The key to beating legacy players in the financial technology industry could also be going where they have not gone before.
It’s based in Chicago Aeropay it does. The corporate pay-by-bank solutions provider started off helping cannabis retailers and gaming corporations make payments, and is now moving into Visa and Mastercard territory by innovating on payment networks.
Co-founder and CEO Dan Muller has experience as head of product at a company that created digital solutions for brands and retailers. By this time, mobile phones were starting to come online, so he eventually created native mobile apps for brands like Best Buy, Adidas, and Express, which gave Muller first-hand experience with payments.
“When we peel back the layers of the traditional way of solving digital payments, it’s either going to be easier to accept cards online, like Stripe or Square, or you can try something really big that circumvents the system,” Muller told TechCrunch.
With Aeropay, businesses can offer their customers compliant, cashless and contactless digital payments, each in-store and online. To this end, the company has created its own bank aggregator called Aerosync, which connects bank accounts and enables customizable integrations using open APIs.
It can connect over 12,000 banks, and once a merchant connects to a checking account, it might allow customers to pay similar to they might in any e-commerce environment. Merchants also can use the QR code for payments and not pay transaction fees or trouble with money. This would, for example, allow a merchant’s customer to select the amount to pay and confirm it during checkout. If customers use a digital wallet, merchants select an amount and confirm sending the funds to the digital wallet, Muller said.
One thing that sets other corporations building digital payments solutions apart is that Aeropay initially focused on regulation and compliance, unlike other corporations that began with a product and compliance “came after,” Muller said. As a result, he believes that merchants are able to minimize the risk of returns and fraud. Aeropay uses an Automated Clearing House to facilitate direct transfers between banks, which suggests no card networks are involved. Therefore, it is good for the cannabis industry, which does not have the option of using payment card networks.
It will develop into the “next big payment network.”“
The concept caught on. Aeropay says it has seen revenue grow 10-fold over the past 12 months (but would not comment on how much revenue that was) and processes greater than $1 billion in transactions annually, Muller said. It said it achieved money flow breakeven in the fourth quarter of 2023.
Now it has a $20 million Series B round led by Group 11, with Chicago Ventures and Continental Investors also participating. The latest investment provides Aeropay with total financing of $35 million.
Aeropay doesn’t compete with Visa and Mastercard today, but it wants to be “the next big payment network,” Muller said. Card swiping is what costs merchants the most, and Aeropay not only eliminates this, it also doesn’t require an app or latest hardware – it might integrate with the merchant’s existing systems. To achieve this requires an inexpensive rail, a great user experience, and something with low fraud and risk levels. Muller said the company has those three things, but it’s missing one thing if it’s going to develop into Visa or Mastercard: more merchants who could use it.
“We need distribution to get to the same level,” Muller said. “Right now, our goal with this capital is to achieve a level of distribution that delivers the advantages that we have created – a seamless connection to the bank, a really low level of fraud and risk that we see, and, above all, affordability at the retailer. A bank transfer account might be much cheaper than swiping a card, and they are going to then have the opportunity to deliver those savings to their consumers.
Muller will use the latest funding to grow and strengthen its team in the areas of go-to-market, technical, compliance and risk. As the company has moved from standard support to 24/7 support over the past 12 months, Aeropay has invested in customer support teams, and Muller expects that number to grow this 12 months.
Plays to your strengths
Card networks are something that Group 11 founder Dovi Frances told TechCrunch is something that virtually “nobody has touched on because it’s so complicated.” It sees Aeropay step in where other players legally cannot and then grow.
Group 11 is a 12-year-old enterprise capital firm investing primarily in Israel-linked financial technology corporations operating in the Americas. It manages roughly $1 billion in assets and is an early backer of expense management company Navan, accounting company Tipalti and real estate technology company Homelight.
Frances met Muller about three years ago, but she wasn’t initially invested in Aeropay. This was when Aeropay was working in cannabis and “nobody wanted to touch the cannabis industry,” Frances said.
Instead, Frances remained in contact with Muller and the Aeropay team during this time.
“Then I saw that they had reached a point where the solution seemed solid enough from a technology perspective, had attracted significant customers, and the C package was starting to look like what I would like to see in a company where I am making significant investments,” Frances said. “I’m not talking about a seed investment, I’m talking about serious investing.”
Frances typically divides financial technology into three categories: architecture, coordination, and application. In the architecture space, he sees corporations like Swift, Visa and Mastercard as infrastructure leaders. The coordination layer could be corporations like Square, which sit between the application and architecture layers. An example of an application layer could be neobanks.
He sees Aeropay at the coordination layer – able to challenge the traditional card networks of Visa and Mastercard.
“These are payments for steroids, no doubt,” Frances said. “In Aeropay, we have found the last bastion of one of the last areas of monetary technology to be disrupted. This is a huge market that is up for grabs and has an incredibly talented team that has been executing this vision for several years now.