Food Stamp-Focused Fintech Raises $22M

Each year, 42 million Americans receive food stamps — now known as SNAP benefits — that they can use at 250,000 retailers. But despite the rise of e-commerce and grocery delivery since the start of the Covid-19 pandemic, there are only about 100 retailers where you can use SNAP benefits to pay for online grocery delivery today.

Forage, a 17-person San Francisco fintech startup founded in 2019, is trying to fix this problem with software that helps merchants accept online SNAP payments. The company has raised $22 million in Series A funding led by NYCA Partners. PayPal Ventures, EO Ventures and angel investors such as Instacart founder Apoorva Mehta also invested, valuing Forage at around $100 million.

Three years ago, Anthony Grullon, who grew up in Paterson, New Jersey, and received SNAP benefits, had the idea for a consumer-facing app that would allow low-income consumers to get discounts on groceries. While a Wharton MBA student, he co-founded Forage with entrepreneur Justin Intal and software engineer Victor Fimbres. But in the summer of 2020, Grullon left Forage after getting into a car accident, during a period when he was battling mental health issues.

As Covid swept the country and many Americans opted to get groceries delivered instead of going to the store, Intal and Fimbres found a bigger problem than grocery discounts that needed solving: few retailers accepted SNAP payments for online delivery orders. They pivoted the business, wanting to become a kind of Stripe for SNAP payments. Intal left Forage in the spring of 2022 after deciding that he was not the right person to lead the company, while Fimbres stayed on as chief technology officer.

At about the same time, Ofek Lavian joined Forage and became the new managing director. Prior to Forage, Lavian had been a Deloitte consultant and led Instacart’s payments team. He grew Instacart’s payments team from five people to forty and oversaw a project to allow merchants that partnered with Instacart for online delivery to accept SNAP payments. He saw firsthand how difficult it was, as it took Instacart nine months to complete the process for retailers like Aldi and Publix. As the son of two Holocaust survivor parents who grew up below the poverty line, 29-year-old Lavian says the SNAP project was his proudest accomplishment at Instacart.

Forage relaunched in May 2022 with Lavian as CEO and partnered with e-commerce giant Shopify to allow Shopify merchants to take SNAP payments. So far, Forage has landed 30 customers, including discount store site Flashfood and delivery site Farmstead.

There is strong demand for online delivery among SNAP benefit recipients, said Jimmy Chen, an investor in Forage and CEO of Propel. Propel has a popular app called Providers that is used by five million SNAP benefit recipients and allows them to view their SNAP balances. “There’s a mistaken belief that low-income Americans don’t have money, but they have tons of time—they just sit around and do nothing all day,” Chen says. “But we’ve discovered over the years that’s largely not true … they’re as time-pressed as they are cash-strapped. And that’s because they’re running back and forth between two or three different part-time jobs, they’ve got to pick up the kids, they are in a single parent.”

TToday, few merchants accept SNAP payments online because they are difficult to set up. Publicly disbursed payments run on their own electronic benefit transfer (EBT) rails, which require their own technical integration, and until 2019 the EBT did not support any electronic payments whatsoever. Payments giant Fiserv began enabling electronic EBT payments for the first time in 2020.

The other hurdle is that retailers must get separate approval from the government to accept online SNAP payments. The USDA has strict rules that prohibit people from using SNAP benefits for anything other than food, so grocers must go through their entire catalog and electronically label all their food items, and make sure that cleaning supplies, toiletries and other non-food items. items are not eligible for SNAP payments.

Lavian says that with Forage’s software and knowledge of the regulatory approval process, the startup can get a retailer up and running accepting online SNAP payments in 90 days.

Forage’s business model is almost identical to Stripes – it charges a fee of 2.9% plus 30 cents per transaction. It has processed less than $10 million in payments so far. Each year, the US government pays out $120 billion in SNAP benefits, and Lavian aims for Forage to process billions of dollars in transactions “in the next few years.”

Once off the ground, Forage faces a number of challenges. Low-income customers are more price sensitive to delivery fees. It may take longer than expected for dealers to receive approval from the authorities. And a bigger player like Stripe can enter the market.

Lavian believes that specializing in the niche of SNAP payments will help Forage overcome these obstacles. “Our mission at Forage is to democratize access to public benefits,” he says. “This is our core focus.”