As the venture capital market for payment startups resets, some investors say the next big play will be companies that can help merchants tailor their use of the numerous processing options that are now in the market.
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"With card, ACH, wire, RTP and now the introduction of FedNow, you need to have a PhD in payments to figure out which rail to use and when," said Lindsay Fitzgerald, a founding partner of Vesey Ventures and a veteran of Amex Ventures. "Additionally, given the crash of Silicon Valley Bank, Silvergate and First Republic, we think every company should be questioning their core financial services stack and creating redundancies."
Payment technology investors are looking for the next big thing in an environment in which investment in new payment startups has not cooled from the momentum of 2021. There was a total of $27.3 billion invested in global fintech in the first half of 2023, according to
As has been the case for most of the technology VC correction of the past year, payments and fintech have fared relatively well. Private equity and venture capital investment in U.S. fintech and payment technology companies was $10.09 billion in the five months of 2023, according to
Fintech investor Centana Growth Partners has not yet invested in a payments orchestration firm, but plans to in the next 6 to 12 months. The catalyst for this investment will be the July launch of the Federal Reserve's instant settlement platform.
"FedNow will create demand for payment orchestration," said Matt Alfieri, a partner at Centana which includes payment fintechs Plooto and Operto in its portfolio, and previously included One, Inc.
Real-time payments are growing quickly but are still a small part of the overall payments market, suggesting upside potential for real-time payment technology and payments orchestration as a means of support. Real-time payments in the U.S. grew from $6.5 billion in 2018 to $26 billion in 2023, according to
FedNow will launch with about 57 initial participants, out of an addressable market of about 8,000 financial institutions. Migration to FedNow is expected to take more than a year, and not all payments will process in real time. But most financial experts expect
"FedNow will unlock a lot of B2B payments use cases," Alfieri said, adding that matching the right payment rail to the right client and the needs of a particular transaction will boost purchases of technology to automate those decisions.
B2B payments have long trailed other payment types in adopting digital processing, but the potential to use faster processing to improve treasury management has led financial technology companies, banks and other firms to invest heavily in the sector. That gives businesses a lot of new payment options, according to Alfieri. "Whenever there is a payment type with a lot of legacy processes, there will be a push for automation."
Many payment firms and banks are building early versions of payment orchestration.
"Payment orchestration is the holy grail in this vertical, as it ends the dependency from running payments through the big e-commerce platforms," said Adrian Mendoza, a fintech investor, adding there is still work that needs to be done before attractive companies emerge. Most orchestration is done through application programming interfaces and there is a need to integrate security and compliance to protect from fraud, Mendoza said.
"We have yet to see these platforms do this type of direct integrations," said Mendoza, adding he has not yet made an investment in a payments orchestration firm, saying he wants to wait to see which company can break through with revenue.
The incumbent core banking firms like FIS and Fiserv may play a large role in payment orchestration, Fitzgerald said. "Orchestration as a business model is tough. You are charging basis points on top of existing payment fees, so you need massive scale to make it work."
In B2B commerce, AP platform providers like Coupa, Bill.com and Melio are well positioned to bring multi-rail orchestration to customers, according to Fitzgerald, who added that e-commerce platforms such as Mangento, Shopify and BigCommerce could also offer payments orchestration to their clients. (Vesey is not an investor in these firms).
Other payment orchestration firms include Orum, Astra, and Trice (Fitzgerald made an investment in Orum while at Amex Ventures). Firms such as Gr4vy and Primer sell payment orchestration directly to merchants.
"Financial institutions, and fintechs, don't have time to be worrying about how to move money from customer A to customer B and across what rail," said Stephany Kirkpatrick, co-founder of Orum. "They want that work done for them."
Payment orchestration has become a more important topic recently and plenty of competitors are now in the market, according to James Wester, co-head of payments at Javelin Strategy & Research.
"Payment acceptance across multiple channels and payment methods has become extremely complex, and merchants have become savvier about controlling their total costs of payment acceptance," Wester said. "For vendors, payment processing used to be hard to differentiate on anything other than costs, but now they can offer more dynamic solutions that are tuned for a merchant's particular business needs."
