Paydiant, one of the more recent entrants in mobile payments, has closed a $12 million round of funding that it plans to use to build out its white-label, API-based product for banks and merchants to offer their own branded payments services on Android and iOS devices. This Series B was led by new investor Stage 1 Ventures, whose MD David Baum now joins Paydiant’s board, as well as participation from existing investors North Bridge Venture Partners and General Catalyst Partners.
This follows on from a $7.6-million Series A round from February 2011, with total funding in Boston-based Paydiant now standing at $19.6 million. Chris Gardner, one of Paydiant’s three co-founders, says that while that first round was used to finish developing Paydiant’s platform, this second round will be used to expand those white-label business relationships: Gardner says that five out of the top 15 banks in the U.S. are already in advanced regional pilots using Paydiant’s services, with more in the pipeline.
We have seen a veritable windfall of payments offerings and initiatives in the last few years — they include mobile initiatives — dongles like Square’s, NFC-based moves from Google and a number of carriers and card companies — as well as those with a more online bent — just hours ago, news of another $20 million raised by an online white-label payment provider of sorts, the API-based startup Stripe. In that context, Paydiant has a few qualities that help set it apart from the pack:
The first is that it is completely white-labelled and does not have a direct retail play of its own: that means a potentially more ubiquitous service, if the banks and merchants sign on to use Paydiant, backend for their own mobile payment and offer redemption services.
The second is that the company is not looking to conquer the payments market as the undisputed leader, but rather wants to be one of the several mobile solutions it expects consumers will use to pay for goods in the future.
“When we jumped into point of sale payments, we realized that most of the others chasing this market have ‘Visa envy,’” Gardner said. “They all want to be the new man in the middle.” But Paydiant has a different approach: it believes the mobile handset will be a wallet, but that will mean different payments services will be able to coexist within that wallet, like multiple cards do in your regular wallet today. “Within your ‘mobile wallet’ you will have 4-6 apps that you will use to conduct financial transactions,” says Gardner. “The consumer will get to decide how he or she uses what and when.”
The third is that it’s actually technology neutral — or as Gardner puts it, “We’re agnostic on the last inch of technology.” Right now, the pilots it’s been running work with QR codes — a customer can scan these on their mobile devices to activate a transaction — but Gardner notes that the service could work just as easily with NFC, when and if it ever makes it to a critical mass of distribution, or whatever else becomes the mobile payment norm.
Paydiant is among those players that are circumventing handset makers and carriers in making mobile payments a reality. “The key is to keep the transaction in the cloud — not rooted in the device,” he says, contrasting such an approach with those from Google and carriers to store payment information on devices. That approach means that banks and retailers get to hold on to their customer data without the need to share it with others in the payment chain.
Gardner says that Paydiant’s model is based on a per-store licensing fee, a small transaction fee and another small fee charged to users. Going forward there may also be further opportunities in helping its customers manage the data that gets processed through its platform, with the margins made on transactions representing only part of the revenue mix. “We believe the mobile payments model is going to quickly change from one of transactions to one based on data and advertising,” he says. “Retailers are sitting on a gold mine of transaction data” that can be used for targeted advertising and offers for future products.
The next step, says Gardner, is to build out its merchant network for retailers to use Paydiant’s platform in their own-branded mobile offerings, to enable both payments and the redemption of offers that get pushed via the retailers’ apps. “We are going out in earnest, talking with large retailers on our own and smaller ones in partnership with merchant processors,” he says.
He notes that Paydiant cannot name any customers until those customers give the go-ahead. “That’s the challenge of the white-label relationship,” he says, but he adds that the company expects to start announcing some of its customer names, as well as some usage metrics, between “now and the end of this year.”
Paydiant will be formally launching later this year, but in the meantime if you are a merchant, financial institution, or other participant in the payments value chain looking to help your customers make everyday payments with their mobile phones, please contact us.
General Catalyst Partners is a venture capital firm that invests in exceptional entrepreneurs who are building the technology-based companies that will lead innovation and transform industries. Founded in 2000, General Catalyst Partners leverages its principals’ extensive operational, business development and technological expertise to provide portfolio companies with a catalyst for success through business-building and partnership development assistance. General Catalyst has offices in Cambridge, MA and Palo Alto, CA. For more information, please visit: http://www.generalcatalyst.com.
North Bridge Venture Partners is an early-stage venture capital firm based in Boston, Massachusetts and San Mateo, California. Headquartered on both sides of the country, the firm spreads investments on the east and west coasts.