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Cannabis and gaming payments startup Aeropay now offers an alternative to Mastercard and Visa

The key to taking on the fintech industry’s incumbents may be to go where they’ve never gone before.

That’s what Chicago-based Aeropay does. The provider of bank-based payment solutions for businesses started by helping cannabis retailers and gaming companies with their payments and is now entering Visa and Mastercard territory by innovating in payment networks.

Co-founder and CEO Dan Muller has experience as a product manager for a company that created 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 strip away the different methods used to solve digital payments, it was either making it easier to accept cards online, like Stripe or Square, or trying something really grand, which was going around the world. system.” Muller told TechCrunch.

With Aeropay, businesses can offer regulatory-compliant cashless and contactless digital payments to their customers, in-store and online. To do this, the company created its own banking aggregator, called Aerosync, which connects bank accounts and allows customizable integrations using open APIs.

It can connect over 12,000 banks, and once the merchant connects 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 without paying fees on the transaction or worrying about cash. This would allow, for example, the merchant’s customer to choose the amounts to pay and confirm when paying. If customers use a digital wallet, merchants choose the amount and confirm submission to the digital wallet, Muller said.

One of the differentiators compared to other companies creating digital payment solutions is that Aeropay started with a focus on regulation and compliance, unlike other companies that started with one product and compliance “was a afterthought,” Muller said. As a result, he believes merchants are able to minimize the risks of returns and fraud. Aeropay uses 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”

Aeropay’s account-to-account payment application. Image credits: Aeropay

The concept has caught on. Over the past year, Aeropay claims to have seen 10x revenue growth (but would not comment on the amount of that revenue) and processes more than $1 billion in volume annually, it said. Müller. It said it achieved cash flow profitability in the fourth quarter of 2023.

It now has a $20 million Series B round led by Group 11, which also included participation from Chicago Ventures and Continental Investors. The new investment gives Aeropay total funding of $35 million 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 eliminates it, but doesn’t require apps or new hardware, it can integrate with a merchant’s existing systems. To achieve this, you need an affordable train, a great user experience and something with little fraud and risk. Muller said the company has all three of those features, but is missing one thing if it wants to become a Visa or Mastercard: more merchants using it.

“We need distribution to reach the same type of level,” Muller said. “The aim of the game for us now, with this capital, is to achieve a fair distribution to benefit from the advantages that we have created: a transparent banking connection, the very low fraud and risk problems that we see and above all the affordability at the merchant. A bank transfer account will be much more affordable than a simple card swipe, and they will then be able to bring these savings to their consumers.

Muller will use the new funding to grow and strengthen the team across marketing, 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 continue. develops this year.

Play to strengths

Card networks are something that Group 11 founding partner Dovi Frances told TechCrunch is something virtually “no one has touched because it’s so complicated.” He sees Aeroplay establishing itself where other players cannot from a regulatory point of view, and then expanding.

Group 11 is a three-year-old venture capital firm that primarily invests in Israeli fintech companies setting up operations in the Americas. It manages about $1 billion in assets and is an early backer of expense management company Navan, accounts payable company Tipalti and real estate technology company Homelight.

Frances met Muller about three years ago, but did not initially invest in Aeropay. This was when Aeropay was working on cannabis and “no one wanted to touch the cannabis industry,” Frances said.

Instead, Frances remained in contact with Muller and the Aeropay team during this time.

“Then I saw that they were now at a point where the solution seemed sufficiently robust from a technological point of view, it had attracted important customers and the C-suite was starting to look like the C-suite that I would like to see in a company. where I invest a lot,” Frances said. “I’m not talking about seed investment, I’m talking seriously.”

Frances generally classifies financial technology into three categories: architecture, coordination and application. He sees companies like Swift, Visa, and Mastercard in the architecture space as leaders in infrastructure. The coordination layer would be companies like Square, which sit between the application and architecture layers. An example of an application layer would be neobanks.

He sees Aeropay as a coordinating element, capable of representing a challenge to the traditional card networks of Visa and Mastercard.

“Without a doubt, we’re playing on steroids,” Frances said. “With Aeropay, we have managed to find the last bastion of one of the last areas of financial technology to be disrupted. This is a huge market to capture, and it has an incredibly talented team that has been executing on this vision for several years now.

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