The rise of digital payments has changed the nature of how people do business with each other; and open banking — a movement in banking where incumbents are finally adopting newer technology such as APIs to open their systems to modern integrations — is leading to a wave of new payment methods, all of which are hoping to become as standard as cash or paying with cards. In the latest development on this theme, a U.K. startup called Token.io has closed $40 million in funding to expand its own particular push in payments tech — account to account payments and accessing accounts for transactions by way of a single API — deeper into the U.K. and across Europe.
The funding is being co-led by Cota Capital and TempoCap, with participation from Element Ventures, MissionOG and PostFinance as well as past investors Octopus Ventures, Opera Tech Ventures and SBI Investments. The company is not disclosing valuation, but CEO Todd Clyde confirmed it was up compared to its previous financing.
But as a measure of how Token is doing and the traction it’s been getting for its tech, its customers include BNP Paribas, HSBC, Mastercard, Nuvei, Paysafe, Ecommpay, Rewire, Coingate, Raypd, Sonae Universo, Volt, Vyne and others whose names are not being made public (some use Token as a white-label service, meaning no branding that would give away that relationship). Clyde said also that Token’s payment volumes grew 20-fold last year, and currently account for 21% of all account-to-account payments in the U.K. and Europe — a proportion that is set to rise as more of its customers take their Token integrations live.
One comparable for Token, and a mark of how big the overall business is, is TrueLayer, a major open banking player also based out of the U.K. that last year raised a big round of $130 million at a valuation of more than $1 billion.
If the name “Token” got you wondering how and if this startup is somehow involved in cryptocurrency, you would be both wrong and right. The company started several years ago with a mission to build alternative payment technologies to improve how cross-border payments were made, and cryptocurrency was indeed part of that premise. In 2019, however, it spun out its crypto business, which is called M10 and focuses today on helping banks (state banks, commercial banks) build and run tokens, used to create their own digital currencies and for other purposes.
Token kept the name and some of the legacy of how “token” has traditionally been used in financial services to continue its focus on secure and modern open banking technology, and has been a part of the group of companies riding the wave of interest in building new services to compete with existing payment rails with the promise of giving consumers and businesses more choices and lower costs in the process.
Account-to-account payments is not exactly a new concept in its most general sense, but it’s long been a complicated and expensive process, not something that you would use for everyday payments but something that required set up with banks, sometimes paperwork to fill out and fees to pay. What has changed in the last several years — spurred also by innovations from companies like GoCardless — is the idea of it becoming something that is quick and easy to do, as easy as pulling out a card or cash from your wallet.
“There’s been an inflection point,” said Clyde. “Open banking solves the barriers of account-to-account payments, and it will allow these to go mainstream. And so the uptake is quite tremendous. We are seeing 10% to 20% month over month growth in volumes in the U.K.”
Interestingly, though, it seems that it’s all still relatively small compared to the overall amount of transactions, which underscores just how much has to happen before the concept of account-to-account (and the companies enabling it) can hope for any kind of mainstream acceptance. Currently, Clyde estimates that A2A accounts for only about one-tenth of 1% of all payments in the U.K. and Europe, although all signs are pointing to it becoming 10% of all payments in three years.
As with Kevin — another company in the account-to-account payment space that we covered just last week when it too announced funding for its particular take on A2A, integrating it with POS services for retailers — Token’s approach has been to build its own API, behind which it has done all the hard work of building the integrations with different banks to make payments possible.
In the U.K., where open banking has been getting rolled out for years with the country’s major banks, this is relatively straightforward since those banks are using the same standards; in Europe, Clyde said, this has been a significantly more complex undertaking, with Token taking 14 different banking standards and “harmonizing” them and building them into its API, effectively making it possible to access payments for account holders across thousands of banks in 16 countries through its single API.
“Aggregation is a key value proposition for us,” he said.
Kevin Jacques — a partner at Cota Capital leading its investment in Token who previously worked for years at Visa and ran its venture arm (so has a particular and close knowledge of how to build and dominate in payment rails, and also the shortcomings of some of the biggest ones today) — noted that one important force pushing this market will be Strong Customer Authentication.
These are new regulations in Europe (and the U.K.) requiring multi-factor authentication to improve the security of digital payments. A2A, coming directly from customer accounts, will mean that those managing the payments will have more account holder data on file and will be able to speed up some of the processing as a result: with a lot of transactions often abandoned due to processing delays and glitches, simplifying that could be a fillip for more adoption by both retailers and consumers.
Down the line, while Token will be focusing mainly on expanding its footprint, its partners and turning on more live integrations with its platform, it will also be looking at how it can bring in more services to complement basic A2A payments to serve a wider set of use cases. I mentioned credit to Clyde: Not every consumer wants to or can pay for goods in cash today, so why would they be able to do so in A2A? Some will still need financing and credit alternatives. His response: While Token is unlikely to build those kinds of services itself anytime soon, it will likely partner with others that are disrupting in that area to provide alternatives:
“Credit was cards, but it will be replaced by buy now, pay later, and other forms of credit,” he said.
We’re in a particularly tough market for funding at the moment, so it’s also notable that this round for Token closed in the last couple of weeks, a sign that deals are still being made for the right teams and businesses.
“This round speaks to the quality of Token as a business. We see a real opportunity for some dynamic change in the payments market that doesn’t come along just every couple of years, even with open banking innovations,” said Adam Shepherd, an investment partner at TempoCap who led its investment. “Token has some deep, deep payments expertise in the team, and I think that the fact that we’re announcing this round at this moment, shows that for the right businesses with the right kind of plan, with the right unit economics, there is still funding available. But yes, it’s a tougher market out there.”