Payments gateway firm NMI is working to carve out its niche by providing “the picks and the shovels” for banks to remain competitive with fintechs in the merchant space, the company’s CEO said. 

As payments fintechs like Stripe and Block-owned Square have bundled merchant services with payment processing to serve business owners, “that’s been very disruptive, obviously, to the incumbent banks and merchant acquirers and processors,” said Vijay Sondhi, CEO of Schaumburg, Illinois-based NMI.

Fintechs that came in with a point-of-sale terminal for a merchant have since started offering services such as small-business lending, encroaching on banks’ territory. Banks “have started to realize some of those disrupters are kind of like Trojan horses,” Sondhi said. 

Financial institutions are watching these all-digital up-and-comers delve deeper into the processing business, said David Robertson, publisher of trade publication The Nilson Report. As these fintechs add services to make the relationship with merchants even stickier, they’re gaining share against legacy players, who are trying to fight back, Robertson said.

Banks know they need to offer modern digital merchant services to stay competitive, but it’s difficult for them to develop technology at the same speed as newer fintechs, Sondhi said.

There has been consolidation of merchant acquirers that also provide software to banks — with Fiserv acquiring First Data, and FIS purchasing Worldpay — and that “has been a wake-up call for the midsize banks,” Sondhi said.

Those mid-market banks are a particular focus for NMI, said Sondhi, who pointed to Fresno First Bank in California as a new customer. The company's customers include about 3,300 independent sales organizations, independent software vendors and banks that use NMI’s white-label tech stack.

NMI provides the connectivity and tools to process payments with a digital-first approach, “in a bring-your-own [merchant account] type of environment,” Sondhi said. 

“We’re meant to be a behind-the-scenes player,” he said, catering to “those folks that want to have the ability to have a modern tech stack, but don’t have the means to develop it.”

NMI, founded in 2000, began as a white-label payments gateway. “We like to say sometimes we’re a [software-as-a-service] company that happens to be in the payments world," he said.

NMI focuses its services on e-commerce, unattended mobile and retail payments. It also has an omnichannel offering that allows all transactions to go into one single payment repository.

The company provides connectivity to about 200 processors, Sondhi said, and processes about $195 billion in payments volume annually for about 267,000 merchants. NMI has about 400 employees and is profitable.

New York-based private equity firm Insight Partners invested in NMI last year, alongside the earlier investor Francisco Partners, a San Francisco-based private equity firm. NMI also has a smaller investment from Boston-based private equity firm Great Hill Partners.

NMI acquired payments software firm IRIS in January to bolster its merchant services. As the company aims to double the size of the business in the next three to five years, “we’re definitely interested in doing more acquisitions,” Sondhi said. 

In particular, NMI is likely to pursue acquisitions of firms that offer settlement services, which it does not provide at this time, or that provide add-on services for merchants, like fraud management, Sondhi said.

NMI, which makes money through monthly access fees, transaction fees and fees for value-added services, is mainly focused on its North American business, but has a growing footprint in Europe and greater international ambitions, Sondhi said.

Looking ahead, the company wants to go beyond processing and offer “full commerce enablement,” Sondhi said. The signup process in the traditional acquirer world is “quite complex, when you compare it to that of the disrupters,  such as Stripe and Square and Adyen," he said.

NMI aims to replicate the digital onboarding experience those disrupters offer by allowing merchants to go through a digital workflow and instantly be issued a merchant account, which it’s doing through its acquisition of IRIS.