Stripe, with its $95 billion valuation, has been taking on the payment landscape with a whole platform approach, bringing in dozens of adjacent services to snag a wider and deeper set of customers that use these services by way of APIs. But in the world of so-called “embedded finance” there still remains a lot of room for smaller players to bring a more sophisticated approach to the business of building complicated financial processes that can be integrated by third parties to carry out their own businesses, and today one of them is announcing some funding to support its own mission.
Dwolla, which provides an API that allows companies to build and facilitate fast payments, specifically with a focus on ACH (automated clearing house, or payments or transfers between banks or other financial institutions), has closed $21 million in funding, money that it will be using to continue building out the functionality of its service and specifically how it integrates and provides more of the responsiveness of card payments; hiring more talent; and starting the process of taking its rails to more markets outside of the U.S., most likely looking at Canada, the U.K. and Australia first.
Foundry Group is leading this round, with Park West Asset Management LLC, Union Square Ventures, Detroit Venture Partners, Firebrand Ventures and Next Level Ventures also participating. Jeremy Andrus, the CEO of Traeger, is also in the round as an individual investor. Other investors in the company include Andreesen Horowitz, High Alpha, Thrive Capital and Ludlow Ventures, and CEO Brady Harris in an interview said Dwolla would not be disclosing its valuation at the moment, but described it as “competitive in what’s happening with transactions and payments overall.”
Dwolla is based out of Des Moines, Iowa, and has been somewhat under the radar over the years. Since 2009 it had only raised just over $50 million before this round, a relatively modest amount for a fintech these days. This $21 million is its biggest-single round to date.
But it’s also been quietly seeing a lot of growth. In 2019, Dwolla processed $11 billion in gross payment volume over its platform. In 2020, that grew to $20 billion. This year it’s projected to be $30 billion, said Harris. Customers include both larger institutions and fintechs that want to incorporate faster and more efficient ACH-based payments into their own services without going through the grunt work of building them from the ground up, as well as businesses that want these also in their stack, with particular requirements around how they would like the white labelled and customised.
In total the company has some 3 million end users on its platform, which are channelled through some 500 customers using its services. Those customers include real estate companies, educational institutions, and retailers and brands like GOAT, Ibotta, and Rally. Some of those customers are bigger than you might think. Harris noted to me that one of its customers using the Dwolla API in a white-label service is a fintech that sees some $9 trillion in gross transactions. (Dwolla is under NDA so cannot disclose the name.) That 3 million number, Harris said, is currently growing by 1.5 million each quarter, so it’s really seeing a lot of transaction traffic right now.
And $30 billion is, of course, just a small part of the payments pie, with transactions estimated to be valued at $5.4 trillion in 2020 and projected to grow to $11.29 trillion by 2026.
As Harris describes it, while there are a lot of options out there in the market today for companies that want to incorporate payments and specifically bank transfer-based payments into their stack, Dwolla’s unique approach is that it’s made this particular service more efficient, and easily customizable for those that want to add more features into the process. (That could include more timing, incorporating a blended approach including card payments or other payment methods, or something else altogether.)
“ACH products are something that a consumer can pull off the shelf at a payments company like Stripe, but this is about creating more customization,” said Harris. “We get a lot of people who are mid integration with another provider but it can’t do it what they would like it to, and so they come to us. We like to think of ourselves as programmatic and flexible.”
This focus and mastery of its space has helped Dwolla’s star rise not just with customers but also investors.
“Dwolla continues to push the needle on innovating modern business payments. In pivoting to the B2B space, Dwolla was positioned to provide a much-needed solution for business payments,” said Chris Moody, Partner, Foundry Group, in a statement. “Now, Dwolla is using that drive and innovation to completely transform the way today’s leading brands move money. Doubling-down on our investment was a no-brainer as we continue to see the company’s value in modernizing B2B payments and the importance of financial technology for companies to function at their peak.”