Cannabis and Gaming Payments Startup Aeropay Now Offers an Alternative to Mastercard and Visa | TechCrunch - Latest Global News

Cannabis and Gaming Payments Startup Aeropay Now Offers an Alternative to Mastercard and Visa | TechCrunch

The key to taking on the financial technology industry’s legacy players may be to go where they’ve never been before.

That’s exactly what Chicago-based Aeropay does. The provider of pay-by-bank solutions for businesses began by helping cannabis retailers and gaming companies with their payments and is now moving into Visa and Mastercard territory through payment network innovation.

Co-founder and CEO Dan Muller has a background as a product leader at a company that developed digital solutions for brands and retailers. At this time, mobile was becoming more prevalent, and he ended up developing native mobile apps for brands like Best Buy, Adidas, and Express, giving Muller first-hand experience in payments.

“If you unravel the layers of the old way of solving digital payments, you either have to make it easier to accept the card online, like Stripe or Square, or you could try something really great, which is to circumvent the system,” Müller told TechCrunch.

With Aeropay, businesses can offer their customers compliant, cashless and contactless digital payments both in-store and online. To this end, the company has developed its own banking aggregator called Aerosync, which connects bank accounts and enables customizable integrations using open APIs.

It can connect over 12,000 banks, and once the merchant connects to a bank account, they can enable their customers to pay, just like in any e-commerce environment. Merchants can also use a QR code for payments without having to pay fees for the transaction or deal with cash. This would, for example, allow the merchant’s customer to select the amounts to be paid and confirm them at the checkout. When customers use a digital wallet, merchants select the amount and confirm a transfer to a digital wallet, Müller said.

One of the differentiators from other companies developing digital payment solutions is that, unlike other companies that started with one product and where compliance was “an afterthought,” Aeropay has placed an emphasis on regulation and compliance, Muller said. In his opinion, this enables retailers to minimize the risk of returns and fraud. Aeropay uses Automated Clearing House to enable direct bank-to-bank transfers, meaning no card networks are involved. That’s why it’s good for the cannabis industry, which is unable to use payment card networks.

Becoming the “next big payments network.”

Aeropay’s account-to-account payment app. Photo credit: Aeropay

The concept was well received. According to Muller, Aeropay experienced 10-fold revenue growth last year (but cannot comment on how much that revenue was) and processes over $1 billion in volume annually. He said the company achieved cash flow profitability in the fourth quarter of 2023.

Now there is a $20 million Series B round led by Group 11, which also includes Chicago Ventures and Continental Investors. The new investment gives Aeropay total funding of $35 million to date.

Aeropay doesn’t compete with Visa and Mastercard today, but wants to be “the next big payments network,” Muller said. Card swiping costs merchants the most, and Aeroplay not only eliminates the need for it, it requires no apps or new hardware, but it can also be integrated into a merchant’s existing systems. Achieving this requires an affordable rail, a great user experience, and something with low fraud and low risk. Muller said the company has those three characteristics, but it lacks one thing if it wants to become Visa or Mastercard: more merchants using it.

“We need distribution to reach the same level,” said Müller. “For us, this capital now is about achieving an even distribution to take advantage of the benefits we have created – the seamless banking, the really low fraud and risk issues we see and, most importantly, the affordability dealer.” . A bank transfer account will be much cheaper than a credit card account, and then they can make those savings available to their consumers.”

Muller will use the new funding to further develop and expand the team in the areas of market launch, technology, compliance and risk. Last year the company moved from standard support to 27/4 support, so Aeropay has invested in customer support teams, and Muller expects that to grow this year.

Play to strengths

Dovi Frances, founding partner of Group 11, told TechCrunch that card networks are something “virtually no one has touched because it is so complicated.” He sees Aeroplay going where other players can’t from a regulatory perspective and then growing.

Group 11 is a three-year-old venture capital firm that invests primarily in Israeli financial technology companies moving to America. The company has about $1 billion in assets under management and is an early backer of expense management company Navan, accounts payable company Tipalti and real estate technology company Homelight.

Frances met Muller about three years ago but did not initially invest in Aeropay. That was back when Aeropay was working on cannabis and “nobody wanted to touch the cannabis industry,” Frances said.

Instead, Frances stayed in touch with Muller and the Aeropay team during this time.

“Then I saw that they’re now at a point where the solution seems robust enough from a technology perspective, it’s attracted significant customers, and the C-suite is starting to look like the C-suite I like to have in a company would see where I make significant investments,” said Frances. “I’m not talking about the seed investment, but the serious stuff.”

Frances typically divides financial technology into three areas: architecture, coordination and application. He sees companies like Swift, Visa and Mastercard as leading infrastructure companies in the architecture space. The coordination layer would be companies like Square that sit between the application and architecture layers. An example of the application layer would be neobanks.

He sees Aeropay at the coordination level and represents a challenge to the traditional card networks Visa and Mastercard.

“Without a doubt it’s being played on steroids,” Frances said. “With Aeropay, we have managed to find the last stronghold of one of the last areas of financial technology to suffer disruption. It is a huge market to conquer and there is an incredibly talented team that has been executing this vision for several years.”

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