Software-embedded payments: Why we invested in Forward

How we met the Forward team

Forward was founded by Brandon Lloyd, a serial founder with a track record of identifying opportunities, building solutions to address those opportunities, getting acquired by market leading enterprises, and then thriving as a senior leader in the acquiring enterprise.

Dan Rosen first met Brandon many years ago when Brandon was building Bypass Mobile (later, just Bypass), which became the market leading point-of-sale (POS) solution for the sports arena industry. Fiserv saw this category leadership and acquired Bypass into its broader Clover POS business unit, which has become the banking industry’s most broadly distributed platform for storefront-based SMBs.

Brandon’s entrepreneurial journey dates back to his college days, when he created a stored value payment system enabling students to purchase goods and services from off campus establishments with campus-based stored value. Sodexo acquired his company (Off Campus Solutions) and Brandon went on to spend 3+ years as the company’s youngest executive in North America. There he noticed an exciting opportunity to reimagine how stadium and event venues operate, in which Sodexo had substantial market share. Right around the time Square was getting to scale (and before they broadly distributed full POS terminals), Brandon left Sodexo to create Bypass with the vision of a tablet POS for stadium venues and an accompanying mobile app that would enable ordering from the seat.

After growing Bypass into a category leader and being acquired by Fiserv, Brandon was again tapped to take over increasingly important roles within the acquirer. In Fiserv’s case, they asked him to run integrated (embedded) payments, which was a combination of operations and platforms from multiple other acquisitions. In this role, Brandon saw that heavily funded FinTechs like Stripe and Adyen were developing interface, onboarding and activation innovations at a faster pace than incumbent processors. Specifically, he saw critical gaps/opportunities for improvement in the process of selling to software partners (e.g. spa booking software vendor), underwriting and boarding underlying sub-merchants (e.g. spas) and driving penetration of electronic payments usage within those sub-merchants.

Brandon recognized that the ‘build internally’ approach would likely be slower and possibly miss the mark on market timing and customer requirements. Working closely with colleagues at Fiserv, he devised a plan to spin out and build a new startup that would focus in this area. In mid-2023, he had recruited his core team and gotten started with development. By early 2024, he was testing live clients on the platform and seeing an exciting enough of an opportunity to contemplate raising capital to expand his sales and marketing efforts.

Being thematic investors, we’ve spent a bunch of time these past 6 months looking into next-gen PayFac enablement models, including speaking with a number of the industry’s largest processors and banks, as well as several innovative startups with compelling founders. Ultimately, in this process, we realized what Brandon was building at Forward and reconnected with him to learn more about his plans. Recognizing a few very unique aspects of his platform and approach, we were thrilled when the opportunity arose to become investors in the business as part of their $16M seed round. Stay tuned for more exciting news about Forward!

CV market perspectives

Higher level market trend

1. Software usage continues to grow: According to Morningstar, total software revenue is expected to rise 14% this year and grow 10%+ annually through 2027. As emerging players have increasingly made it more feasible for software players to integrate PayFac capabilities without the upfront investment, we have growing conviction that the overall payment TAM will continue to expand. Additionally, we believe there is an emerging appetite for new payment platforms and models, as new software platforms seek alternative solutions to expensive, inflexible legacy platforms.
2. Electronic payments continue to grow: We are continuing to see an accelerating shift from cash and card to digital payments, with card-not-present (CNP) transaction volume growing more than 20% year on year. This is driven by several secular trends — including the growth of e-commerce, the embedding of payments into software platforms, and the adoption of new payment applications.
3. Increasing need for sophisticated solutions for embedded payments: Traditional merchant acquiring / payment processing isn’t well suited for integrated experiences and reconciliation. The old model is a payment terminal or web paywall which is distinct from the core software platforms on which a business is run (e.g. reservation/booking platforms, ERP/Accounting, etc…). The opportunity for integrated payments is to embed payments (acceptance) neatly within the user experience while supporting seamless integration of data on these transactions to support vertical-specific needs of the business owner (e.g. pre-authorization of card) as well as smooth bookkeeping and reconciliation. Providing these capabilities will unlock a tidal wave of payment volume in its shift from traditional acquiring to software-embedded payment processing.

Different models for pursuing this opportunity

1. Modular money movement: Developer-first solutions that consolidate APIs for money movement (e.g., payment acceptance, digital issuance, etc.). These players seek to disrupt incumbents (e.g. Stripe, Marqeta) by monetizing and arbitraging both sides of the transaction by powering money-in and money-out capabilities.
2. Modern processing: Enable any 3rd party to offer branded, digital acquiring solutions. This bank-centric model seeks to displace legacy processors with cloud-based, real-time processing to capture more volume at lower marginal cost.
3. Nextgen PayFac: Enables software platforms to easily accept and monetize payments through a one-stop solution. Forward fits squarely in this category, enabling software developers to capture more payments revenue and cross-sell higher margin adjacent products (e.g., BNPL).

Distribution Matters

1. The next wave: While we think there are always opportunities to build better interfaces and use technology to simplify processing, we also recognize that this next wave of innovators has to figure out distribution in a way that provides a meaningful advantage.
2. Partnering: Working with or enabling large legacy payments through incumbents, big banks with relevant treasury client bases or even prolific software investors are some of the ways in which we see the opportunity to differentiate go-to-market in a relatively commoditized industry.
3. Cross-selling: Even within software clients who are embedding payments enablement for their underlying customers, the payments cross-sell skillset is often very limited. Winners in this space will need to assist and augment their clients’ in house selling abilities.

Unit economics really matter

1. Basis points add up: Given the competitive maturity of this market, we are seeing next-gen players scrambling to capture meaningful margin with payments take rates ranging from 5 to 35 bps, depending upon customer size and type, as well as the core processor relationship.
2. Take rate: Many next gen players hope to expand their effective take rate, by cross-selling other products or services, whether those be merchant financing/advances, embedded insurance, bank accounts, disbursements, etc.
3. Underlying costs: Another important factor is the underlying cost of acquiring from the core processor. Some are solving for this by becoming a core processor themselves (which is a lengthy and expensive process), whereas others are developing strategic partnerships with the core processor to have best-in-class pricing.

In Forward, we see a compelling founder-market fit with an approach that enables the company to ride the enormous shift from traditional payment processing to next-generation, software embedded payment facilitation. At the same time, we recognize that Forward’s efficient go-to-market approach and their close partnership with Fiserv should support strong unit economics, amplified distribution and a cost-effective pathway to scale.

We’re grateful to be working with Brandon, Fiserv, Elefund and the entire Forward team. Stay tuned for more exciting news on Forward!