Fintech companies are catnip for investors

The financial technology sector, or fintech for short, has become a magnet for money.

Since 2010, nearly 2,500 fintech startups across the globe have attracted more than $50 billion in investments by venture capitalists, private equity firms and others, according to management consulting firm Accenture. In 2015 alone, $22.3 billion was invested in fintech startups, up 75 percent from 2014.

Fintech companies, a group that includes companies such as PayPal and Square, initially made their mark introducing disruptive new ways of doing things – such as processing payments or making loans – that directly competed with banks and other traditional financial institutions.

“The large institutions no longer have a stranglehold on everything that happens,” said Jay Bigelow, director of entrepreneurship at CED, a Triangle support group for entrepreneurs. “That sort of disruption has opened the door for a lot of (startups) to come along.”

“The driving force is the breakthrough of different technologies, mobile being one of them,” he added. “The idea that I’m going to securely be able to pay things with my phone is really brand-new territory and has changed the landscape of banking and credit cards and credit processing.”

In recent years, however, a second category of fintech company has emerged – those that are working with banks and other established players.

Michael Lyons, an executive vice president at PNC Bank who is in charge of the company’s fintech efforts, said that major banks have awakened to the challenge of fintech and are ramping up their response.

“That challenge has morphed into opportunity,” he said. PNC has invested in two fintech companies, instituted pilot programs with fintech startups and has teamed up with other large banks to develop a digital person-to-person money transfer service.

CED classifies more than 30 entrepreneurial companies across North Carolina as fintech, with two-thirds of those businesses headquartered in the Triangle.

Dhruv Patel, CED’s director of investor relations, describes the Triangle’s fintech community as nascent.

“These are very early days,” he said.

PATIENTPAY

Durham-based PatientPay provides paperless billing for medical practices and hospitals.

It’s not only a cheaper alternative, providing savings of up to $4 per collected payment for medical practices, but it also triggers significantly faster payment by patients, said co-founder and CEO Tom Furr.

The reason: With PatientPay’s patented technology, the bill issued by the healthcare provider is in synch with what the patients’ health insurer says that the patient owes in out-of-pocket costs, which often isn’t the case with traditional bills. That eliminates the confusion that prompts patients to delay paying their bill while they try to reconcile what they really owe.

“If I can’t understand it, I’m not going to pay it,” said E. Miles Kilburn, founding partner of Mosaik Partners, a San Francisco venture capital firm that has invested in PatientPay.

“What PatientPay has done,” Kilburn added, “is simple and yet is a very, very large advancement in the ability to get people to understand their bills and then pay them.”

Prompt patient payments are more important than ever because of the growing popularity of high-deductible insurance plans under which consumers pay a greater share of medical costs.

“High-deductible plans are the future of healthcare,” Furr said.

PatientPay, which was incorporated in 2008 and released its first product in 2010, has about 100 customers. In addition to working directly with healthcare providers it recently started signing up recovery cycle management companies that handle billing for hospitals, including one that works with about 60 hospitals

PatientPay, which has 15 full-time employees supplemented by 10 contractors, has raised about $9 million from investors to date. Furr anticipates that the company will seek to raise another round of funding amounting to $5 million or more in the fall.


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