Payments

Payments and rewards innovator finds tailwind with SMBs

Fivestars CEO Victor Ho shares details of deals with Fiserv and First Data, and impact of pandemic on small businesses

Although the COVID-19 pandemic was particularly devastating for the small business industry, Fivestars, which offers payment technology and loyalty rewards for small businesses, was still able to experience skyrocketing growth during this social-distancing period.

Fivestars saw $325 million in payment volume at the end of 2020, up 50% from 2019 when it facilitated $210 million in payment volume. In 2020 the company powered more than $3 billion in sales to local small businesses. To date, the company has raised over $145 million.

The San Francisco-based company provides integrated payments and a customer relationship management solution for local small businesses. Fivestars co-founder and CEO Victor Ho said in an interview that the company’s core customer base is small businesses. In normal circumstances about 1% of small businesses go out of business every month, he said. But during the pandemic, Ho said the number roughly doubled.

Taking into consideration that this sector is especially struggling and that small businesses are its main customer base, how has Fivestars been able to maintain growth? Ho explained that the pandemic strengthened small businesses’ need for Fivestars’ services.

“The ability to communicate with your database of customers became critical,” he said. “What we saw was even though ‘out of business’ went up, our cancellations were effectively at an all time low, because it just became a ‘need to have.’

The payments side of the company has also experienced growth because of the sheer volume that has moved from cash, etc. to credit and debit. Also, Ho explained that the company’s founding IP can integrate with “virtually every point of sale.”

Fivestars also was able to close on two important deals with Fiserv and its subsidiary First Data. Now, Fiserv can serve as Fivestars’ back end for payfac and some of Fivestars’ payment processing goes through Fiserv. The Fiserv deal complements Fivestars’ original partnership with Worldpay-Vantiv, which also serves as their back-end. Worldpay-Vantiv was the first processor to give Fivestars a payfac agreement before Fiserv. The Fiserv deal named Fivestars an approved payment gateway and payment facilitator.

The Fiserv deal is important, Ho said, because as a payment facilitator it allows Fivestars to have more flexibility in the product experience while expanding access to the Fivestars platform for thousands of merchants within the First Data ecosystem.

Through Fiserv and First Data, Fivestars will now be able to offer its payments technology via the Fivestars Pay app for Clover Station POS systems, automated marketing, and access to a network of 65 million shoppers, to thousands of merchants in the First Data ecosystem.

“The First Data deal is important because Clover is the largest point of sale in the U.S. today, [and is] slightly ahead of Square. Then those two [companies] have a pretty good lead on everyone else. That’s just an important channel as a result.”

Fivestars’ network has over 14,000 merchants who use its platform. The company also has about 250 employees and is looking to hire across all functions this year.

Prior to founding Fivestars in 2011, Ho gained experience at McKinsey & Company and Goldman Sachs.

Going forward into 2021, Ho said that his strategy is to continue to repurpose processing spend to actually drive revenue and not just be a cost center and also support small businesses.

“Especially now, as all these small businesses are more cost conscious and trying to rebound out of COVID-19, driving revenue is going to be really important,” Ho said. “So doubling down on the processing the payments plus marketing business is critical. Then the second one is making sure that we’re just here for the small business owners, and supporting them as they rebound.”

In other payments news, on February 25, Affirm unveiled the Affirm Card, which Ted Rossman, credit card analyst at Bankrate and CreditCards.com, characterized as blurring the line between a debit card and credit card. Affirm’s “buy now, pay later” (BNPL) debit card will let consumers pay upfront from a bank account or pay later by splitting eligible purchases over $100 into four interest-free payments.

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