London fintech startup GoCardless has raised USD13m in new funding to continue building out its global bank-to-bank network and reshape the way direct debit moves around the world. The company says it is now processing £1bn in payments annually for 16,000 merchants in Europe.
Outside its home market in the UK, the firm operates in Spain, Sweden, the Netherlands, France and Germany. Initially focusing on helping small businesses in the UK set up direct debit payments from their customers, today the firm is also working with big brands like Thomas Cook, Habitat and the Financial Times as well as tech companies like Funding Circle.
This latest backing comes from new investor Notion Capital, which also invested in Currency Cloud, Tradeshift and Duedil, alongside previous investors Accel Partners, Passion Capital and Balderton Capital. Launched in 2011, the Y-Combinator alumni’s total funding now stands at USD25m and it plans to spend its new funding on expanding its European footprint.
Global banking networks aren’t built in a day
The firm says its ambition is to build a new global bank-to-bank network. No mean feat. Co-founder Hiroki Takeuchi tells PaymentEye the biggest hurdles are navigating the regulatory differences around the world: chiefly the different applications of anti- money laundering (AML)/counter terrorist financing in different jurisdictions and then there’s the complex business of negotiating outdated local legislation around payments that simply wasn’t written to suit new technologies.
Another challenge is that there are massive differences in the “payment pipes” around the world. While the UK’s direct debit network (Bacs) is well-documented, he says that in other regions the team has to work even closer with banks where there is little documentation. In Japan and Brazil for example there is no clearing house, he explains, therefore no standard set of rules which means the GoCardless team has to build 5-6 individual banking relationships to provide the same level of service as in the UK.
New rails, new models
The growth in GoCardless’ business also reflects the evolution of new enterprise models, that require more nuanced and flexible payments solutions. Initially, the firm’s solution was aimed at helping open up access to direct debit to small businesses that couldn’t meet the criteria before from a banking requirements perspective. The reason direct debit is appealing is that companies can offer more flexible payments to customers such as instalment plans on big sums like holidays – which is what Thomas Cook is using it for. Meanwhile there’s the boom in subscription businesses that require recurring monthly payments, which is what the Financial Times and the Guardian use the service for.
“The reason we’ve invested is pretty straightforward: the world is moving toward subscription models and direct debit is the most efficient and cost effective way to process them,” says Notion Capital managing partner Stephen Chandler. “GoCardless brings this into the digital age, making it simple to integrate and removing the last barriers to broader adoption.”
So how (if at all) different will banking look in our lifetimes/when will it start to look different?
“There will be more and more specialist providers focusing on one particular area of finance who due to this focus can offer a sophisticated customer focused product,” says Takeuchi. “We’re already starting to see this with Lending (e.g. Funding Circle), Payments (GoCardless), FX (Transferwise) and Savings (Nutmeg). As more businesses enter this space we will see more competition which will drive the quality of the product and the customer service up. The customer will become central to winning in this space rather than an afterthought as they sometimes feel.”
How long will new fintech companies have to build on old banking rails?
“It’s not so much that it’s old banking rails – it’s more that they are proprietary,” he says. “Ultimately this all depends on the success of the Payment Services Directive 2 (PSD2) which states that banks will have to open up access to all the APIs that provide their proprietary interfaces. This will allow payment companies and startups to build truly innovative ways to support merchants and customers with their financial and banking requirements.”
What changes would he like to see from the industry to move the whole payments space forward?
“A simple one,” says Takeuchi. “For the UK to lead the way on PSD2 and implement the directive ASAP.”
The funding round totalled $61m, and will used to finance the company's global expansion plans.
Monzo also revealed its latest funding round last week.
A further £2.5m is expected to be raised from crowdfunding on Tuesday.
Funding Circle has perhaps started 2017 in a better way than most. The London-based lending platform that connects small businesses with investors has raised $100m (£82m) in equity investment.