Finix becomes a payment processor as it looks to cut out the middleman

• Finix is ​​now a payment processor, Insider has learned.
• Payment processors are one layer among many in a typical digital transaction.
• Finix is ​​positioning itself to compete with older processors.

Fintech Finix cuts out another layer of intermediaries in payments.

The financial technology startup is now a payment processor in addition to being a payment facilitator, Insider has learned. By becoming a payment processor, Finix reduces the number of third parties in a given transaction as it looks to compete against legacy processors such as Fiserv and FIS.

A payment transaction goes through several third parties from the moment a customer pays with their card until the merchant actually receives the money.

Those involved in the process typically include: a payment processor such as Stripe or Square; a processor and acquiring bank such as First Data and Wells Fargo; card networks such as Mastercard or Visa; a processor such as Fiserv or FIS; and the issuer’s bank.

Although there are many third parties in the process, there are some payment players who own several steps in the transaction cycle, such as Fiserv and FIS.

Finix started as a payment facilitator, using a payment-as-a-service model. Fintech helped companies offer internal payments without having to build the technology themselves or outsource entirely to companies like Stripe, Square or Adyen.

As a processor, Finix can own another part of the payment cycle.

“We see a world in the not-so-distant future where merchants and salespeople, your local coffee shops and restaurants, they stop going to the Chase’s and Wells Fargo’s of the world,” Finix co-founder and CEO Richie Serna told Insider. “Instead, they go to these software platforms that help them run the day-to-day operations of their business, and payments and other financial services happen to be integrated into them, providing this kind of one-stop shop.

The startup has raised $133 million to date. It raised $30 in its Series B expansion round in August 2022. Serna declined to share Finix’s current valuation.

Competes against older processors

Payments is a $2.1 trillion global industry, according to a 2022 McKinsey report, and 80% of the market is controlled by four legacy processors: Fiserv’s First Data, JPMorgan Chase’s Chase Paymentech, FIS’s Worldpay, and Global Payments (GPN) and Total System Services (TSYS).

These incumbents were built decades ago and grew largely through M&A, so they’re “just a conglomerate of a bunch of technologies that don’t scale well together,” Serna said.

And while an older processor can take up to 24 hours to test new code, Finix takes 30 minutes. Testing new code is essential to keep up with new technologies, such as tap to pay, QR code payments and network tokens. So for merchants using older processors, this results in hours of downtime that can cost them millions of dollars in lost sales, Serna said.

As a payment facilitator and processor, Finix now offers its merchant customers increased configurability, meaning it can support more complex transaction flows, as well as more competitive pricing and faster time-to-market.

“We’re excited to continue to compete and win against these companies because we’ve been purpose-built from day one for these much more complicated use cases,” Serna said.

“We’ve built differently from day one, thinking about some of these enterprise customers and helping them access some of the more critical features of payments without sacrificing cost or having to sacrifice a developer-friendly experience,” he added.