Stax's latest acquisition pits it against Stripe, Block

Stax

The battle among payment firms has been defined by the drive to diversify, as firms like Stax seek to build or buy services that extend beyond the point of sale and reach into the back office.

To this end, Stax has acquired Atlantic-Pacific Processing Systems (APPS), a merchant acquiring company that will enable Stax to expand its focus from enabling payments and digitizing the point of sale to adding more payment processing functions and merchant products 

Stax, which has grown quickly since its founding as Fattmerchant in 2014, is looking to extend its relationships with its base of about 30,000 merchants and potentially reach other markets for new clients. The company thus far has weathered the fintech downturn successfully — it has added staff even as most fintech downsize. It is looking to maintain that momentum and prevent clients from turning to other payment companies that are also expanding into areas beyond payments. 

"A lot of the payments traffic is going through the big names in the payment processing industry," said Paulette Rowe, CEO of Stax, which appeals to small merchants by charging a subscription fee rather than transaction fees.  "We're hoping our model and pricing strategy will provide a competitive edge." 

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Terms of the deal were not disclosed. APPS' platform is now called Stax Processing, providing services similar to those of a traditional merchant acquirer or payment processor. The initial expansion is being deployed gradually during the fourth quarter, with new product development scheduled for 2024. The APPS acquisition follows Stax's earlier purchase of CardX, an automated surcharging platform that enables merchants to offset the costs of accepting credit cards. It also helps Stax automate surcharging compliance with disclosures and pricing tools. 

The challenge for Stax will be to expand its product line and enter new markets while maintaining the individual connections that enabled the company to establish a niche with its merchant base. Stax will sell its new product menu to independent software vendors, independent sales organizations and small businesses. The acquisition will enable Stax to compete in the payment facilitator market, which encompasses companies that support multiple payment types for merchants, as well as provide access to external online marketplaces to attract more consumers.

"These customers are looking for a source for end-to-end payment services," Rowe said. "If you're reliant on larger companies when you're a relatively smaller company, you don't have as much control or opportunity to help drive innovation." 

In a slower economy, businesses are looking to reduce the number of vendors they work with. That has led many payment processors to add services to become that one-stop shop for small businesses.

"Payment processing has quickly become one component of a full suite of transaction processing and business management services that are offered through providers like Square and Stripe," said Thad Peterson, a strategic advisor at Datos Insights. 

Rowe joined Stax as CEO in August and had previously been head of integrated e-commerce at London-based Paysafe. Rowe has also held executive positions at GE Capital and UBS, working primarily in Europe. 

At Stax, Rowe is responsible for product expansion and potential geographic expansion, as well as delivering new products faster. Speed to market has always been a major concern, but it has become more urgent at a time when payments technology is proliferating, according to Rowe. 

"We can eliminate some of the third-party suppliers that we have been relying on," Rowe said. "While we have enjoyed positive relationships with these third-party suppliers, when you have these interfaces with third parties there is more potential for friction in the payment journey." 

While Stax has focused on payment processing functions near the "front end," or payment acceptance, the APPS acquisition can help Stax connect to more back-office functions at a business. This would bring Stax into more direct competition with firms such as Stripe, which uses integrated payments as a way to offer security, inventory management, marketing and data management. Stripe has also added security and compliance services over the years and is making a foray into generative AI through its partnerships with the ChatGPT developer OpenAI. 

Square also embeds payments into other functions such as scheduling, marketing, accounting and customer relationship management. "This helps to speed up cash flow by reducing paperwork and the need to manually enter data into different systems," Square says on its integrated payments webpage. 

The large payment processors, such as FIS and Fiserv, offer integrated payments by nature of their scale and international partnerships with financial institutions. They bulked up through a series of acquisitions in which FIS and Fiserv — which are bank technology sellers by nature — added payment processing and merchant services technology. 

"While efficient, state-of-the-art payment platforms can really improve transaction processing functionality for small to midsize businesses, the value-added services that are provided by more full-service providers increase the value of the provider to the merchant and also makes the relationship more difficult to terminate," Peterson said.