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BFD Expert Voices - Private Credit

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FlexFactor, a startup tackling lost revenue from payment snafus, raised $16.8 million from Bessemer Ventures, the company tells Axios exclusively.

Why it matters: FlexFactor has a novel approach to rejected payments — it foots the bill if it lets a bad one through.

How it works: Payments fail for reasons ranging from insufficient funds to suspicion of fraud.

FlexFactor's bet is that it can use data and AI to reliably predict in real time whether a payment failure was legitimate, or due to error.

If the data predicts a payment was rejected in error, Miami-based FlexFactor pays on behalf of the end-customer and takes over the recoup process — buying the invoice and taking on the risk itself.

If a card issuer rejects a payment alleging insufficient funds, for example,  FlexFactor may use historical data to judge whether a customer will soon be able to pay the invoice back. If the answer is yes, it takes over the bill and might retry their payment method at a later date.

If it made the wrong call, the loss is its to bear. In return, it charges a percent off each transaction it "saves" from the decline pool.

Behind the scenes: Selling to merchants, FlexFactor makes these calls using a mix of proprietary data, including the historical transactions of its merchants and IP addresses.

It may also use third-party sources such as credit scores. But CEO Elio Vitucci says the company increasingly finds its own sources to be more predictive.

The entire process is automated, says Vitucci, requiring no additional input from the customer or their bank.

Between the lines: By buying the invoice, FlexFactor can tackle one-off e-commerce payments, rather than subscriptions, on which churn companies have historically focused.

Subscription-based businesses generally have the luxury of time to chase down and retry a customer whose card was rejected, something non-subscription businesses can't do.

Taking over the bill buys FlexFactor time to try to fix the issue causing the failure. For a payment erroneously flagged as fraud, FlexFactor may retry the customer's payment and add information showing the bank that the transaction isn't fraudulent.

By the numbers: FlexFactor limits itself to 15 days to fix the payment issue. After that, it considers the payment a loss. Though Vitucci notes it usually recoups the payment within the first three days.

The company is cash-flow positive, he says, as the end-customer usually pays FlexFactor back before the merchant requires a settlement. The company has, on average, saved 20% to 30% of declined payments.

The company currently caps its transactions at $400.

The big picture: Startups have launched in the hope of tackling the issue of failed payments, and larger companies including Stripe have made it part of their broader product suite.

Bessemer partner Charles Birnbaum says he sees this area squarely as a standalone opportunity, not just a feature, as more merchants are using multiple payments service providers.

"The problem is so complex, so massive. There's different types of merchants, of different type of risk profiles. It's a global opportunity," he says. "We definitely feel that a standalone company can be built here, especially one that is neutral and not exclusively tied to one payment service provider."

Exclusive: FlexFactor raises $16.8M Series A to tackle payments failure

The startup foots the bill if it lets through a bad payment.

Illustration of a phone dispensing money.

Fintech

FlexFactor, a startup tackling lost revenue from payment snafus, raised $16.8 million from Bessemer Ventures, the company tells Axios exclusively.Why it matters: FlexFactor has a novel approach to rejected payments — it foots the bill if it lets a bad one through.

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Exclusive: FlexFactor raises $16.8M Series A to tackle payments failure

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