Reserve Trust Raises $30.5M for B2B Payments

Reserve Trust Secures $30.5 Million in Series A Funding

Reserve Trust, a financial services company headquartered in Denver, has successfully completed a $30.5 million Series A funding round. The investment was spearheaded by QED Investors.

Additional participants in this financing included FinTech Collective, Ardent Venture Partners, Mike Massaro, CEO of Flywire, and Lowell Putnam, founder and CEO of Quovo. The round encompassed $17.9 million in secondary share transactions. This brings the total funding raised by the company since its establishment in 2016 to $35.5 million.

Understanding the Federal Reserve Master Account

Reserve Trust positions itself as the first fintech trust company to possess a Federal Reserve master account. This crucial access point enables the company to directly process dollar transactions on behalf of its clientele, utilizing wire and ACH payment networks, without relying on intermediary banking institutions.

Traditionally, direct access to these payment rails was limited to banks. This situation presented challenges for both domestic and international fintech companies, resulting in limited partnership choices, outdated technology, and protracted implementation timelines for embedding sophisticated B2B payment solutions, according to COO Dave Cahill.

Reserve Trust asserts that its innovative technology and services empower businesses worldwide to “seamlessly move money” through the first cloud-based payment system directly linked to the Federal Reserve. This capability is achieved by operating independently of constraints imposed by traditional banking systems.

New Leadership and Company Focus

Alongside the funding announcement, Reserve Trust revealed the appointment of Dave Wright as CEO and Dave Cahill as COO. Both executives previously collaborated at SolidFire, a flash storage company founded by Wright, which was acquired by NetApp for $870 million in 2016.

Reserve Trust caters to businesses aiming to integrate domestic and international B2B payments. It achieves this by providing the ability to hold funds in custodial accounts secured by its Federal Reserve master account.

Origins Rooted in the Financial Crisis

The company’s origins are tied to the aftermath of the global financial crisis. Following the crisis, U.S. banks underwent a process of “derisking,” shedding businesses with lower risk-adjusted returns. This included the handling of U.S. dollar payments, particularly in emerging markets.

As Dave Wright explained to TechCrunch, this derisking led to increased difficulty and expense for businesses and smaller economies in trading and transferring U.S. dollars globally. The founders of Reserve Trust identified an opportunity to establish a new financial institution focused on facilitating U.S. dollar payment services, especially for emerging fintechs, and reconnecting economies to global trade.

A Novel Regulatory Approach

Rather than establishing a traditional bank, the founders – Dennis Gingold and Justin Guilder – pursued an innovative path within the regulatory landscape. They created a state-chartered trust company with a Federal Reserve master account.

Dave Wright emphasized that this approach was unprecedented. Virtually all other trust companies rely on banks for payment processing. Reserve Trust is the first to directly secure a Federal Reserve master account and process payments directly with the Federal Reserve.

The process of obtaining the master account took approximately three years, culminating in 2018. Since then, Reserve Trust has been providing U.S. dollar custody and payment services to fintech companies worldwide. The company observed significant demand from payment and fintech firms struggling to establish robust relationships with partner banks, despite the absence of inherent reasons for banks to avoid collaboration.

These companies encountered slow processes and a lack of technological expertise within the banking sector, hindering their technological development. Currently, over half of Reserve Trust’s business originates from domestic fintechs, while maintaining a substantial international presence.

Future Growth and Expansion

The newly acquired funds will primarily be allocated to scaling the company’s infrastructure to meet what Dave Wright describes as “a fairly overwhelming amount of demand.” Investments will also be directed towards expanding the team, enhancing the technology, and developing services to address the payment requirements of larger, rapidly growing fintechs globally.

While the company currently serves primarily small and mid-sized fintechs, it is now attracting interest from larger entities with higher payment volumes and involvement in embedded banking and B2B payments. These companies are seeking a more robust banking partner than traditional banks can offer. Current clients include Unlimint and VertoFX.

Investor Confidence and Market Potential

QED Investors partner Amias Gerety and FinTech Collective principal Matt Levinson expressed strong confidence in Reserve Trust’s history and future prospects.

They draw a parallel to Stripe, a leading payments processor, as an indicator of Reserve Trust’s potential. Matt Levinson highlighted that B2B payments represent a significantly larger market volume – exceeding $20 trillion – than e-commerce payments. He emphasized the lack of a technology company offering a modern payments platform without reliance on legacy banks, underscoring the excitement surrounding Reserve Trust’s business model.

Reserve Trust, he added, provides businesses with a means to facilitate B2B payments that are “smarter, faster and cheaper.”

Amias Gerety concurred, stating that despite advancements in digital payments, no fintech currently offers direct integration with the U.S. payment system. He believes Reserve Trust is establishing foundational infrastructure for holding and transferring payments globally and at scale.