Central Payments spins off from KC community bank

Sioux Falls-based Central Payments recently completed a $30 million growth equity raise, splitting off from the $350 million Central Bank of Kansas City and positioning itself for additional investments in technology, products and staffing in a burgeoning industry. 

Central Payments founder and President Trent Sorbe said the investors were a good fit with his organization because of their shared business philosophy. “We are aligned,” he said. “Our success is their success. Bringing in two very well-respected investment firms to Central Payments was less about the dollars and more about how we all see the market the same way.”

Sorbe founded Central Payments in 2014 with the Central Bank of Kansas City, part of the bank’s vision of expanding its reach among moderate-income consumers through prepaid cards, payroll cards and remittances. Central Bank of Kansas City is expected to continue as an investor, issuer and strategic partner. The Central Payments leadership team remains the same, and a board is expected to be announced soon.  

Central Payments has seen steady growth since 2014. In 2019, it launched an accelerator, Falls Fintech, to help fintech startups. The following year, the payments company launched its Open CP Fintech API Marketplace, which the firm says is the first authentic banking-as-a-service platform. By 2021, Central Payments had doubled the size of its staff and opened a second office in Sioux Falls. 

“Since inception, we have remained steadfast in our belief that new technology and the stability of a bank charter to create opportunities for banks in fintech and embedded finance, while others may have perceived a threat,” Sorbe said.

The deal comes as fintechs and banks work closer together following more banks launching digital services during the pandemic. Gilbert said existing relationships between start-up fintechs and banks, however, are generally still poor. To improve those relationships, Gilbert said banks and fintechs must visit in-person with each other to develop a greater mutual understanding.  

Institutional investors say the payments industry is prime for growth. Sorbe said there are many ways to embed payments into a card so customers won’t have to enter a store to pay. Many large companies don’t want to become payment companies, Sorbe added, but instead are looking to embed payment products inside of their core offerings.  

“We continue to watch the way in which big brands are embedding payments inside of their product offering,” Sorbe added.  

The round was led by the San Diego-based Castle Creek Capital with additional investment from Launchpad Capital, an Oakland, Calif.-based early-stage venture capital firm that has backed 55 companies to date.

 The transaction was the inaugural investment for the Oakland-based Castle Creek Launchpad Fund I. The venture firm recently announced its joint venture with Castle Creek and the closing of a new $90 million fund from money raised by 34 community banks.  

 The investor groups cited Central Payments’ experienced staff and in-house offerings as prime value-adds. “The team at Central Payments was extremely attractive to us and the platform that they built with technology, chartering and choice is very differentiated, and so it was really the platform and the people that we were drawn to,” said Castle Creek Capital Managing Principal Tony Scavuzzo. 

“We’re backing innovators and new financial technologies,” added Launchpad Capital’s founder, Ryan Gilbert. “Central Payments’ origin inside a community bank and its positioning at the intersection of banking, payments and fintech made it an ideal first investment for our new fund.” 

A JPMorgan analysis echoes Sorbe’s sentiments. The report found that payments are increasingly contributing to top-line growth, partly because of the increase of companies migrating to either direct-to-consumer or subscription-based models. “As companies change their offerings and change the way they operate within the market, they’re leveraging payments to help drive differentiation,” the report said.

The firm stated businesses over the next 18 months will be on digital technology-fueled sustainable growth, a shift toward “a holistic digital approach.