Hello all – in this issue we give a quick review of real-time payments aka pay by bank, and how the card networks are participating – despite the fact that this might eat into their interchange revenue. We cover deal news, and link to our most recent CEO Chat. We’ll be in Nashville in early October – write to us if you’d like to meet up and compare notes on all things healthcare payments!
DEAL NEWS
PayZen completes $32M Series B equity raise
San Francisco-based PayZen, a non-recourse patient financing company, announced a $32 million Series B equity investment led by NEA. The round included full participation from existing investors including 7wireVentures, SignalFire and Viola Ventures. The financing also includes a $200 million credit facility from Viola Credit and a syndicate of insurance companies. PayZen joins patient financing companies PatienFi and Sunbit, both of which raised capital earlier this year.
After receiving acquisition interest, Boston-based payments company Flywire (NASDAQ: FLYW) disclosed that it is exploring a sale. According to reports, Flywire is working with investment bankers at Qatalyst Partners to evaluate interest from potential buyers, including private equity firms. Flywire, which serves healthcare as a result of its acquisition of patient engagement company Simplee in 2020, is valued at $2.1 billion based on its 8/20/24 closing price. The company's stock is down 69% since its October 2021 peak which occurred after it hit the public markets that year.
EliseAI, the largest and most advanced conversational AI platform for the housing industry, recently announced its Series D raise of $75 million. The round was led by Sapphire Ventures, with participation from existing investors Navitas Capital, Point72 Private Investments, DivcoWest Ventures, and Koch Real Estate Investments.
The company will use some of the proceeds to continue expansion into healthcare, which it entered in 2023. EliseAI has launched HealthAI which "deploys AI across voice, SMS, email, and chat to reduce administrative burden and call center workloads, and provide consistent, scalable, and cost-effective patient management" according to its website.
By now everyone in payments is pretty well aware of coming improvements, called real-time payments, to existing electronic funds transfer (EFT) methods. Real-time payments are described as “payments made between bank accounts that are initiated, cleared and settled within seconds, at any time of the day or week, holidays and weekends included”.
Today individuals and businesses primarily utilize the ACH network and wire transfers to send electronic payments. According to Nacha (formerly the National Automated Clearinghouse Association), there were 8.3 billion ACH payments in the second quarter of 2024 totaling $21.6 trillion. ACH is used for smaller transactions (average $2,500) compared to wire transfers, which averaged $5.6 million in 2023.
Coming improvements really isn’t accurate, since real-time payments have been around for a few years. Nacha has offered “Same Day ACH” since 2016, and use of this enhanced service is growing 22% annually, reaching $2.43 trillion in 2023 (see chart).
Source: nacha.org
Two other real time payments services have emerged to rival Nacha’s version. FedNow, launched in 2023, is the Federal Reserve’s service for instant payments. Given the Fed’s connections to all U.S. financial organizations, it is a good bet that FedNow will become ubiquitous. Among big banks, JP Morgan Chase is on, Citi and Capital One indicate they will join soon, and Bank of America and PNC are still holding out.
The Clearing House, which is owned by a consortium of banks and along with the Federal Reserve actually operates the ACH network (Nacha just administers it), launched Real Time Payments (RTP) in 2017. RTP has grown more slowly than Same Day ACH, logging 82 million transactions for $55 billion of value in Q2 2024 ($220 billion annualized). The payments company Volt has published a very good overview on the evolution of real-time payments, including reasons why RTP growth has lagged.
Source: theclearinghouse.org
How card networks are entering pay-by-bank
The real-time payments space is still evolving and growing relatively quickly. It is sometimes lumped into the term “pay by bank”, and used to describe “account-to-account” (A2A) transfers. One development that is interesting to watch is how the card networks participate with real-time payments. Since both Visa and Mastercard earn the majority of their revenue from credit/ debit payments on their current rails, real-time payments would seem to represent an existential threat to their core business. Yet, both companies know they need to adapt as demand increases for faster payments and reduced transaction cost.
Early on, Mastercard aligned itself with The Clearing House, and now serves as the “exclusive instant payments software provider for TCH’s RTP network”. Otherwise, Mastercard has helped stand up real-time payments networks in other countries (e.g., Thailand’s PromptPay in 2016), and undertaken other initiatives to build a position in real-time payments (see Mastercard blog).
Payments Dive recently profiled Visa’s approach, including its 2022 acquisition of open banking firm Tink which it has rolled out in Europe and now bringing to the U.S. Visa is also working with JP Morgan to provide pay by bank services through its Visa Direct platform.
A Visa executive suggested that the company’s pay by bank services could find the most traction in “stubborn categories – loan payments, rent payments, life insurance, healthcare, long-term care, education – big, chunky payments that tend to be larger tickets, lower velocity payments, where there’s some degree of card acceptance but the penetration rate is relatively low.” (Note: FinMed Partners has provided research and advice to card networks regarding increasing card acceptance with health insurers.)
American Banker says that “Visa and Mastercard both have strategies to become less reliant on interchange revenue. By adding services and enabling A2A payments, the two companies may earn less revenue per transaction than they do from a point-of-sale payment, but can benefit from offering a larger menu of services to their clients.”
Deal Tracker. Regularly updated list of healthcare payments related transactions since November 2023.
Conference List. Rolling twelve month look ahead at conferences and other events covering healthcare payments, revenue cycle, fintech and related areas.
CEO Chat. Thoughts from healthcare payments CEOs on the problem their company was founded to solve, their right to win, and plans for the next 12 months.
Newsletter Archive. News, trends, and insights from the healthcare payments industry compiled in our bi-weekly newsletter.
Epic MyChart. Excel sheet with full listing of all Epic MyChart instances as of May 2024, categorized by state, provider type and specialty.
All of these resources can also be accessed at the FinMed Partners Insights page.
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We'll be in Nashville in early October - please write to us at info@finmedpartners.com to arrange time to meet while we're in town!
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FinMed Partners is a management consulting and advisory business focusing at the intersection of payments/ fintech and healthcare. Our founders have developed deep expertise from decades of experience with health IT companies, healthcare providers and many players within the payments ecosystem. Investors, boards and executive teams work with us to maximize business value through strategic input and tactical execution.
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