Why Is Open Banking at The Inflection Point? Investing in Brite

Additional credits in Brite's due diligence and in this blog post go to Yusuf Janahi and the Headline FinTech team.

Today’s $60M Series A follows a breakout year for Brite Payments. Founded in Stockholm by Lena Hackelöer, an experienced payments executive, Brite is on a mission to equip businesses with instant payments and payouts. Brite is not only one of Europe’s fastest-growing fintech companies but also one of its few profitable ones.

Laser-focused on execution and operating away from the spotlight, Lena and her team more than doubled transaction volume and revenue in 2022, achieving profitability in less than five years from their founding. They accomplished this by offering a superior merchant and consumer product in a space that experiences double-digit growth each year: open banking.

Headline has long had its eye on this category, searching for a company that can achieve in open banking what Pismo (recently acquired by Visa for $1B in cash) achieved in the payment infrastructure space.

Here's why we believe Brite is a winner:

1. The premise

Open Banking is enabled by PSD2, the European Union directive that regulates payment services and payment service providers in Europe. Its primary goal is to create an integrated European payments market with more secure, fast, and efficient payment standards.

The most significant application of Open Banking comes from Account-to-Account Payments (A2A) technologies. These enable transactions to flow directly from a customer's account to a service provider's account (and vice versa), bypassing credit card schemes like Visa and Mastercard, along with the associated fees they charge.

The benefits of PSD2 are clear. However, it's worth noting that PSD2 has been in existence since 2015! So, what makes it worth talking about now, nine years later?

2. Why now? 

Timing is one of the main factors when Headline considers a new investment. And based on our analysis, Brite has it. The product features developed by Brite and their approach perfectly fit the timing of several tailwinds:

1. Real-Time Payments (RTP) are on the rise. The UK has FPS, Europe got Instant SEPA, and the U.S. recently embraced FedNow (more in this post from our colleague Sophia). Now that the rails are built, bank adoption is trickling in at a global level.
   
2. Digital Banking is universal. Today, most people have at least one banking app on their phone (61% of Europeans, 93% in Britain), allowing them to authenticate Open Banking payments. As the user experience and interface improves, consumer adoption grows.
   
3. Vendors are increasingly exposed to bank fraud and are actively trying to mitigate it, especially in today's uncertain macroeconomic environment.
   
4. Open Banking players that focus on infrastructure will be increasingly commoditized as the tech debt of incumbent banks decreases. The product depth of pure-play payment initiators (vs. full-blown instant settlement) limits the value proposition for merchants.
   
5. The underlying figures speak for themselves: The average annual growth of Open Banking users was +50% between 2020 and 2024. This steady increase meant going from 25M to 130M users globally. Half of them are located in Europe.

Today, card payments account for 50% of all transactions in Europe. Yet, they still present severe challenges to businesses and consumers alike. Deep A2A product offerings like Brite’s solve a lot of them:

• A2A use cases are increasingly mature, which leads to increased unit economics for businesses and higher customer satisfaction for users. For example:
• Businesses with high Average Transaction Values (ATVs) like airlines or car dealerships see noticeable margin improvements by saving on card fees and experiencing less fraud.
• Life gets far easier for all the participants of marketplaces and gig economy platforms. Funds become available immediately without having to wait 2-3 days like with card payments or wires.
• Subscription economies no longer face card expiration issues thanks to automatic renewals.

3. Enter Brite 

Companies like Brite are rare in their approach and their capital efficiency. Until now, companies in this space focused more on building a superior product for both merchants and consumers rather than advertising tremendous growth. Brite achieved both. Plus, today’s very substantial funding comes on top of a €5.5M Seed round in 2020.

Since then, they have also developed an offering that is available in 25 countries across Europe and connects with 3,800+ banks. Their customer base includes fintechs, marketplaces, and e-commerce platforms.

Lena, the founder of Brite, led Klarna’s DACH growth efforts (including those of Sofort, a German Open Banking business that Klarna acquired) and was CEO of a publicly traded BNPL platform before setting out to build Brite. We’re incredibly impressed by her deep understanding of the payments space in all its forms, and no less by her obsession with building customer-centric products. Since founding Brite, she has assembled an all-star roster of nearly 100 people.

In less than 5 years, the Brite team has developed a superior product offering that runs on payment rails that were built in-house. These include:

• Instant Payment Network (IPN): Funds are settled in 15 seconds across Europe, even in markets without instant schemes, heavily bolstering defensibility
• Instant Payins: This enables open banking payments, giving merchants immediate access to liquidity without the risk of fraud and chargebacks
• Instant Payouts: Running 24/7/365, this API-based payout ensures a superior customer experience with instant access to refunds.  Brite is the exclusive provider of Klarna’s A2A solution, Sofort 
• Recurring Payments: Subscriptions powered by open banking reduce card churn
• Brite Play: Allows merchants to sign up users in ways that are easy and standardized - including e.g. Know Your Customer (KYC) compliance processes, reducing drop-offs

4. Brite & Headline

Brite exemplifies our local-to-global approach, driven by our on-the-ground presence in seven world capitals across four continents. We firmly believe that Europe is the ideal place to cultivate the world’s Open Banking champion. Why? Because:

• 50% of global A2A payment volumes are European
• Established infrastructure frameworks like PSD2 (and soon PSD3) and anti-fraud legislation provide clarity, minimizing the regulatory uncertainties that often affect FinTech businesses 
• A2A payments can truly challenge the American card duopoly of Mastercard and Visa - creating a European payment method. This is in the best interest of all players involved - regulators, banks, and merchants alike. 
• Merchants are increasingly demanding more efficient payment rails that traditional card networks are ill-prepared to provide. 
• The opportunity, however, couldn’t be more global. Open banking legislation has also been enacted in disparate markets like Brazil, India, and Saudi Arabia, with Canada and Australia soon to follow.

Brite is well-positioned to become the leading provider of global instant payments and payouts. We can’t wait to work alongside Lena and her team as they create an alternative payment network that rivals the likes of Visa and Mastercard.