As venture firms provide the seed capital that helps startups scale, naturally, they are also in the business of seeding trends.
Tripp Shriner, partner at Point72 Ventures, told PYMNTS’ Karen Webster that investing in the infrastructure that integrates payments and credits into workflows pays dividends — to the venture capital (VC) firms, yes, but also to the wider financial services industry.
Pain points are alleviated, and consumers get access to digital services and products that meet them where they want to be met. The providers cement customer loyalty and new revenue streams.
The investments that matter will be the investments that disrupt legacy infrastructure and continue the digital transformation of how companies engage with consumers.
Point72 Ventures, Shriner said, has found opportunity in making a range of (disclosed and undisclosed) investments in smaller firms that are modernizing different parts of the payments stack. Those nascent firms focus on everything from the transactions themselves to payments processing as well as improving workflows with robotics, algorithms and next-generation manufacturing.
However, bucking what might be conventional wisdom, he said cryptocurrencies are not ready for payments prime time — though crypto has a place within the investing landscape.
He told Webster that at a high level, “Payments are becoming more holistic compared to what we’ve seen historically, which is where modernization has just applied to the ‘top’ layer.”
The Holistic Approach
That holistic approach is made possible by the continued convergence of software and financial services, enabling digital-focused upstarts to offer their own clients all manner of payments functionality. Shriner, whose own focus is on FinTech, said that Point72 Ventures’ recent investments in business software have centered on companies that have financial services embedded from the very beginning.
One example is a holding that Shriner billed as “LinkedIn for the creator economy” that matches brands with influencers for marketing campaigns.
As for other examples, Cortina, which smooths the logistical complexity of selling multiple brand products on one storefront (through backend integrations), said in February that it raised $6 million in a seed funding round from several investors, including Point72 Ventures.
Shriner said that the aforementioned investments are “FinTech-adjacent but play firmly within eCommerce” in ways that leverage data to craft curated, personalized interaction with end users — and without worrying about supply chain or inventory management.
That convergence could include banking and lending as a service for consumer or small business audiences, new financial products or financial services workflows. Earlier this year, to name but one example, Monite, which helps automate accounts payable (AP) and accounts receivable (AR) processes and enable embedded finance, raised $5 million in a funding round led by Point72 Ventures.
Talking about embedded finance, Shriner said: “People are going to remain engaged in order to accomplish whatever activity they need to get done.”
Simplifying things for the end consumer is the key, but a lot has to go on behind the scenes in order to streamline workflows. Mid-market and larger companies, he noted, have no desire to become systems integrators anymore, grappling with enterprise resource planning (ERP) systems and PDF and Excel spreadsheets.
What was clunky before COVID-19 wound up being rife with friction as people began working from home (and they’re going to continue working from home, of course).
For enterprises, he said, “You’re seeing the trend toward making processes simpler, having everything in one place.”
Shaping the Connected Economy
Those investments and seed rounds are all variations on a theme. Blending commerce and financial services helps shape the connected economy, and FinTechs have been bringing payments to any number of verticals.
The convergence also represents a bit of seismic shift for traditional financial institutions. FinTechs have, with technology, been busy developing customer-facing brands that mine and monetize data, without the risks that had been common in payments previously — namely onboarding, underwriting and finding bank sponsors.
Call it the emergence of the payment facilitator (PayFAC)-as-a-Service model, an area where Point72 Ventures is committing more capital.
“With every business software provider that we talk to nowadays, if [becoming a PayFAC] is not within their product road map from day one, it’s probably in year two, where they know that it is something that they want to do,” Shriner said. He pointed to Shopify as a prime example, where payments are becoming an ever-more-meaningful part of top line momentum.
Offering new ways to monetize payments represents a shift for the FinTechs. Not all that long ago, there was a neobank here, offering up an investing app. There was another neobank somewhere else offering up lending products — and a third neobank? Well, they offered up a debit card in a high-tech wrapper.
“Those things are coming together, now, with everyone trying to become the primary system of engagement,” Shriner said.
The banks run the highest risk of being disrupted as neobanks, and others jockey to become that key point of engagement, whether for payments or improving accounting operations. Shriner said that enterprise clients do not really have to do choose banks as their default providers, since they now have a range of module or financial services providers that can embed into the workflow.
At a high level, the banks are most vulnerable in serving small business clients. What small businesses want is credit — and many of the FinTechs are giving small businesses credit by providing eCommerce-like services that give them access to working capital and a range of different credit offerings.
As Shriner cautioned: “Just look at new account creation that is going to the neobanks — there is enough of that where, even if I am one of the large U.S. banks, that’s not something I can dismiss.”
That’s especially true with the direct-to-consumer names that are innovating on the product sides of banking and are becoming more full-fledged financial services providers.
Shriner said there’s room for retailers to become FinTechs, with Walmart as prime of example of a shift that makes sense. That commerce behemoth has had cash-in, cash-out capabilities for years and has strong brand affinity. The jury is still out as to whether that affinity will spur consumers to lodge their primary banking relationship with Walmart.
There is a lot of interest, holistically, in new forms of financial services headed through the current macro and pandemic challenges. Of course, many of these nascent upstarts have had successful initial public offerings (IPOs) or have been bought by larger firms for eye-popping takeout prices.
Of the seeding rounds that have been coming to market, with ever-ballooning millions of dollars in funding, Shriner said the mushrooming tallies are a function of supply and demand. Investors are willing to put more seed money to work if they are convinced that the payoff — through high acquisitions and valuations — down the road will be even more significant.
Multiples have come down a bit in recent months, but Point72 Ventures, for its part, has refrained from committing ever-larger sums just because peers have, said Shriner.
With a nod toward the trends that have been prevalent in VC, he said that crypto is always in the headlines and is being observed and considered by Point72 Ventures. He added that the digital offerings have opportunity as an asset class, though not as a payment method yet.
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 Ventures, 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 transactions.
Shriner said that in the connected economy, “Everything is really starting to converge, and at least from an investment standpoint, our bias has been toward the firms that are the infrastructure providers that are enabling that convergence.”