Fintech startups have thrown a curve ball into the world of financial services by building more flexible, cheaper and user-friendly tools to businesses and consumers, who in turn are walking away from older incumbents and taking their custom to newer providers. In the latest development, a startup called Highnote is launching with ambitions to make waves in the world of card issuing, by making it easy for any company of any size to provide virtual payment cards to their customers. Founded by PayPal alums, the company is exiting stealth mode today and also announcing $54 million in funding to take its first steps.
The sum includes both a Seed round and a Series A, with Oak HC/FT both leading the Series A and co-leading the Seed with Costanoa Ventures. XYZ, SVB Capital, and WestCap also participated, alongside some notable individuals, including Bill Ready (the former COO of PayPal and current president of commerce and payments at Google) and Renaud Laplanche (the CEO of Upgrade).
Own-branded payment cards from retailers and other companies are far from being a novel idea at this point: they and their loyalty programs have been around for decades. There have even been other incredibly successful startups, like Marqeta, that have been built on the premise of democratizing that opportunity.
The difference with Highnote is that the company believes that many of the currently solutions still take too long to provision, and ultimately are not that creative as products: there is a new opening in the market to virtualize the process, a la Apple Card, to make it something that a company of any size could introduce (not just an Apple), and to bring in significantly more flexibility into what it even means to provide credit to consumers these days.
“There is an incredible opportunity today to design a platform built for purpose, to fill the need for embedded finance, and to allow businesses to move more quickly,” said John Macllwaine, the ex-GM of PayPal subsidiary Braintree, who co-founded Highnote with Kin Kee, Braintree’s former director of architecture. “Marqeta is doing a great job illuminating the opportunities, but the platforms was built 10 years ago and it was designed for a certain use case. They are where they are,” he concluded with a small shrug. ¯_(ツ)_/¯
The current vogue for embedded finance — where a variety of financial services, in themselves complex to build but easy to integrate from third parties by way of APIs — figures strongly here. Traditionally card services have been based around a very limited set of ideas.
If you are a retailer, the card is intended to encourage consumers to shop more with you (not anyone else); those who are not retailers (say, an airline) tie them in with loyalty points that can be redeemed with the brand, or businesses participating in the brand’s loyalty scheme. In each case, the brand tended to be big, and the basics of the card were constructed around payment limits, interest for unpaid balances and so on. To get one required filling out applications at the check-out counter, and the whole process taking weeks to complete (at which point you would get a physical card in the mail).
The Highnote take on this is to lean on the concept of embedded finance to expand the range of things that can be built into a “payment card”, and to make that card a lot easier for any kind of business to procure.
Initially, the company is offering a variety of “cards” to its clients — virtual, physical and tokenized — and also giving them ways to let their customers manage those cards and their financial lives more intelligently, including by letting them open bank accounts, and to manage and monitor how their cards are being used. It also gives significantly more control to the companies themselves to monitor usage and spend across their networks.
Over time, you could imagine a number of different services being rolled in at the point of sale that also leverage the credit opportunity, including potentially buy now, pay later options, or other ways to pay flexibly. Yes, there are already BNPL companies that have expanded into cards; and yes companies focusing on payments also are building credit products. But what Highnote is offering is something different. It can be argued that brands have gradually been disintermediated from transactions online — the complex process is essentially outsourced to others, either by selling through marketplaces like Amazon’s, or by embedding the complex process built and powered by another company. What Highnote gives those brands is the promise of owning it, and the data associated with it, again.
That’s the kind of market opportunity that you would expect from payments experts as founders — who ironically probably witnessed first-hand just how things have evolved — and that is why investors were keen to back them early on.
“We’ve backed many of the leading companies in the fintech space, but there is something really special about John, Kin, and their team,” said Matt Streisfeld, Partner at Oak HC/FT, in a statement. “We understand the many challenges enterprises currently face in embedding payments capabilities to drive customer engagement, loyalty, and revenue, as well as for consumers and SMBs that need access to wages and funds immediately. We see a massive opportunity emerging to whomever is able to crack the code. We’re building that at Highnote, and as a result, we are thrilled to provide the support they need to continue their incredible velocity.”