• Finix is now a payments processor, Insider has learned.
  • Payments processors are one layer among many in a typical digital transaction.
  • Finix is positioning itself to compete with legacy processors.

Fintech Finix is cutting out another layer of middlemen in payments.

The financial-technology startup is now a payments processor in addition to being a payments facilitator, Insider has learned. By becoming a payments processor, Finix is reducing the number of third-parties in a given transaction as it looks to compete against legacy processors such as Fiserv and FIS.

A payment transaction goes through multiple third parties from the time a customer pays with their card to the merchant actually receiving that money.

Those involved in the process typically include: a payment facilitator like Stripe or Square; a processor and acquirer's bank like First Data and Wells Fargo; card networks like Mastercard or Visa; a processor like Fiserv or FIS; and the issuer's bank.

Though there are lots of third parties in the process, there are some payments players who own multiple steps in the transaction cycle, like Fiserv and FIS.

Finix started as a payments facilitator, using a payments-as-a-service model. The fintech helped companies offer in-house payments without having to build the technology themselves or outsource entirely to companies like Stripe, Square, or Adyen.

As a processor, Finix can own yet another portion of the payments' lifecycle.

"We see a world in the not too distant future where merchants and sellers, your local coffee shops and restaurants, they stop going to the Chase's and Wells Fargo's of the world," Richie Serna, cofounder and CEO of Finix, told Insider. "Instead, they go to these software platforms that help them run the day-to-day operations of their business, and payments and other financial services happen to be embedded in them, providing this sort of one-stop shop.

The startup has raised $133 million to date. It raised $30 in its Series B extension round in August 2022. Serna declined to share Finix's current valuation.

Competing against legacy processors 

Payments is a $2.1 trillion global industry, according to a 2022 McKinsey report, and 80% of the market is controlled by four legacy processors: Fiserv's First Data, JPMorgan Chase's Chase Paymentech, FIS's Worldpay, and Global Payments (GPN) and Total System Services (TSYS).

These incumbents were built decades ago and grew largely through M&A, so they're "just a conglomerate of a bunch of technologies that don't scale together quite well," Serna said. 

And while a legacy processor can take up to 24 hours to test new code, Finix takes 30 minutes. Testing new code is essential to keep in pace with new technologies, like tap to pay, QR code payments, and network tokens. So for merchants using legacy processors, this results in hours of downtime that can cost them millions of dollars in lost sales, Serna said.

As a payments facilitator and processor, Finix now offers its merchant customers increased configurability, meaning it can support more complex transaction flows, as well as more competitive pricing and faster time-to-market.

"We're excited to continue to compete and win against those companies because we've been purpose-built from day one for these much more complicated use cases," Serna said. 

"We've built differently from day one, thinking about some of these enterprise customers and helping them access some of the more critical features of payments without having to sacrifice cost or having to sacrifice a developer friendly experience," he added.