Payments in the cloud for "underserved" SMBs

Targeting the ‘messy middle'

MineralTree sees wide open middle market for payment technology

Boston Business Journal by Taryn Plumb, Special to the Journal

Friday, August 10, 2012

In the financial industry, they’re sometimes referred to as the “messy middle”: Small and midsize businesses that have outgrown simpler cash management and payment models, but that aren’t quite big enough to implement the more complex, high-end software used by larger companies.
All told, they represent a significant market — more than 2.5 million businesses in the U.S. — and many industry experts say they’re underserved.
Cambridge-based startup MineralTree has a goal to tap that need with its cloud-based, “bank-branded” payment technology. The company, headed by BC Krishna, former CEO of Burlington fraud detection software firm Memento, came out of stealth mode in early November, and has raised $7.8 million through two venture capital rounds.
“I wish I could answer why they have been ignored, but they have been,” president and CEO Krishna said of his target customers — companies with annual revenues between $500,000 and $50 million, and which generally top more than 50 payments a month. “There is a gap in the market for a secure payment platform.”
Through revenue-sharing partnerships with financial institutions, MineralTree offers its system to end-users through their banks, and its technology handles non-payroll payments, such as employee expenses, taxes, and vendor checks. Although the company doesn’t deal directly with its end-user, it works closely with its partner banks to market and sell the product, as well as to identify potential customers, Krishna said.
Since coming out of stealth mode a little over nine months ago, the company has announced two venture capital rounds: an initial, $1.5 million investment by Boston-based .406 Ventures last February, and another $6.3 million investment in June led by Fidelity Growth Partners India, along with .406 Ventures. The money has been used to develop its technology, to sign on partners and clients, and to scale the business, according to Krishna. Citing confidentiality reasons, he said he couldn’t disclose the number of customers MineralTree currently has.
The company’s main goal: To present a technology that is easy to install and easy to implement, he said.
But security is just as fundamental as simplicity.
As Krishna explained, small and midsize businesses are an “attractive market for fraudsters” because, unlike large corporations such as IBM or Walmart, “the controls are not as great.”
Maria Cirino, co-founder and managing director of .406 Ventures, agreed that “cyber crime is growing at an alarming rate.”
Those statistics and others influenced .406 Ventures to invest in the startup and its technology, which she described as “complete, elegant and simple.”
There does seem to be ample opportunity for MineralTree given the sheer size of the SMB market, according to Michael Krigsman, president and CEO of Brookline-based IT consulting firm Asuret.
Still, he stressed, the keys to success with small and medium businesses are simplicity, cost and trust.
Cost, particularly, is “always the challenge of serving the SMB market,” he said in an email interview, adding that, “the big question is whether SMBs see their bank as a trusted, reliable business services partner, as opposed to merely the place to hold cash and write checks.”
Likewise, he cautioned, “many companies have tried to crack the SMB code, and relatively few succeed. I am not convinced that SMB’s will seek these services from their bank, but a compelling and inexpensive offering can work wonders.”
Cirino, for her part, believes that MineralTree’s will.
“We think we can grow a big company here,” she said, calling Krishna a “seasoned” and “quintessential” entrepreneur.
Krishna similarly sees great opportunities.
Looking ahead, the goal is to eventually add receivables, he said — but for now, the focus is on building a “robust” payments system for domestic clients.
In the U.S. alone, he said, the market is $10 billion to $12 billion — meaning there’s plenty of room to grow.
But beyond that, “obviously, it’s a global problem, a worldwide opportunity,” he said. “We’re (just) scratching the surface of the market.”

Original article link here.