Payflow, A Salary Advance Startup In Spain, Banks $9.1M To Fund A Super App Growth Strategy

Payflow, a salary advance startup in Spain, banks $9.1M to fund a super app growth strategy

Payment processing startup Payflow has raised $9.1 million in a Series A funding round, taking its total funding raised since the company's inception in January 2020 to $13.6 million. Payflow is a salary advance fintech with ambitions to become a neobank based in Barcelona.

An international group of funds led the round, which included Spain's Seaya Ventures, a new investor in Payflow, and Cathay Innovation, through its C. Entrepreneurs Fund. Other investors included Force Over Mass Capital, the Y Combinator accelerator, and the Rebel Fund.

Salary advance services are provided to employers for their employees, with businesses paying a commission for the technology rather than charging users to take a portion of their salary early (as some other salary startups do).

According to Payflow, the model has gained support from both works councils and labor unions in the region.

Additionally, it promotes it as a distinguishing characteristic among salary advance startups.

Founder and CEO Avinash Sukhwani says, "We distinguish ourselves from other pay-on-demand companies in that we have never charged an employee for using the service (we are the first true employee benefit that is fully funded by the company)."

"Payflow is and will always be free for users," says Benoît Menardo, another co-founder of the company. According to the company, "Our vision is to create the first true employee benefit for blue collar workers, and we believe that if an employee is required to pay for something, it is not a true perk."

It claims that its users have a high level of adoption — with a download rate of 40 percent on average and as high as 90 percent for some of its clients — that is 5-10 times higher than that of other on-demand salary platforms and other social benefits.

According to the fact that 175+ clients have already signed up, it appears that its approach is meeting the needs of both employees and employers (covering 100,000 users).

In this case, the company provides a SaaS product, and the fee is calculated based on the number of employees who use the product.

A large number of large corporate clients are being targeted by Payflow with the product. Despite the fact that it claims to have customers from all industries, it claims to have the highest take-up among blue collar workers, which is perhaps not surprising.

Despite the fact that the company serves a wide range of industries, from restaurants to startups to hospitals, Sukhwani says that blue collar workers are the ones who benefit the most from its services.

If low-income workers can access their wages more frequently than once a month, for example, to pay an unexpected bill, a salary advance may be beneficial in preventing them from falling into debt. There may be risks associated with immediate access to wages that could result in a downward financial spiral, such as when an employee spends his or her wages immediately after they are earned and is left with no money at the end of the month, as previously stated.

If Payflow is questioned about this, the company responds that it includes a "safety limit" in its employer dashboard "in the event that employers want to restrict usage."

In order to ensure that employees always receive at least 50% of their salary in their monthly paycheck, Menardo explains that most businesses set this ceiling at around 50%. "This allows them to ensure that there is enough money left over for rent and other essential monthly expenses," he adds.

Expansion Plan

The Series A funding raised by Payflow will be used to expand the company's international reach.

Additionally, it intends to invest in product development in order to move closer to its goal of becoming a neobank, which will be announced soon.

Then there are those neobanks that take the opposite tack and include salary advance as an optional feature in their offerings (see, for example, Revolut).

A variety of different strategies and approaches for increasing customer onboarding can be used in fintech startups. Once traction is achieved, there is the opportunity to upsell users of a popular feature to more fully fledged banking services, which are funded by the success of the earlier featured product or service.

Consequently, fintech competition may be extremely dynamic as a result.

It is true that some users are more loyal and less likely to switch than others. If this segment of the population is targeted for banking services through a sticky enough feature that introduces them to a startup service and instills loyalty, it is possible that the banking industry will maintain a low churn for years to come. Or, at the very least, that is the fintech industry's utopian vision.

Payflow is currently working on a "super app" that will allow the company to begin expanding its feature set.

In addition, Menardo explains that by 2022, two new features will be introduced that will enhance the business-to-business value proposition by bringing financial wellness to blue collar employees. By incorporating numerous business-to-consumer features, [the app's] goal is to essentially become a "neobank" in the near future, according to the company.

Even though Payflow does not provide a timeline for converting its salary advance SaaS business into a direct to consumer neobank, Menardo suggests that the company intends to more than tenfold its customer base, noting that "this concept will be especially powerful once we reach millions of users."

According to him, "we intend to launch our first direct-to-consumer feature before the end of the year."

Furthermore, it is hoping to generate significant growth in its home market, where it intends to double down and spend $3 million of the new funding on market consolidation — with the goal of more than tripling its customer base in the country.

To complement its existing operations in Chile and Columbia, Payflow intends to expand into two additional markets outside of Spain in the near future.

Its expansion strategy will be focused on Europe and Latin America as the primary markets.

It is currently employing pilots in Italy and Portugal, among other places. Also stated is that it plans to open another market in Latin America this year, bringing the total number of markets in the region to five by the end of 2022.