Embedded finance -- where financial services companies and others bring in different kinds of fintech technology by way of APIs to enhance their own offerings with more data and functionality -- remains a growing opportunity, both to help fuel new business and to help incumbents get up to speed with their disruptors. In the latest development, Bud Financial, a provider of an AI-based open banking platform that is used by large banks and others to help power lending and other personalized products, has raised $80 million.
Ed Maslaveckas, the CEO and co-founder, told TechCrunch the investment, a Series B, will be used both for R&D -- specifically to further build out its artificial intelligence-based tools -- and for international expansion. The company today's tech appears to be based around natural language (that language being English). It is live in the U.K., Australia and New Zealand and it plans to expand to two more countries this year. It won't say which ones but it has a lot of multinational investors, including some out of another English-speaking market, the United States.
Bud is also not disclosing customer or transaction numbers, nor revenues, nor its valuation with this round, but here is some context on that. This round is being led by Bellis Phantom Holdco Ltd., which is an indirect affiliate of investment funds managed by TDR Capital (this is a big PE investor whose name isn't typically associated with tech investments, with its portfolio including the likes of the Pizza Express chain of restaurants and ex-Walmart supermarket giant Asda). Others in this round include SEI investments Outward VC and others. (Note: This is not the same Bud as the Singaporean metaverse startup that recently also raised funding.)
More context: In 2019, pre-pandemic, Bud raised $20 million from an impressive group that included HSBC, Goldman Sachs, ANZ, Investec’s INVC fund and InnoCells (the corporate venture arm of Banco Sabadell) -- 25 investors in all. PitchBook notes that earlier investments, pre-this round, gave the company a modest valuation of less than $58 million. I'm guessing that number is definitely higher now, although with all the pressure we've been seeing in the market, and the many people who have spoken about how valuations are definitely depressed, it's anyone's guess as to what Bud's valuation might be now.
A number of Bud's big-name finance investors are also customers, which says something also about its business model. Like other European fintech players such as open banking specialists Tink and Truelayer, as well as others in the embedded finance space like 10x and Thought Machine -- both of which have raised healthy amounts of funding also from investors that include large financial incumbents -- the startup is aiming for the gap in the market that has been created out of the rise of API-based embedded financial services, a plethora of successful disruptive startups entering the market, and the existence of very large financial services companies that are keen to refresh their own approach to avoid losing customers and transactions.
It started out, ironically, as a consumer-facing disruptor itself.
In 2014, Maslaveckas said he was living between Ireland and the U.K. and he was using "a bunch of financial apps to manage the situation."
The founding idea, he said, "was around providing a single point of access for people to learn about all these new apps. That quite quickly morphed into a consumer-facing app that used screen-scraping to identify areas where we thought people could benefit from engaging with some of the fintechs we'd engaged with."
The "B2B switch" he added came in 2017 when "we realized that we could get all this to market far faster if we worked with institutions to help them improve the way they engaged with customers using the tech we'd developed." Interestingly, that was before the idea of "neobanks" was not a very popular concept (much less one that was being used by younger consumers as neobanking services are now), so you can see how Bud might have seen an opportunity, sans strong traction of its own, to pivot to B2B, after presciently spotting how behind the times incumbents already were and would continue to be if they didn't jump into something new.
In any case, much of the ethos of Bud remained with the pivot, he said. "Fundamentally we all think it should be easier to be good with money, so all the APIs we built are built with that in mind," he said.
"Being good with money" often boils down to two main concepts: not overspending what you cannot pay back (but while keeping liquidity and activity bubbling along) and investing to grow your money. Those are, loosely, two of the more popular "intelligence" services that Bud helps to power: It helps banks amass and utilize transaction insights and to better assess risk around credit-based products.
It leans on advances in areas like open banking, which in some ways is less about banks ingesting more data from elsewhere, but simply being able to better understand what is sitting in their own coffers and databases. More specific features that Bud has and is continuing to enhance cover areas like categorization, merchant recognition and income verification, Maslaveckas said.
It also covers payments. "Most of the features people build with our tech end in a payment of some kind and we can process these over the open banking APIs," he said. He added that the insights it provides "is where we differentiate and where people choose us over competitors like Tink and Truelayer. For example, that's what HSBC use to power some of the new features in the first direct banking app."
The company claims that its "transaction enrichment" technology is 33% more accurate than industry leaders, with "over 93% accuracy in just six weeks" in an unspecified new market that it recently entered. (Take those with a grain of salt however, in the absence of any hard names and numbers.)
“We are hugely excited by the potential of Bud, not only in the ability of its platform to truly harness the opportunities from open banking, but also in its far-reaching potential to help power other businesses we are invested in," said Gary Lindsay, a managing partner at TDR Capital, in a statement. "The effective integration of technology and data science has long been a core part of TDR’s operational strategy and this investment is consistent with that approach.”