Venture Funding Chases FinTech Focus on Payments Last Mile, Compliance

The conventional wisdom in payments holds that over the past few years, everything has changed.

Ben Cukier, founding partner of Centana Growth Partners, an equity fund focused on FinTech and financial services, said that depending on where you look within the industry, the conventional wisdom doesn’t necessarily hold.

As Cukier told PYMNTS’ Karen Webster in the latest installment of The Next Three Years, from his perch looking for up-and-coming firms within the payments sphere, “the most startling observation, for me, over the last two years is how little some things have actually changed.”

Broadly speaking, there’s been innovation at the various points of sale, and in how businesses are accepting transactions (digitally, of course). But look deeper, and you’ll find that the infrastructure supporting it all — the rails that all payments run along — hasn’t changed much, if at all.

According to Cukier, “we’ve just put different skins on the exact same systems that we’ve had. And it’s a testament to the resilience of the system that we have.”

While Cukier said the domestic networks seem to be functioning well, he told Webster that international rails need an overhaul, marked as they are by inefficiencies and expensive, less-than-transparent fund flows.

“The number of payments that are actually not tracked, or where banks lose track of payments for some period of time, is astounding to anyone who’s not in the business, in a world where everything happens in real time, domestically,” he said.

With this in mind, Centana is investing a $375 million fund across asset management, insurance, wealth management, banking, payments and capital market firms, as well as FinTechs and enterprise software firms selling into financial verticals. Cukier told Webster that the fund is looking to make investments of $10 million to $40 million per company — and is on the hunt for platforms in particular.

Finding attractive candidates is getting difficult, Cukier noted: Competition among equity firms is so intense that investors are giving money hand over fist to scores of companies that don’t have much of a chance for long-term survival.

Some Recent Investments

For its part, Centana is trying to take a more cautious tack. Recent investments include Beacon Platform, a cloud-based development platform for custom trading and risk management apps; Teikametrics, an optimization platform for sellers on Amazon and Walmart; and Sentieo, a financial and corporate research platform.

Cukier said his firm has been concentrating on the regulatory and compliance side of payments. After all, as payments move increasingly digital, the potential for fraud is higher. Centana has started looking into the crypto space for potential (which seems lacking in domestic payments), but is wary because of the lack of regulatory framework or safeguards in place.

Centana’s investments are focused on reducing fraud, but also on compliance, which makes it easier to send and accept payments. Increasingly, he noted, identity is key to making any type of payment, opening accounts and ensuring that accounts are not compromised. At present, he pointed out, there are no universally accepted standards for determining that people are who they say they are, and there are more than 50 issuing authorities for ID documents in the U.S. alone.

“There isn’t a way to have a transferable identity yet, where you’re authenticated at one website and then go to another merchant and that identity is guaranteed,” Cukier explained.

We’re a long way away from federated IDs, he said, and we’re not likely to get there, with liability still at the feet of the merchants. “If you asked me as an investor: Do I see federated identity coming in the next couple of years, or where in five years it’s really taken up? Probably not,” he said.

The Changing Last Mile

The tailwinds giving rise to those opportunities — the shift to digital, the slow demise of the check, the rise of open banking — have been gathering strength for decades.

“It is the consumer who really drives the payment choice — it’s not the merchant or the networks,” Cukier said.

Against that backdrop, Centana has been “getting a lot of pitches” to examine firms that make their top line across various points of the payments continuum. And the company is finding the aforementioned “last mile” of payments most interesting, whether it’s next-generation QR codes or reconfigured B2B payments.

The last mile in payments for commercial or consumer activity has changed dramatically — and this is where the opportunity lies for funds like Centana lies, noted Cukier.

In a way, he said, opportunities have come full circle. Not all that long ago, financial services and commerce were made up primarily of disjointed solutions, and companies had to cobble together their payments stacks. But over the last several years, the landscape has shifted to the Stripes and Shopifys of the world, and the goal has been to forge connected ecosystems.

More recently, we’ve been coming back to the unbundled concept, where merchants separate their front- and back-end systems by picking best-of-breed solutions for both. This unbundling — so-called headless commerce — can only happen when systems already play well together thanks to common standards that make everything work smoothly.

Looking out over the next three years, Cukier predicted that the FinTech and payments spaces will continue to attract investment dollars. He remarked to Webster that in 1999, most of his colleagues were saying that FinTech would only be a niche business by now — today, he said, only a bit tongue in cheek, everybody’s a FinTech investor.

“And in fairness, everything is FinTech today, because payments have eaten the world,” he said.