Archives: Blog

Blog posts

Charting the Rise of Stablecoins

The original vision for crypto was ambitious: lower fees, faster transactions, inflation protection, and other features were supposed to create the ultimate low-cost payment network. Thanks to the inherent volatility of the currencies that emerged, cryptocurrencies struggled for many years to gain traction beyond their status as an alternative asset class.

In the last decade, however, we have seen stablecoins emerge, and recent developments suggest they may be the application that fulfills crypto’s original promise of a cheap, efficient, permanently accessible global payment network. Over the last six years, we’ve seen them rise to rival other payment networks.

A stablecoin is a cryptocurrency pegged to the value of a more stable fiat currency—the US dollar is the most obvious and common choice—to facilitate payments that would be expensive and time-consuming by other methods. Fiat-backed stablecoin payment volume reportedly reached $4T in 2023, with some estimates running as high as $9.9T—enough to rival payment volume on traditional players like PayPal ($1.5T), Mastercard ($9T) and Visa ($12.3T). This shows that stablecoins are enabling transactions that would otherwise be slow and expensive, perhaps unlocking a killer use case for crypto.

 

 

The broader financial ecosystem is catching on to the value proposition of stablecoins, too. PayPal launched their own stablecoin, called PYUSD last year, and Stripe recently announced it would once again let customers accept crypto payments,namely via USDC stablecoins.

 

The cross-border use case

Most international B2B payments are facilitated by the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network, a messaging system that sends fund delivery instructions between two banks, which then moves funds using Nostro and Vostro accounts. These payments can be incredibly slow—sometimes taking up to five days—and expensive, as incoming and outgoing transfer fees, FX fees, and tracing fees add up, not to mention the added expenses when intermediary banks are involved. SWIFT payments are also opaque, as senders and receivers lack real-time visibility into the status of a payment.

The current state of play has all the hallmarks of an industry ready for disruption. And in situations where one or more of the parties to an international transaction is working in a volatile currency, stablecoins have further advantages. High inflation rates, local currency volatility and lower access to financial services are driving high adoption of stablecoins in emerging markets, where stablecoins can provide a “stable” store of value. For example, most of Tether’s user base is located in emerging markets. Users in Brazil, Argentina, Turkey and Vietnam are adopting USDT as a “digital dollar,” rather than for trading purposes.

 

 

One way we might measure the relative efficiency of different cross-border payment methods is to track the cost of sending a $200 remittance. According to the World Bank, the average cost of sending $200 hovers around 12% or $24. For a similar transaction conducted via stablecoin, the cost varies depending on off-ramp fees, exchange fees and network transaction fees. According to Uniswap, the cost of that same $200 transfer ranges between $9.10 at the high end, and as little as $0.37 on the low end.

 

The future

While stablecoins have shown promise as a payment method, success depends on the willingness of consumers and businesses to transact in a relatively new and unknown type of currency. To facilitate user adoption, the existing complexity of the crypto ecosystem might need to be abstracted away from users. Meanwhile, as stablecoins function as the “translation” mechanism between foreign currencies, the underlying stablecoin swaps—say, between USDC and the Mexican peso—require sufficient liquidity.

Aside from adoption hurdles, companies building in this space will still need to navigate and mitigate a broad array of regulatory, foreign exchange and concentration risks, both from partner banks and stablecoins themselves. Those that can overcome these challenges will be well-placed to transform how international payments take place, with massive implications for the rest of the world.

Originally published on The Financial Revolutionist.

F-Prime’s Summer Internship and Fellowship Program: Meet Our 2024 Interns and Fellows

A big thank you to our interns and fellows for their valuable contributions this summer!

This summer, F-Prime was excited to welcome a talented group of interns and fellows to our Cambridge office. They played key roles in competitive landscape analysis, sourcing, founder calls, and more. Read on to discover what it’s like to be part of our internship and fellowship programs.

 

“I loved the constant drive F-Prime had for solving healthcare’s toughest problems. I also appreciated the mission-driven aspect of the investment process, focusing on clinical outcomes as well as the ROI a company could provide. As someone who has now worked on the VC and hospital side of the table, I am excited to see VC firms like F-Prime pushing the innovation envelope in healthcare and working with hospitals, government, payors, and others to make the healthcare system better for everyone.”

 

“This internship solidified my aspiration to work within venture capital, because of the dynamic nature of the industry, the intellectual challenge of assessing companies and management teams and the innovative approaches founders are taking to solve complex challenges. I’m looking forward to applying my Masters education to invest in and support entrepreneurs in the tech sector.”

 

“I primarily worked on a landscaping project where I compiled bispecific assets in development for inflammation and immunology, and identified several promising lead assets for potential investment opportunities. Additionally, I contributed to the scientific due diligence of ongoing deals, led several interviews with key opinion leaders (KOL), and participated in introductory calls with prospective biotech companies. I truly enjoyed the process of identifying the “gold” among the vast assets in development through scientific due diligence and KOL interviews. It was incredibly rewarding to see how my efforts in scientific due diligence contributed to an investment decision.”

 

“I wanted to explore a career option in the biotech industry for after I finish my PhD. I did a landscaping of Th2 immunity in the central nervous system, attended many intro calls, helped diligence companies of interest, and presented to the team on certain companies or spaces of interest.”

 

“I learned about F-Prime summer fellowship opportunities through LinkedIn and joined F-Prime as a summer fellow due to my interest in exploring alternative career paths after graduation, as well as my enthusiasm for gene editing and drug delivery. F-Prime has a remarkable portfolio of companies focused on addressing clinical unmet needs with these technologies. I also joined to gain insight into VC’s perspective on the future of next-generation therapies.”

 

“I mainly worked on the commercial assessment for a new portfolio company. As part of this, I built an epidemiology model of the disease area, assessed potential market dynamics and exit opportunities, and created a revenue forecast. I most enjoyed working with the new portfolio company team – each person had unique expertise that they were happy to share, and I learned so much from them throughout the course of the project.”

 

“I learned about F-Prime through a family friend. I decided to join as an intern because F-Prime gets to work with amazing biotech startups and help them grow as a business. Additionally, the culture at F-Prime is extremely friendly and everyone at the firm wants to help you be the best version of yourself.”

 

Applications for our 2025 program are not open yet, but if you are interested in learning more, please send an email to careers@fprimecapital.com.

Travel Tech’s Startup Moment, Pt. 1: Modernizing the Hotel Stack

For a long time, early stage investors were wary of travel technology. Why?

Because it’s an industry dominated by deep-pocketed Goliaths firmly entrenched within an intricate web of multi-decade commercial relationships. Companies like Sabre, Amadeus, and Opera/Oracle have comprised the industry’s vital infrastructure since the 1970s and 80s, while the likes of Expedia and Booking.comhave dominated the B2C space since the early 2000s — despite not having raised venture capital themselves. That was because the travel industry was slow to adopt new technology, and there were few examples of startups that reached a level of scale and success that would excite investors.

However, the success of VC-fueled companies like Airbnb and Hopper have recently awakened early stage investors to the scale and opportunity in B2C travel tech. Though annual investments in the space have fallen from their 2022 peak, the overall trend is up. And with the emergence of successful growth stage companies like Navan, Mews, and Lighthouse, we believe it’s time to shine a light on the enormous opportunity that currently exists in B2B travel tech.

A perfect storm of market challenges is forcing the industry to rethink its relationship with technology. First, online travel agencies (OTAs) increasingly dominate customer mindshare and diminish suppliers’ margins. Gaping holes have emerged in technology infrastructure and the scalability of existing systems, and are notoriously impacting customer experience. And finally, operational costs have exploded for service delivery, where employee turnover has risen dramatically and highlighted the low desirability of jobs in the industry. As a result, industry players have evolved from a “throwing bodies at the problem” mindset to searching for scalable technology-driven solutions.

For the first time, travel and hospitality providers are adopting new software tools at a rapid pace. According to Hotel Tech Report’s annual survey of hoteliers, 81 percent believe technology will be more important for the success of a hotel business in the next five years. Technology budgets in hospitality have been steadily rising to 4.2 percent of revenue in 2024, with 37 percent allocated to new implementations and R&D. Meanwhile, 78 percent of airline CIOscited an increase in technology investment this year. Over the next several weeks, I’d like to outline three key areas where B2B startups are transforming travel right now, starting with the new operational and commercial tech stack that startups are building for hotels.

Hotels Are Rapidly Adopting Technology Right Now

For hotels, the pandemic exposed many commercial and operational challenges that had been percolating below the surface for some time. Lagging technology left hotels unable to deliver the digital-first experience guests needed, and awoke the industry to its woeful state of software adoption. Consumers were digital-first, but hotels continued to throw people at their problems. Many travelers were (and often still are) shocked at lengthy check-in lines and frustratingly analog guest experiences that other industries had digitized long ago, from tipping to contactless check-in. In an industry with more than 70 percent employee turnover, delivering a great guest experience became a costly challenge for hoteliers. Meanwhile, hotels have been losing their most profitable, direct customer channels as they have been squeezed by OTAs.

In response, hotels have been on a software buying spree to modernize systems. We see three priority areas of investment:

Property Management Systems: The vast majority of hotels run on aging property management systems (PMS), built decades ago by vendors such as Opera (Oracle) and Agilysys. The mission critical nature of a PMS has led these often on-premise solutions to become the proverbial “server in the back of a closet” no one wants to touch. While the PMS has generally proven far stickier than many ambitious entrepreneurs imagined, we are now seeing more hotels hitting the “reset” button and adopting one of the numerous modern, cloud-based options. Frontrunners include Mews, Stayntouch, and Cloudbedswhich, when implemented successfully, facilitate delightful experiences for hoteliers and their guests, and help hotels take a large step forward into a future-proofed, digital-first technology choice.

Guest Experience: Many hotels are hesitant for a wholesale replacement of their PMS, but need a modern platform from which to deliver digital-first guest experiences. Companies like Canary Technologies and Duve are creating a new technology layer serving as the digital interface with guests for interactions such as contactless check-in, digital tipping, messaging and more, without replacing existing infrastructure or increasing headcount. This new category additionally serves as an important jump-off platform for AI in hospitality and is often cited as a top priority new investment area for hotels.

Commercial Operations: Hotels have long had a lopsided bond with OTAs, who increasingly own the customer relationship and drive profitability away from the hotels. This has sharpened hotels’ lenses on commercial operations and ensuring distribution, pricing and profitability are best optimized. With stronger data-science tooling available, startups are bringing high quality data, business intelligence, and recommendations to hotels to help them run their business better. These include full end-to-end commercial platforms (Lighthouse), modern revenue management solutions (Duetto), powerful distribution tools (Siteminder) and far-reaching customer acquisition networks (Sojern).

Up Next: A New Layer for Content Distribution

Pioneering Progress: The FARAPULSE™ Story

Atrial Fibrillation (AF) Challenges and Treatments

Currently, atrial fibrillation (AF) is the most common form of irregular heart rhythm (also known as an arrhythmia) – impacting 40 million people globally1. It is projected that by 2030, the United States alone will grow to have 12.1 million people suffering from AF1. In addition to being a lifelong challenge, AF is a progressive disease that can be fatal, as it is linked to a risk of blood clots, stroke, heart failure, and other serious complications2.

If not addressed, initial symptoms may become more frequent and then permanent, yet only a small fraction of the population (about 15% of cases in the U.S.3) are treated for the root cause of the disease. Most patients are on anti-coagulants or other drugs to prevent clots and strokes; however, those medications have potentially dangerous side effects including bleeding, gastrointestinal issues, hematomas, and more.

“Therapy for AF – a condition that is now recognized as a worldwide epidemic – did not even exist 25 years ago, and we are still in the early stages of treating or even preventing AF,” said Robert Weisskoff, PhD, Senior Partner at F-Prime. “There was a clear need to improve upon existing methods and train an entire workforce of medical professionals to conduct a new procedure that offers patients rapid, safe, and durable results before the disease manifests permanently.”

When F-Prime met the Farapulse team, there were two existing interventions to treat AF – burning or freezing, both with considerable drawbacks. The first option, radiofrequency (RF)-based ablation burns small regions to reverse AF. It was the first technology introduced commercially, but it is lengthy process and requires highly skilled medical professionals. The second option, cryotherapy ablation (cryo), freezes those same regions. Cryo can be completed more quickly but lacks the same precision and control. Both techniques pose risks such as permanent damage to nearby tissues, such as the diaphragm or esophagus, and narrowing of the pulmonary veins. While these risks are relatively small, their potential consequences can be devastating.

Harnessing Technology for Targeted Solutions

In search of a better method to address AF, Steven Mickelsen, MD at the University of Iowa leveraged a technology known as pulsed field ablation (PFA), initially meant to treat cancer. PFA utilizes a high-voltage, low-energy source in a minimally invasive manner to selectively ablate targeted cardiac tissue without heating or freezing. PFA can selectively kill specific cells within a very well-defined region and offers a reliable, one-time intervention that reduces the number of repeat procedures that could be required. The team at Farapulse, led by Allan Zingeler, Raju Viswanathan, PhD, and an experienced MedTech R&D group, adapted the technology into a catheter-based approach that leveraged many of the same advantages of RF and cryo. However, PFA offers a quicker and equally effective treatment, while avoiding the potentially negative repercussions. Additionally, it is simpler to learn than other treatment options, facilitating wider adoption.

The effectiveness of PFA was validated in clinical trials (including a large randomized pivotal trial for the FDA in the U.S.), demonstrating it to be as safe and reliable as conventional thermal ablation methods. Real-world data from the MANIFEST-17K registry, presented at the American Heart Association’s (AHA) Scientific Sessions, further underscored its safety profile across more than 17,000 patients. Building on this success, FARAPULSE™, has since revolutionized atrial fibrillation treatment as the world’s clinical leader in PFA, with over 70,000 patients treated to date. Boston Scientific continues to be enthusiastic about expanding FARAPULSE into new markets, including China and Japan, targeting the latter half of 2024.

Transforming Healthcare with FARAPULSE™

F-Prime was among the earliest institutional investors alongside Boston Scientific, to recognize the promise of this transformative approach to treat AF. Boston Scientific identified a significant market opportunity and provided funding for Mickelsen’s original concept, aimed at competing with devices used by cardiac surgeons to treat AF during valve replacement procedures. Throughout the development stages, F-Prime played an integral role, particularly during the transition from an extracardiac to an intravascular approach, ensuring the product’s progression.

Weisskoff attributes the success of the product to a “small but highly experienced team. Our contributions involved helping them navigate fundraising, IP, and personnel dynamics, as well as develop an exit strategy before the U.S.-based pivotal trial.” He also emphasizes that the strategic timing of involving Boston Scientific, which later acquired the company, and the careful structuring of their engagement, were crucial in successfully navigating FARAPULSE through to approval.

Looking beyond AF, PFA technology holds promise for treating other conditions such as type 2 diabetes, where it aims to enhance glycemic control and restore insulin sensitivity. It may also have implications for chronic obstructive pulmonary disease (COPD) – potentially improving respiratory function by widening bronchial tubes. Advancements in PFA-based technologies also have the potential to lead to more selective cancer treatments. Through ongoing support, F-Prime is committed to backing innovative companies like Farapulse that are reshaping the landscape of medicine and are working toward setting a new standard-of-care for diverse medical needs.

 

  1. Hearth Rhythm Society
  2. Johns Hopkins Medicine
  3. Boston Scientific Crosses the FDA Finish Line with Farapulse, Medical Device and Diagnostic Industry

The State of Banking Report

Over the last few years, we have tracked the public fintech markets’ post-pandemic peak, trough, and recovery, as well as deeper dives on the payments and wealth management sectors.

Today we are excited to release a new report on the State of Banking, available for download below and via the F-Prime Fintech Index. All roads eventually lead to a bank — a bank account, a loan, a payment — and no discussion of fintech is complete without a look at this sector.

For much of the recent fintech disruption, we talked about the unbundling of traditional bank services and the threats to their core revenue streams. Ten years in, incumbent banks haven’t gone anywhere — yet there are scaled players in nearly every banking product line. We have seen the rise of embedded banking, neobanks, open banking, and major shifts in share from bank credit to private credit.

As the chart below shows, the valuation multiples of disruptors have aligned more closely to incumbent banks since the correction, but underlying performance depends a lot on where you sit. The approximately 3,000 banks in the US with less than $500M in deposits are actually shrinking, squeezed by the megabanks at the high end and the neobanks on the low end. More on that below.

So what is driving these shifts in the banking landscape? We’re focused on eight key themes that are impacting banks and their customers right now, each posing varying levels of threat and opportunity for incumbent players.

In this article, we will highlight three of those trends: banking-as-a-service (BaaS), private credit, and stablecoins. To read about neobanks, real-time payments, open banking, non-banks, and AI in banking, check out the full report here.

1. Despite Regulatory Scrutiny, BaaS Is a Source of Growth for Smaller Banks

Banking-as-a-Service is as much a product of necessity as innovation. For hundreds of fintech startups and software companies, BaaS innovation has been critical to lowering the friction and cost of offering financial services to their customers. On balance, we think this has provided immense benefits to consumers and small businesses.

However, as noted above, nearly 3,000 US banks — the majority of banks — are losing deposits. Megabanks like J.P. Morgan, Wells Fargo, Bank of America, and Citibank have grown deposits nearly 10 percent annually, while neobanks like Chime and SoFi have each rapidly scaled to more than $10B in deposits each in under 10 years. BaaS has been a rare source of growth and operating efficiency for some smaller banks.

Smaller banks that have turned to BaaS models have typically restored growth, improved operating performance, and built product differentiation. Banks with less than $10B in assets that provide BaaS services outperform their non-BaaS peers on key metrics. For example, in 2023, BaaS-providing banks grew deposits 18 percent year-on-year (vs. zero percent for non-BaaS peers) and achieved a 1.5 percent return on assets (vs. one percent for peers).

As all readers know, despite the benefits of BaaS, regulators are very concerned about the risks and understandably so. Abstracting KYC, onboarding, and other compliance tasks away from banks via BaaS middlemen was already drawing regulatory scrutiny before the messy collapse of Synapse in the spring. It is clear regulators would prefer banks work directly with startups, not through BaaS intermediaries, and no matter what they must retain ultimate accountability. Going forward, banks with well-developed BaaS programs will have to navigate an increasingly risk-averse regulatory environment.

 

2. The Rise of Private Credit

The market for non-bank sources of capital has been rising, driven by decades-long market shifts, including bank consolidation (and the corresponding decline in the number of banks) and post-2008 regulation requiring banks to increase reserves and reduce balance sheet risk. Private credit players have stepped in to fill the void, becoming an increasingly important source of capital for consumers and small and medium-sized companies. However, they need purpose-built tools to digitize, automate, and scale their underwriting and portfolio monitoring — creating an opportunity for startups to build new software infrastructure to support the asset class. Rising players include include deal syndication and funds flow platforms like PactFi, diligence and deal closing platforms like Finley, and underwriting, portfolio monitoring and compliance platforms like HighFi and Cascade.

 

3. Stablecoins — Finally, A Killer App for Crypto?

Under its original vision, crypto would provide the ultimate low-cost payment network. However, thanks to the inherent volatility of Bitcoin and other cryptocurrencies, they struggled for many years to gain traction beyond their status as an alternative asset class.

The promise of stablecoins — cryptocurrencies fixed to the value of a more stable fiat currency — is that they can deliver on crypto’s original promise of a cheap, efficient, permanently accessible global payment network. And over the last six years, we’ve seen them rise to rival other payment networks like Mastercard and VISA. Notably, many of these stablecoin transactions are technical settlement transactions vs “real-money” transactions like e-commerce and cross-border trade, but the direction of travel is clear and the volumes are impressive.

Large banks are also launching their own stablecoins — J.P. Morgan was the first to launch a bank-backed cryptocurrency in 2019, and says it now handles $1B in daily transactions. Use cases include payments between clients in wholesale payments businesses, and treasury and liquidity management. Meanwhile, PayPal launched its own dollar-pegged stablecoin last year, providing a potential payment option for e-commerce and point-of-sale transactions, as well as peer-to-peer cross-border payments facilitated by Xoom.

It remains to be seen whether we will have a world of a few dominant, liquid fiat-backed stablecoins or numerous company-backed stablecoins but either way, the world of commerce could look very different in 10 years. We’re excited to see the infrastructure built to enable it.

Originally published on Fintech Prime Time. Download the full State of Banking report here.

 

In a Crowded Savings Market, Deep Industry Experience Set Vestwell Apart

Selling to financial advisors was the best way to distribute savings programs both in and out of the workplace — but only Vestwell knew it

As Co-Founder and Chief Customer Officer at wealth advisory startup FolioDynamix, Aaron Schumm wanted to do right by his employees and help set them up with retirement savings accounts. But he was underwhelmed by his options: fees were too high, service was terrible, and the technology powering it all did not work well.

Later, after FolioDynamix was acquired by Envestnet, Aaron delved into the world of workplace savings, and started the journey focused on 401(k) plans for small and emerging businesses. At the time, 72 percent of workers at companies with less than 100 employees did not have access to a company-sponsored retirement plan. Meanwhile, the industry’s low margins and historically sticky products meant that recordkeepers were consistently underinvesting in technology. The average small-market 401(k) plan customer was losing more than two percent of their retirement savings in plan admin fees, fund and annuity fees, and advisory fees. Spotting an opportunity, Schumm founded Vestwell in 2016 to build a cloud-based recordkeeping platform that would form the underlying infrastructure for workplace savings programs — starting with the 401(k).

“Vestwell was founded to provide advisors and employers with an affordable, compliant, and easy-to-use workplace savings platform to help close the savings gap in America, and F-Prime has supported that mission since our inception.”

Aaron Schumm, Vestwell Founder

The so-called “American savings crisis” goes further than retirement — for example, around 61 percent of Americans cannot afford to pay for a $1,000 emergency. The 401(k) landscape was indicative of the broader savings industry, operating on technology that has largely gone unchanged for 40 years. Retirement savings was just the beginning.

Other players had spotted the same opportunity to focus on the 401(k) market. Vestwell was one of several startups that emerged between 2015 and 2017 to build a new support platform for businesses’ 401(k) plans, and some had already delivered products to market and raised sizable warchests from big-name investors.

However, Aaron’s team possessed a unique insight: the majority of workplace savings programs, including retirement programs, were sold via financial advisors, and not directly to businesses. Vestwell built its platform incorporating the financial advisor as a core stakeholder, giving it the ability to offer far more flexibility in terms of funds, operational and reporting capabilities, and other retirement planning services.

 

Industry Experience Goes A Long Way

Aside from his experience at FolioDynamix, Aaron had also led or worked on product teams at Citi and Fiserv before starting Vestwell. By the time F-Prime met Aaron, we had been involved in the fintech industry long enough to recognize his strength as an industry veteran who genuinely understood the market better than his competitors.

In the mid-2010s, financial advisors served more than 70 percent of small market 401(k) plans. By building relationships with home offices and trust with individual advisors, Vestwell could efficiently sell to a large number of 401(k) plans — and this was the only viable path to revolutionize the SMB 401(k) market. When Aaron set out to raise his first round of funding, we teamed up with like-minded investors at Primary Venture Partners, FinTech Collective, and Commerce Ventures to help him execute that vision. The following year, we doubled down to lead Vestwell’s Series A.

“Vestwell was founded to provide advisors and employers with an affordable, compliant, and easy-to-use workplace savings platform to help close the savings gap in America, and F-Prime has supported that mission since our inception,” Aaron said at the time.

History has proved Vestwell’s thesis correct. Aaron has successfully led the company to become an award-winning record keeping platform that is far more efficient than any traditional platform today. Vestwell has also gone beyond just 401(k)s, creating the only single platform architecture to power other tax-preferred savings vehicles in and out of the workplace, such as emergency savings, 529 Education Savings, student loan matching payments, and ABLE disability savings programs.

Anticipating the value of public-private partnerships in driving innovation within the savings industry, Aaron has also established key partnerships with state governments. They have overwhelmingly turned to Vestwell for its ability to deliver a personalized savings experience on a state-of-the-art platform that spans all savings vehicle verticals. Vestwell now powers more than 80 percent of the live state auto-IRA savings program in the country.

As the company has rapidly expanded into a leading savings and investment platform, it has over $30B in assets saved and well over a million users employed across 350,000 businesses. In December 2023, Lightspeed Venture Partners led Vestwell’s latest funding round: a $125 million Series D — one of the largest rounds of its type for the year.

FedNow Turns One: What Have We Learned About US Real-Time Payments?

It’s been one year since the U.S. government launched FedNow, its long-awaited real-time payments (RTP) system.

More than 70 other countries already had national RTP rails at the time and some, like Brazil, India, and China have seen huge adoption in the years since they rolled out their own infrastructure. At the time, I compared their experience with the uniquely fragmented banking landscape and entrenched card payment infrastructure in the United States to make 10 predictions for FedNow.

Those predictions were:

  1. FedNow would start a domino effect of RTP adoption, led by consumer use cases
  2. Mass network connectivity would take close to a decade
  3. FedNow would replace cash and checks, but not credit cards
  4. Person-to-business (P2B) account-to-account use cases would grow slowly, but steadily
  5. FedNow would offer an incremental improvement on payment infrastructure, not a paradigm shift
  6. Interoperability would be a prerequisite for any QR code renaissance
  7. Digital wallets would become the next battlefield in e-commerce and at the point of sale
  8. Authorized push payment fraud would rise
  9. Attracted by high speeds and low costs, consumers and small businesses would be quicker to adopt RTP
  10. FedNow would fuel cross-border money movement

A year on from FedNow’s launch, it’s time to check in on those predictions — some of which require more explanation than others. Let’s check through the quick ones first:

  • FedNow early in a long process of replacing cash and checks — but not credit cards.
  • FedNow is offering an incremental improvement on payment infrastructure, but not a paradigm shift.
  • For now, we are still waiting for the mass domestic adoption of FedNow that would help it fuel increased international money movement.

Okay, let’s take a look at what we learned:

Mass connectivity will take a long time…

…But hopefully not too long. I recently participated in a Wharton FinTech Podcast interview with Nick Stanescu, who serves as Chief FedNow Executive at the Federal Reserve Bank of Boston. During our discussion, he shared that there are now close to 900 financial institutions live on FedNow, including banks and credit unions of all sizes across all 50 states. A year ago, that number was 35. However, remember America’s uniquely fragmented banking system: the country has almost 8,000 banks and credit unions. So while mass connectivity is still a long way away, hopefully this encouraging early adoption rate means we’re closer to five years away, instead of ten.

FedNow will start a domino effect of RTP adoption

As Stanescu pointed out in our interview, the majority of FedNow transactions fall under consumer use cases. Most of those have been account-to-account payments, the funding of digital wallets, and even earned wage access, where workers can access their wages the same day they earn them. Other exciting use cases include insurance payouts and emergency relief payments, typically lengthy processes which would happen instantaneously on FedNow rails.

Merchant incentives: Cost savings alone aren’t enough

Brazil’s Pix system has one of the most impressive RTP adoption rates in the world, and is predicted to account for 40 percent of the country’s online shopping transactions by 2026. There are a number of structural reasons for RTP’s success in Brazil relative to the United States, including differences in card payments infrastructure and the aforementioned banking fragmentation (or lack thereof — in Brazil, the top five banks account for 80 percent of total commercial assets, compared with 49 percent in the US). But there’s another structural difference we hadn’t initially accounted for: merchant incentives.

In Brazil, card settlement typically takes 30 days, while higher merchant discount rates lead to higher interchange take rates for card transactions — 2.9 percent for credit and 1.6 percent for debit. In the US, those rates hover around 1-3 percent and 0.25-1 percent respectively. An incentive therefore exists to push Brazilian merchants towards Pix, while their American counterparts have no such incentive. Boleto, a printed cash voucher, is another popular Brazilian payment method, and costs less to accept but takes a lot longer to process, and is inconvenient for users to pay.

Compared to those two options, Pix offers drastic improvements on all fronts: higher conversion, cost reductions, and faster settlements. Cost alone is not a strong enough incentive for American merchants to adopt FedNow. Looking forward, RTP providers will have to rethink the overall merchant and customer experience including conversion, loyalty, and customer satisfaction.

Bank incentives: Hopping the revenue hurdle

Real incentives already exist for banks to participate in RTP networks. There are cost savings from a reduction in the handling of checks and cash, including ATM usage. However, some banks harbor concerns that FedNow will cannibalize revenue from other payment methods, such as wire and credit card interchange fees, because the RTP option will tend to be cheaper. It is true that in countries with high RTP adoption rates, like Brazil, high interest rates and the ubiquity of installment payments (the original BNPL) mean fewer consumers carry credit card balances. This means that the loss of credit card revenue is not as high for Brazilian issuers as it might be in the US.

However, businesses and consumers have a strong preference for speed. “Pseudo-RTP” players like Venmo, Cash App, and Zelle are useful early indicators of demand for the real thing — and Zelle is on pace to reach $1T in run-rate volume by the end of this year. Meanwhile, as FedNow adoption grows among financial institutions, there are big opportunities for fintech startups to help FIs with hurdles like authorized push payments (APP) fraud, instant reconciliation, and ERP integration.

Security is a moving target

Wherever RTP systems gain traction, crimes like social engineering fraud, scams, and even physical robbery associated with APP fraud rise as a result. In 2023, the Brazilian Public Security Yearbook counted around 1M phone robberies, with thieves tending to act on Fridays, giving them more time to drain accounts while banks are closed over the weekend. Once they’re in a victim’s phone, a thief can do everything from place an order via MercadoLibre’s one-click checkout to access bank accounts — the average Brazilian has 5.8 accounts per person — and Pix rails, along with the 800 or so fintechs connected to them.

Combatting APP fraud is a team effort. Google recently launched a new anti-theft feature for Android devices that locks Brazilian phone screens when its AI detects a theft. The Federal Reserve has developed a tool called ScamClassifier to help the payments industry improve scam reporting, detection, and mitigation. And startups are emerging to tackle fraud on a global scale, with TunicPay, Archer Protect, and SOS Golpe as just a few notable examples.

Tap-to-Pay could level the playing field for offline PoS payments

One of my predictions last year was that digital wallets would become the next battlefield in e-commerce and at the point of sale, and that has become more and more true over the last year. At last count, digital wallets were the leading e-commerce payment method in the US, accounting for 37 percent of all e-commerce transactions (Asia Pacific at 70 percent and China at 82 percent), while credit card came second at 32 percent, and debit card a distant third at 19 percent.

However, digital wallets lag at physical points of sale (15 percent of total transaction value) because of the lack of interoperable QR codes, and other sources of friction. After all, it’s a laborious process to open your banking app, enter credentials, and scan a QR code while a cashier waits. Tap-to-pay technology would level the playing field for real-time payments, reducing the whole process to a single step — just like swiping your credit card. For now, though, issues like dispute management, instant refunds, and reconciliation still need to be solved.

Tap-to-pay has some big tailwinds at its back right now. Earlier this month, as part of the anti-competition settlement, the EU just accepted Apple’s offer to enable near-field communication (NFC) features for non-Apple wallet systems on Apple devices, including tap-to-pay. It also includes Face ID biometric authentication, defaulting for preferred payment apps, and a dispute settlement mechanism. And in the same month, NFC Forum announced a new functionality called multi-purpose tap. With it, a customer in a store could tap their phone on a terminal that simultaneously pays for their goods, checks their ID if they’re buying age-restricted goods like alcohol, adds points to their loyalty account, and provides a digital receipt.

Overall, infrastructure is emerging to help merchants manage a customer’s whole shopping journey, generate more sales, and ultimately boost customer loyalty. Because remember: improved costs and settlement times alone are not enough to entice merchants or consumers to adopt the real-time payments enabled by FedNow.

Looking ahead, opportunities abound for fintech startups to build and partner with financial institutions to fight APP fraud, enable instant reconciliation, integrate ERPs, and build interoperability between payment systems. Wherever startups are helping FIs orchestrate a smooth implementation and onboarding of FedNow, we are eager to partner up.

 

Originally published on Forbes.

Redefining Interoperability and Solving Healthcare’s Toughest Data Challenges

Boston-based 1upHealth brought seamless data transfer to healthcare

Since the mid-2010s we have been able to access banking, credit card, and brokerage information within a single app. But while fintech players like Quovo and Plaid have long undergirded data transfer and interoperability within the realm of finance, healthcare data segmentation has persisted. Patients must often keep track of their medical histories, diagnoses, and treatments across multiple care providers and access portals — if they can figure out how to access it at all.

 

Change on the Horizon

That status quo began to shift with the 2009 passage of the HITECH act, which encouraged the adoption of electronic health records (EHRs). Later, government agencies mandated data sharing between payers and providers using the Fast Healthcare Interoperability Resources (FHIR) protocol as a common standard. By 2021, more than 96 percent of medical records had been digitized.

“1upHealth’s collaboration with F-Prime represented a pivotal step for the company.”

Ricky Sahu, Founder

As investors in PatientPing (now Bamboo Health) and Quovo — pioneers in facilitating healthcare and financial data exchanges, respectively — F-Prime Capital’s Carl Byers, Brett Cook, and David Jegen had long believed in the potential of healthcare data interoperability to boost efficiency across the healthcare ecosystem. Through close collaborations between the Heath IT and Services and Tech investment teams, they identified four key pillars for our thesis, including:

1. Successful players would start by serving data-holding providers and payers
2. Aggregators will be essential, but few (if any) would be able to differentiate themselves
3. It is essential to serve well and win the app developer ecosystem
4. Strong network effects are possible

When the right company came along, we were ready.

 

Healthcare’s Modern Data Platform

Despite initial resistance within the healthcare industry, healthcare payers had begun selecting vendors to help them comply with regulatory changes. The situation created a unique catalyst and opportunity for a company like Boston-based 1upHealth, which had developed a cloud-based platform that helps healthcare companies collect, organize, share, and use their data more effectively. By bringing together patient records, insurance claims, and other types of health data, the company facilitates improved healthcare, lower costs, and less risk.

We quickly realized that 1upHealth had developed the healthcare industry’s most sophisticated FHIR-enabled health data platform, which supported interoperability across the healthcare ecosystem. The founding team shared a strong skill set across tech infrastructure, healthcare and resource management. From this expertise, they rapidly built a robust platform and fast-scaling sales engine, demonstrating clear product-market fit by the time we led 1upHealth’s Series B in April 2021.

“1upHealth’s collaboration with F-Prime represented a pivotal step for the company,” Founder Ricky Sahu told us recently. “They have helped us through multiple financial planning and strategic efforts, shared their historical experience working with and investing in companies across healthcare data and adjacent industries, and fostered critical connections ranging from new team members to prospective customers.”

 

Infrastructure for Impact

Using its platform, 1upHealth customers can streamline the collection of clinical data to power workflows like quality reporting, risk adjustment, care management, and utilization management. Their data is easily accessible and discoverable for all downstream applications and analytics functions, and complies with health data exchange regulations including prior authorization, payer-to-payer, and provider access rules, leveraging FHIR application programming interface (APIs).

Since our investment, 1upHealth has emerged as the leading vendor to tech-forward healthcare buyers seeking a cloud-based solution to support a more interoperable future. We are also excited to see payers and collaborating entities like healthcare providers using 1upHealth’s cloud infrastructure to support the transition of payment models between payers and providers from the predominant fee-for-service model, which tends to misalign incentives, to a value and risk-based arrangement that aligns payers and providers’ focus behind patient health. As investors, we saw PatientPing (now Bamboo Health) help facilitate data sharing for these purposes and looking forward, we see a tremendous opportunity to provide the infrastructure for similar use cases and companies.

Behind the Build: Q&A with Tammy Sun, Carrot Fertility

Tammy Sun, the Founder and CEO of Carrot Fertility, is a pioneering leader driving transformative change in global fertility care. With a profound commitment to comprehensive and inclusive services, Carrot Fertility addresses the diverse needs of individuals navigating their family-building journeys and beyond.

Navigating the complex landscape of women’s health and fertility care demands an inclusive and personalized approach—a principle that aligns closely with Carrot’s mission. Tammy highlights the diverse needs of those facing fertility challenges, emphasizing the critical role of tailored support amidst a sea of information, costs, and legal considerations. Carrot’s innovative model encompasses the full spectrum of fertility and hormonal healthcare, pioneering a lifecycle approach that transcends traditional boundaries.

As Carrot continues to expand its offerings and educate members, Tammy remains steadfast in her pursuit of transforming reproductive health and family-building care on a global scale.

What motivated you to start Carrot Fertility?

In my 30s, I decided to freeze my eggs. I was surprised to learn that despite having a great job and health insurance, my three rounds of egg freezing wouldn’t be covered. I spent more than $35,000 out-of-pocket.

While the overall experience was emotionally challenging, I also felt grateful that I had enough money in savings to pay for my care. That’s not true for most people who undergo fertility treatments. Cost is one of the biggest barriers to accessing care, and I was set on changing that. Carrot’s mission was born from this vision of fertility care for all, inclusive of age, sex, sexual orientation, gender identity, race, income, marital status, and geography. Today, we are the leading global platform for comprehensive support and access to care for maternity through menopause — and pre-pregnancy through parenting.

Can you tell us a bit about the women’s health landscape overall? What makes fertility care so complex? Why is an inclusive, personalized, and comprehensive approach necessary for those experiencing infertility?

While fertility and family-building care is a fundamental part of healthcare, there’s no one-size-fits-all approach. Some people know they want to grow their family but aren’t sure where to start. Others have begun the process but have encountered challenges and need guidance on what step to take next. The experience is unique for everyone, but with so much information out there – and other added complexities, including navigating costs and local laws and regulations – it can be challenging for an individual to understand what’s best for them and their personal needs. That’s why we work directly with our members to create personalized Carrot Plans that guide members every step of the way.

How does Carrot stand out from other women’s health players? What current gaps is the company fulfilling?

What sets Carrot apart is our global and inclusive approach. We are the first organization to demonstrate an international presence since day one. We have reached into more than 130 countries and offer end-to-end translation of the Carrot app (web, iOS, Android) in ten languages, allowing employers to offer unilateral benefits.

Carrot is also the only fertility benefits platform that focuses on the full lifecycle of fertility and hormonal healthcare – from fertility preservation, treatments, and pregnancy to menopause and low testosterone for healthy aging. We have the largest provider network to support members globally, no matter their age or journey.

How has F-Prime supported Carrot in getting to where it is today?

Carl and the F-Prime team have been instrumental in Carrot’s journey by deeply understanding the significance of enhancing health outcomes through improving access to high-quality, lifelong fertility care. Since joining Carrot’s board in August 2020, Carl has been a key strategic partner when navigating challenges and seizing opportunities in the ever-evolving healthcare landscape. Carl’s strategic approach, coupled with his profound expertise, has guided us toward success for our customers, partners, and most importantly our members.

How did you come up with the company name?

First-generation fertility products were largely cycle tracking-related and feminized in their naming and branding. We knew early on that fertility was a human healthcare issue — not only a women’s health issue. Carrot is easy to say, easy to recognize, and we’re continuing to build a brand around the name that invites all people to engage in lifelong fertility and hormonal healthcare.

What’s been the most rewarding part of your tenure with Carrot to date?

Hearing directly from our Carrot members. We support people throughout some of the most meaningful times in their lives, and we don’t take that for granted. Whether it’s hearing from members who adopted their son, a member who was able to work with a postpartum doula, or a member who could now afford to freeze her eggs, each and every one of these personal stories means so much to me, and our team. It’s the most rewarding part of our work.

What’s the best piece of professional advice you’ve ever received?

One of the best pieces of advice I ever received was from a friend, who sadly passed away a few years ago. She was a daring, brilliant, and successful entrepreneur. She was also an author who published a best-selling book not long before she passed away. I once asked her why she decided to write a book and she replied, “because I could no longer not write one.” She had something she thought she could give the world. Similarly, there was a point when I could no longer not start a company whose mission is to bring fertility care to all people. This is the advice I’d pass on to anyone thinking about embarking on a journey to build an enduring company. Do it, but only if you think there’s no other pursuit you can, or should, be doing instead.

What are your near-term and future goals for Carrot? How do you see Carrot supporting expanded access to fertility and family building care?

We continue to focus on expanding access and improving outcomes for our members through personalized care. That includes educating our members about their options and guiding them to the right level of intervention based on their needs.

With preventive options like fertility testing, ovulation tracking, and nutrition support, we encourage members to approach their fertility health proactively. Two-thirds of Carrot members choose less invasive options over IVF when appropriate, eliminating costly and medically unnecessary procedures.

For cases where IVF is the best option, Carrot members are educated on the benefits of single embryo transfer (SET), which is the single most predictive indicator of a singleton IVF pregnancy and subsequent successful live birth. It is an important clinical protocol used to avoid multiple gestation pregnancies, which are associated with higher medical costs and poorer health outcomes for mothers and infants.

Last year, we published an internal study, also validated by independent actuarial service Milliman, demonstrating the highest reported SET rate of any fertility benefits vendor and an IVF pregnancy rate greatly exceeding national averages. The study found that Carrot’s SET rate of 93% was 27% higher than the national average and that our IVF pregnancy rate of 60% is 11% percent higher than the national average. Our industry-leading SET rate leads to a reduced risk of low-birth-weight deliveries and costly NICU admissions, ultimately reducing overall healthcare costs.

What makes you most hopeful about the impact that Carrot could have for women when it comes to family building and beyond?

Over the last few years at Carrot, we’ve launched new products and expanded our offerings to ensure our members have access to care, no matter what fertility, pregnancy, hormonal health, or family-building journeys they’re on. One product I’m particularly passionate about is our menopause support.

By 2025, 1.1 billion women worldwide will have experienced menopause. Symptoms can last for years and disrupt daily life, yet menopause is rarely discussed at work despite it impacting women at the height of their careers. In fact, 80% of women cite menopause as a workplace challenge and more than half have considered making an employment change due to menopause.

We were the first fertility benefits platform to introduce menopause support, and now, nearly all of our 1,000+ customers have started offering the benefit to their employees, showing promise that the tides are turning towards more menopause support in the workplace. I’m hopeful that a year from now, we’ll see even more leading employers recognize the need for menopause support and that it becomes a standard part of healthcare benefits.