One industry analyst calls Braintree Inc. “a David in a Goliath market” among online and mobile payment providers. Another says the Chicago-based company must be offering “something special” to experience its past year’s growth.
Regardless of how it is viewed, Braintree intends to rely on its modern-technology expertise and old-fashioned customer service to continue its rapid rise and hold off competitors, Dan Manges, Braintree co-founder and chief technology officer, tells PaymentsSource.
Three months after securing $34 million in venture capital from privately owned Accel Partners of Palo Alto, Calif., Braintree on Sept. 19 announced it was adding 100 online merchants per month and processing $8 million in online credit card payments daily as of the end of June, a 256% increase compared with the $2.25 million a year earlier.
In addition, Braintree projects it will process more than $3 billion in online credit card payments this year, citing international transaction growth that produces 15% of the company’s processing volume.
The company established “lots of validation” shortly after forming in 2007 by securing significant online merchant clients such as OpenTable Inc. and Living Social Inc., Manges says.
“Those types of merchants recognize strong technology companies that provide a high level of support,” Manges tells PaymentsSource. Manges developed software for JPMorgan Chase & Co. and ThoughtWorks Inc. before joining Braintree in 2008.
Historically, merchants rarely consider a new payment provider, but the growth of online and mobile payments has sparked interest in seeking providers with expertise and technology in those areas, Manges says. The same dynamics allowed Braintree to expand globally, as international companies were seeking providers that could accept different currencies through online or mobile payments, Manges adds.
Manges realizes the opportunity to get involved in the potentially lucrative online and mobile payment market may cause longstanding and startup companies to generate competition.
“It’s hard to say how much more competition we will see in this space, but it is a hot area, as demonstrated by our success. So others view it as a big opportunity to get involved,” Manges says.
Two days after Braintree released its growth numbers, FeeFighters, a Chicago-based website businesses can use to compare credit card processing rates, announced it would compete against Braintree by providing online-payment services with its Samurai gateway, which enables merchants to switch processors to secure the least-expensive rates.
“We were always hearing from our customers that they had looked into other processors and felt they could get cheaper rates, but they couldn’t switch with their current gateway,” Stella Fayman, FeeFighters marketer and co-founder, tells PaymentsSource.
Founded in 2009, FeeFighters, raised $1.6 million in new funding from various investors in January, according to Techcrunch.com.
Samurai provides FeeFighters a competitive edge because it uses technology that allows a merchant to connect to various processors without establishing new gateway codes, a highly technical task too complicated for most merchants, Fayman says.
Use of the Samurai gateway will cost online merchants $10 per month and 10 cents per transaction, and establishing a merchant account and use of the gateway will cost 2.3% of each sale, 30 cents per transaction and $25 a month, Fayman explains.
Manges contends new companies entering the market may find staying power elusive if they do not have the technology expertise and capital to support it.
“What we do is not easy, and it is very costly to provide,” Manges says. “You have to have expertise in the industry from the technology side all the way to being [Payment Card Industry Data Security Standard] compliant.”
Manges believes Braintree has a competitive advantage because of its use of modern application interface, 24-hour technical support, and 30-cent-per-transaction pricing plus adjustable percentages of the sale based on the types of credit or rewards cards the merchant accepts.
Customers purchasing products from Braintree merchants never leave the merchant site when ordering and checking out, Manges explains.
Braintree uses what Manges calls a “transparent redirect” in which the merchant would host the checkout form and redirect it to Braintree once the transaction is complete.
Integrating Braintree technology with any merchant-processing system takes less than a day, possibly even just a matter of a few hours, Manges said.
However, believing Braintree or others like it could displace a major player such as PayPal Inc. in the online-payment industry is a stretch, Brian Riley, senior analyst and research director for Needham, Mass.-based TowerGroup, tells PaymentsSource.
“They are David in a Goliath market, a small player in the scheme of things. But there is no questioning that kind of growth in transactions,” Riley says of Braintree. “The key moving forward for all of these companies is being PCI compliant and having excellent security and showing an ability to deliver the various new payment forms.”
Indeed, Braintree’s transaction volume indicates the company has “found a foothold in some areas and is delivering what merchants want,” says industry analyst Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group LLC. “To get the kind of growth Braintree enjoyed, you have to have something special or execute it way better than [a competing company].
The online and mobile payment market is “a hot and fast growing space” with room for numerous companies, Ablowitz contends.
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