (and they will continue to work from home, of course).
For businesses, he said, “you see the trend towards simplifying processes, having everything in one place.”
Shaping the Connected Economy
These investments and rounds are all variations on a theme. The combination of commerce and financial services helps shape the connected economy, and FinTechs have brought payments to a number of verticals.
Convergence also represents a seismic change for traditional financial institutions. FinTechs have, along with technology, been busy building customer-centric brands that leverage and monetize data, without the risks that were previously common in payments – namely onboarding, underwriting and finding banking sponsors.
Call it the emergence of the Payments Facilitator Model (PayFAC) as a Service, an area where Point72 is committing more capital.
“With every enterprise software vendor we speak with today, if [becoming a PayFAC] isn’t in their product roadmap from day one, it’s probably into year two, where they know it’s something they want to do,” Shriner said. He cited Shopify as a great example, where payments are becoming an increasingly significant part of the headline momentum.
Offering new ways to monetize payments represents a shift for FinTechs. Not so long ago, there was a neobank here, offering an investment app. There was another neobank elsewhere offering loan products—and a third neobank? Well, they offered a debit card in high-tech packaging.
“These things are coming together, now, everyone trying to become the primary engagement system,” Shriner said.
Banks are at the greatest risk of being disrupted as neobanks, and others are jostling to become that key point of engagement, whether for payments or improving accounting operations. Shriner said enterprise customers don’t really have to choose banks as their default providers, as they now have a range of modules or financial service providers that can be integrated into the workflow.
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At a high level, banks are most vulnerable when serving small businesses. What small businesses want is credit – and many FinTechs extend credit to small businesses by providing e-commerce-like services that give them access to working capital and a range of different credit.
As Shriner warned: “Just look at the new account creation that goes to the neobanks – there are enough of them where, even though I’m one of the big American banks, it’s not something. something I can rule out.
This is especially true with direct-to-consumer names that are innovating on the banking product side and becoming full-fledged financial service providers.
Shriner said there is room for retailers to become FinTechs, with Walmart as the prime example of a shift that makes sense. This retail giant has had cash-in and cash-out capabilities for years and has a strong brand affinity. The jury is still out on whether this affinity will drive consumers to establish their primary banking relationship with Walmart.
There is a lot of interest, holistically, in new forms of financial services in the face of current macroeconomic and pandemic challenges. Of course, many of these fledgling startups have had successful initial public offerings (IPOs) or been bought up by bigger companies at eye-popping take-out prices.
Of seeding rounds hitting the market, with ever-increasing millions of dollars in funding, Shriner said growing counts are a function of supply and demand. Investors are willing to invest more seed money if they are confident that the payoff – through acquisitions and high valuations – will be even greater.
Multiples have fallen a little in recent months, but Point72, for its part, has refrained from committing ever larger sums simply because its peers have done so, Shriner said.
With a nod to the trends that have prevailed in VC, he said that crypto is always in the headlines and is being watched and considered by Point72. He added that digital offerings have an opportunity as an asset class, but not yet as a payment method.
The firm made its first investments in the crypto space in 2021, helping 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 that helps FIs accept crypto as an asset class and provide on- and off-ramps for the transactions.
Shriner said that in the connected economy, “everything is really starting to converge, and at least from an investment perspective, our bias has been towards enterprises that are the infrastructure providers that enable that convergence.”