UK Markets closed

GoCardless raises another $95M as it bets on open banking alongside its recurring payments network

Steve O'Hear
·3-min read

GoCardless, the London fintech that aims to become the one-stop shop globally for businesses that want to let customers pay via recurring bank payments, has raised $95 million in Series F funding.

According to The Telegraph newspaper, this gives the company much coveted unicorn status. However, I understand the round values GoCardless at just over $970 million, meaning that the 2011-founded fintech is perhaps best described as a soonicorn (presuming these things are important to you).

The latest fundraise was led by Bain Capital Ventures, and follows 46% year-on-year growth for GoCardless as it benefits from an increase in e-commerce and online payments generally during the pandemic. It brings the total raised by the company to date to $240 million.

GoCardless says it will use the funding to accelerate its open banking strategy, which will see it combine open banking-enabled bank-to-bank payments with the global bank debit payments network it has already built out. “For the first time, merchants will be able to access the best of both worlds for recurring payments: Instant open banking payments will provide visibility and speed, while bank debit maximises cash flow and minimises churn by pulling funds automatically from payers -- all at a lower cost than cards,” pitches the fintech.

In addition -- and noteworthy -- GoCardless says it will expand its offering into the “adjacent e-commerce market” to launch a simple and secure way of making open banking-enabled bank-to-bank payments as a lower-cost alternative to cards.

The company has always pitched direct debits as a much better recurring payments method, especially for subscription commerce and regular B2B payments. That’s because, amongst other things, debit and credit cards expire, breaking any subsequent recurring payments. By adding bank-to-bank payments to its stack, GoCardless is continuing to push up against the card network duopoly of Visa and Mastercard.

“We think the magic is in the combination of open banking payments and our existing direct debit platform,” co-founder and CEO Hiroki Takeuchi tells me, when asked why GoCardless is entering the soon to be commoditized space of open banking payments.

“They are really complementary as open banking is faster and more secure but direct debit is more flexible and more reliable. The combination will create something entirely new and unique that will not only make our product better for our existing customers but also enable us to go after new markets”.

He says that GoCardless already has the required FCA permissions to do open banking payments, and new products are actively under development. Debut products will be launching in the first half of 2021.

“We have been following open banking very closely but we felt it wasn’t reliable enough or slick enough for payments until quite recently,” adds Takeuchi. “This has been changing and we think now is the perfect time to focus on open banking payments”.

One interesting aspect of open banking is that the U.K. regulator is currently consulting with the industry on plans to make recurring payments possible via open banking, meaning that they could be used instead of direct debits. Arguably, GoCardless’ biggest moat is the global recurring payments network it has built, and so I put it to Takeuchi that open banking is both an opportunity and a threat to GoCardless.

“We don't worry about this -- we are agnostic to the rails we build on,” he says, pushing back. “What we care about is getting money from one bank account to another as efficiently as possible. In fact, we processed the first (and I think maybe the only) variable recurring payment via open banking last year as part of a test we worked on with the open banking team.

“If open banking offers rails that replicate direct debit then we will adopt those. The reality is that the payment itself is only a small part of the overall value we provide for our merchants -- there are a lot of other basics such as reconciliation, refunds, international settlement, FX etc. that are really important -- so we are confident that there is still a lot for us to do”.