Support from BBVA Spark, the startup financing division of the Spanish entity. Payflow, the startup that offers large corporations a service to deliver the salary corresponding to the days worked by the employee, has raised up to 20 million euros of debt. The operation allows the possibility of having a shareholding position in the bank. The technology company, which is working on a capital round for the first part of 2024, seeks to accelerate the business with growing international competition. It has set the goal of tripling its annualized income until it surpasses the 10 million barrier by the end of next year.
The operation is structured as what is known as ABS. These are a type of bonds or notes backed by assets that generate income flow. The limit is 20 million euros and can only be used to advance these payrolls to the employees of companies that hire Payflow. And although it is debt, there is the possibility that the financial entity chaired by Carlos Torres could take a shareholding position, as explained by Benoit Menardo, co-founder of the company, in an interview with La Información.
This financing is added to the 12 million euros raised in investment and debt rounds during the last two years in which they landed with investors such as the Spanish fund Seaya Ventures and the Franco-Chinese Cathay along with others such as Wayra (Telefónica ). With this money, which acts as currency, you will be able to accelerate growth. Today they are present in Spain, Portugal, France, Italy, Colombia and Peru. For now, more than 50% of the shares remain in the hands of the founding team. But that will likely not continue to be the case after the capital increase that they hope to close “in six or nine months.”
The Payflow model is that of flexible remuneration. It was born as a platform that offers payroll advances as a benefit (not as a financial product with interest) proposed by companies to their staff. They charge by number of employees and not by transactions to the corporations, which are the burden of the cost. According to Menardo, for a company with about 100 employees they would receive around 200 euros on average, although the price depends on the industry or type of employees. For that amount, Payflow is responsible for advancing the money claimed by employees – hence the need to have sufficient working capital.
This structure with a fixed payment per number of employees generates a “healthy” incentive, according to Menardo. If the company pays that ‘commission’ and very few workers use it, it will be a benefit for Payflow – with hardly any costs. If it is the opposite, the margin problem turns against the startup. This means that, according to him, the gross margin of the business is greater than 60%. The average withdrawal of salary worked but not earned through their ‘app’ is between 50 to 80 euros. The initial cost is high, as it requires integration with the company. “We have 800 clients and 95% of them generate cash,” he explains. Among those that do not do so are some large clients that have allowed the number of employees to increase with their ‘app’ but that either make a lot of use of it or have allowed the economic conditions for the corporation to improve.
Remuneration advances continue to gain momentum, but they are still a very minority in many countries where a periodicity – monthly or weekly – has been established in payrolls. That is why Payflow has also tried to introduce other products to increase the ‘tickets’ of the companies that hire them and raise the exit barrier. The most notable is flexible remuneration. It is a digitalized version of the traditional ‘restaurant ticket’, with the possibility of spending tax-free on food, transportation, childcare or insurance. These are its two main products (and they generate practically the entire business), to which it has added other complementary ones: one for financial training;, which does not make a profit, another for savings and the last to advance extra payments (Extraflow).
The consolidated company numbers are found in the US parent company. Menardo explains that its operation is like that of ‘Software as a service’, that is, companies that charge a commission for the exploitation of a technological platform to their clients. This ‘rental’ usually has an annual periodicity – with some large clients they have agreed to reduce that period. Annualized revenue (known in slang as ARR) was just €600,000 this time last year. Today they are between 2.5 and 3.5 million euros, according to the co-founder. The objective is to reach around 10 to 12 million by the end of 2024 and 20 to 25 million in 2025.
As is often the case in other verticals in the ‘fintech’ segment, flexible payment has growing and diverse competition. The co-founder of Payflow explains that there is a direct one: fintech companies that offer a similar service. These number, according to his estimates, about 140 around the world, with 17 in Mexico, more than 30 in the US and more than fifteen in the United Kingdom. “There is no US player that is in 40 countries as happens in other products,” he explains. Around a hundred of that figure are firms that offer salaries on demand as a microcredit (charging a commission from the employee). Around 40, among whom would be the Spanish, do it as another benefit for the squad. To this we must add the indirect struggle with neobanks that are already offering these services or instant credit companies to buy such as Klarna.
To continue keeping pace in this battle to grow in the market, the company, which has a staff of about 70 people spread across different offices, is seeking to increase capital. They hope to close an expansion “in six or nine months.” For that date, the most optimistic speak of a certain rebound in venture capital investment after a strong correction experienced during the last year and a half. Menardo expects this round to be much higher than the 8 million that was announced at the beginning of last year.
