It’s Really a Data Problem
In today’s fast-paced, digital world, instant gratification is no longer a luxury – it’s an expectation. Technology has enabled most things we do to happen exceedingly quickly; we take as a given that we can order a pizza in seconds, download software in minutes, and get Amazon deliveries within hours.
Unfortunately, the same can’t be said for the ~30 billion transactions and more than $62T in payment value executed annually in the U.S. on the Automated Clearing House (ACH) network. Although many large-ticket transactions like funding a new account, paying rent, or receiving direct deposit take place on ACH rails, structural limitations create delays that seem out of place in today’s world.
On the ACH network, numerous stakeholders including the Federal Reserve, banks, processors and payees touch a transaction before it clears, creating a circuitous path for transaction data to travel and causing funds availability delays that can last up to five days or more. This presents a real problem for the receiving institution. On the one hand, they want their customers to have access to funds as soon as possible. But at the same time, with limited visibility until the transaction settles, institutions run the risk of losing those funds in the event of a “return” –situations where the transaction is fraudulent or the funding account had insufficient funds.
To mitigate return risk, many institutions mandate hold times against ACH transfers, with most hold times lasting between three and five business days. While this is effective for reducing return risk, hold times can be painful for customers and institutions alike, with money essentially in limbo for the time it takes for funds to clear.
For institutions large and small, the problem isn’t that there’s
no data to use, rather that the data available is typically not used to optimal effect. This in part stems from the fact that most institutions run on antiquated infrastructure and rely on siloed databases that make it hard to operationalize the information needed to determine this type of risk.
Fortunately, it doesn’t have to be this way – with tens of billions of ACH transactions conducted annually, and millions made every day, there is a large and ever-growing library of rich data that institutions can and should leverage to help inform their ACH risk mitigation strategy.
Turning Data into Intelligence
Over the course of seven years spent helping to build LearnVest, Orum CEO and Founder Stephany Kirkpatrick saw firsthand the limitations that existing payment methods impose on institutions and consumers. Recognizing the need for a more flexible payments infrastructure to enable faster access to liquidity, she conceived of Orum, the first end-to-end predictive intelligence platform for ACH risk mitigation and smart, automated money movement.
Orum’s first product, Foresight, uses machine learning models and a vast data network to generate a predictive risk score at the individual transaction level before the transaction occurs. Orum works with enterprise and fintech customers to set customizable risk parameters, such as maximum hold times and transaction amounts, that align with the partner’s overall risk tolerance and business objectives.
For transactions that Orum’s models deem low-risk, institutions may opt to fund them immediately – with the confidence that they will receive the funds in a few days – creating a “real-time” money movement experience for end-customers. For transactions that are riskier, Orum customers can choose to fund a portion of a given transaction immediately or impose longer hold times until the likelihood for returns has decreased.
During diligence, we spoke with several customers who affirmed the value of the Foresight product. For the first time, companies can view the risk of a given transaction in real-time and make funding decisions with confidence. One customer was able to move to instant funding with no incremental losses – a feat that was unthinkable before Foresight came to market.
As more institutions adopt Orum’s Foresight solution, enterprises will increasingly be able to align the speed at which an end customer can access funds with real-time, transaction-level risk intelligence. This means that more customers will be able to immediately access funds and transact seamlessly, creating a better experience for end users as well as for Orum’s enterprise partners. Over time, there is the potential for Orum’s partners to see meaningful incremental revenue driven by reduced return risk and higher on-platform activity.
Powering Money Movement
Although ACH is one of the largest and most commonly used payment rails, it is not the only way to move money. Card rails, wire transfers, and The Clearing House’s new Real-Time Payment (RTP) rails all offer potential paths to move money, but each come with trade-offs on cost, speed and risk. Navigating this complex infrastructure can be a time-consuming and distracting function for institutions, many of whose end customers have no visibility into, (nor much interest in!) which payment rail is used, so long as the funds are transferred quickly and safely.
Orum’s money movement product, Momentum, will be the first platform to offer parameterized, risk-mitigated money movement for enterprises. Orum’s smart-decisioning engine takes the onus off the partner institution to select a payment rail and oversee the transaction, instead leaving the heavy lifting to Momentum.
With Orum, customers define their desired mix of cost, speed and risk, and Momentum intelligently routes payments through the best, least-cost rail for the given parameters. Rather than integrating directly to banks or processors, customers integrate through a single API; Orum in turn handles the entire end-to-end movement of funds, with fraud prevention and risk mitigation powered by Foresight.
Orum has built direct integrations to a set of leading partner banks, giving its enterprise partners turnkey access to ACH, same day ACH, RTP, and other key payment rails. Stephany puts it best when she describes Momentum as an abstracted logistics layer for money movement. When someone orders a package on Amazon, they don’t care if it’s delivered by USPS, FedEx or DHL – they just want the package to arrive and trust Amazon to figure out the rest. With a single integration to Orum, customers can focus on pursuing their business objectives with the confidence that their funds are moving efficiently and safely.
Partnering with Orum to Build a Frictionless Financial Future
The Canapi team first met Stephany in 2019 when she was in the early stages of forming Orum. We were immediately impressed by Stephany’s expansive vision for a platform that enabled frictionless money movement and couldn’t help sharing her enthusiasm as she painted a picture of the impact a next-gen payments infrastructure could have.
Given the complexity of the problem Orum set out to tackle, we knew a rockstar team would be required; over the past two years, Stephany and her team have more than lived up to our expectations. Stephany has managed to recruit best-in-class professionals from leading financial institutions, fintech startups, and software companies. Her management team has decades of experience building and distributing leading FinTech, Payments and Machine Learning products for some of the most innovative companies in the market.
Our investment in Orum is highly strategic to our bank limited partners. Because our banks sit in the middle of millions of financial transactions, the ability to move their customers’ funds quickly and securely is crucial. Orum gives them the tools to do that and offers a near-term advantage to early adopters that can provide their customers a differentiated money-movement experience. With this investment, we’re delighted to now be in a position to help our bank LPs stay on the cutting edge of payments technology and stand out amongst their peers.
With a growing partner list and a rapidly expanding team of top talent, Stephany and the team at Orum are just getting started. In the months to come, Orum will continue to cement its position as the leading solution for predictive transaction-level intelligence and smart money movement. We see a future where the majority of transactions can be funded in real-time leveraging Orum, where return and fraud risk are problems of the past, and where consumers and institutions worry less about how and when they’ll get their money and instead focus on putting those funds to work.
We’re thrilled to be co-leading Orum’s Series B financing along with Accel’s fantastic team of investors. We look forward to a future of frictionless money movement and couldn’t be more excited to join Stephany and the rest of the Orum team as they work to make that future a reality!