The key to taking on legacy players in the fintech industry may be to go where they haven’t gone before.
This is based in Chicago Aeropay does. The bank-to-business payment solutions provider started by helping cannabis retailers and gaming companies with their payments, and is now entering Visa and Mastercard territory by innovating payment networks.
Co-founder and CEO Dan Muller has a background as head of product for a company that built digital solutions for brands and retailers. At the time, mobile was coming online, so he ended up building native mobile apps for brands like Best Buy, Adidas and Express, which gave Muller first-hand experience with payments.
“When you peel back the layers of the old way of solving digital payments, it was either easy to accept the card online, like Stripe or Square, or you could do something really great, which was to navigate the system. Muller told TechCrunch.
With Aeropay, businesses can offer their customers cashless and contactless digital payments compliant with regulations, both in-store and online. To do this, the company created its own bank aggregator, called Aerosync, that connects bank accounts and allows for customizable integrations using open APIs.
It can connect more than 12,000 banks, and once the merchant is connected to a bank account, it can allow customers to pay as they would in any e-commerce environment. Merchants can also use a QR code for payments and not pay transaction fees or deal with cash. This would, for example, allow the merchant’s customer to select the amounts to pay and confirm at checkout. If customers use a digital wallet, merchants select the amount and confirm a submission to a digital wallet, Muller said.
One of the differentiators compared to other companies building digital payment solutions is that Aeropay started with regulation and compliance as a focus, unlike other companies that started with a product and compliance “was an afterthought”, Muller said. As a result, he believes merchants are able to minimize performance and fraud risk. Aeropay uses the Automated Clearing House to facilitate 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 payment network”
The concept has caught on. Over the past year, Aeropay says it has seen a 10-fold increase in revenue (but would not comment on what that revenue was) and processes more than $1 billion in volume annually, Muller said. It said it reached cash flow profitability in the fourth quarter of 2023.
It now has a $20 million Series B round led by Group 11 that also included participation from Chicago Ventures and Continental Investors. The new investment gives Aeropay $35 million in total funding to date.
Aeropay doesn’t compete with Visa and Mastercard today, but wants to be “the next big payment network,” Muller said. Card swiping is what costs merchants the most, and Aeroplay not only removes that, it requires no apps or new hardware, but can be integrated with a merchant’s existing systems. To have this requires an affordable rail line, a great user experience and something with a low risk of fraud and risk. Muller said the company has those three attributes, however, one thing is missing if it is to become Visa or Mastercard: more merchants using it.
“We need distribution to get to the same type of level,” Muller said. “The name of the game for us now with this capital is to get to a distribution level to get the benefits that we’ve built – the seamless banking connection, the really low fraud and risk issues that we’re seeing and most of all the affordability to the merchant. A bank transfer account will be much more affordable than a swipe of a card, and they can then pass those savings on to their consumers.”
Muller will use the new funding to grow and build the team in go-to-market, technical, compliance and risk. Over the past year, the company has moved from standard support to 27/4 support, so Aeropay has invested in customer service teams, and Muller expects that to grow this year.
Playing to strengths
Card networks are something that Group 11 founding partner Dovi Frances told TechCrunch that virtually “no one has touched because it’s so complicated.” He sees Aeroplay moving where other players cannot from a regulatory standpoint and then growing.
Group 11 is a three-year-old venture capital firm that invests primarily in Israeli financial technology companies relocating to America. It has about $1 billion in assets under management and is an early backer of expense management company Navan, accounts payable company Tipalti and property technology company Homelight.
Frances met Muller about three years ago, but initially did not invest in Aeropay. That was when Aeropay was working on cannabis and “nobody wanted to touch the cannabis industry,” Frances said.
Instead, Francis stayed in touch with Mueller and the Aeropay team during this time.
“Then I saw that it was now at a point where the solution looks pretty strong from a technology standpoint, it’s attracted significant customers, and the C-suite is starting to look like the C-suite I’d like to see in a company where I’m making significant investments,” said Frances. “I’m not talking seed investment, I’m talking serious.”
Frances typically places financial technology into three buckets: architecture, coordination, and implementation. He sees companies like Swift, Visa and Mastercard in the architecture space, being the infrastructure leaders. The coordination layer will be companies like Square that sits between the application and architecture layers. An example of the application layer would be neobanks.
He sees Aeropay at the coordination level — being able to present a challenge to the traditional card networks of Visa and Mastercard.
“He’s being played on steroids without a doubt,” Francis said. “At Aeropay, we’ve managed to find the last bastion of one of the last sectors of financial technology to be disrupted. It’s a huge market that’s up for grabs, and has an incredibly talented team that has been executing on that vision for several years now.”
