Fintech Edge gets $2.4 million for "vice" payments

Edge, a payments firm focused on industries that struggle to find a processing service, including so-called “vice companies,” raised $2.4 million in pre-seed funding last week in a round led by Long Journey Ventures.

Why it matters: Venture capitalists and payments companies alike typically stay away from those "high-risk" businesses due to the heightened regulatory risks. Edge and its investors are part of a small but growing community that instead see an opportunity.

Driving the news: Having worked in companies that deal with adult content and alcohol (Duffl and AAA Media), CEO Alaxic Smith says he has seen first-hand the difficulties associated with getting a high-tech payments processor for such businesses.

• That parallels Edge's own struggle to get funding earlier this year before Long Journey came in, with many venture capitalists citing contractual vice clauses — which keep VCs from investing in companies operating in "morally risky" industries.

Yes, but: While the idea may have started with Smith's experience in the those industries, Edge is about more than just sex, drugs and alcohol.

• Lawyers, gyms, airlines and other businesses that face high chargebacks, whether from customer dissatisfaction or something more problematic, are also areas that Edge plans to potentially expand into.

Background: Larger payments processors have stayed away from high-risk industries.

• Despite gaining legal ground in several states, cannabis companies still struggle to process payments. In fact, even in states where it is legal, dispensaries cannot directly process credit and debit cards.
• Mastercard last year set a new rule calling on banks that process payments for adult-content sites to ensure that the seller has documented consent and age for those involved in the content.

How they plan to work: As a pre-seed company, Edge currently has no customers. But the payments facilitator plans to start with helping subscription software businesses around the cannabis industry first.

• That will give Edge an "in" to the cannabis industry, without directly facing the risks of a direct-to-c0nsumer dispensary.

Eventually, it may expand into companies that deal with adult content — but this may also never happen as it would require a complete overhaul of the credit card giants, Visa and Mastercard.

• And while Smith has ambitions to overhaul the existing credit card networks, he acknowledges that could take a very, very long time.