By: Tom Brown
Today, Forage announced that we led the company’s recently completed Series A round and that I have joined the board of the company. I want to take a moment and explain why my colleagues and I felt compelled to make the investment.
The answer, as it almost always does, begins with the leaders of the business, Ofek Lavian and Victor Fimbres. We have been tracking Forage for some time. Having previously invested in Propel, we track developments in the EBT space generally, and several CEOs of Nyca portfolio companies put Forage on our radar. The collective signal was clear. This is a special team tackling an important and difficult problem: enabling firms that sell groceries to accept EBT for mobile and online purchases. And the person leading the company built this product for Instacart. If anyone can solve this problem, they can.
At first blush, extending the reach of EBT to online and mobile grocery orders might not seem like a difficult problem, but it is. The primary obstacle, at least historically, was regulatory design. Until 2019, EBT benefits could not be used to make online or mobile purchases. The Federal government has dropped the regulatory bar, but several barriers remain. Merchants that want to accept EBT online must pass through a multi-step approval process with USDA. They must also implement a checkout process for transactions when EBT is tendered that meets USDA approval. Among other things, the checkout process must ensure that the goods chosen by the EBT beneficiary fall within the criteria of the program. All of these requirements combined make it difficult for merchants to accept online EBT payments, leaving folks who depend on EBT for groceries with limited options.
That last problem described above — collecting market basket information and incorporating that information into the authorization decision — is a challenge that has plagued the payment industry for decades. My friend and former Chair of the FTC, Tim Muris, once described the credit card as a technological leap on the order of the mobile phone and PC. I agree, but where mobile phones and PCs are firmly of the digital age, the payment card dates back to the space age. Like other technologies born of that era, the core technology protocol on which the payment industry rests is capacity constrained. The payload for the message that relays information from the point of sale to the entity that decides whether to permit or deny a transaction is only 128 bits. The industry has matured over the past half decade and managed to cram quite a bit of information into that payload, but card rails were never intended to carry the itemized contents of the customer’s shopping cart from the merchant side of the transaction to payor side.
Cracking this problem is one of the payment industry’s white whales. Shopping cart, or, as it is generally described in payment circles, Level III data, reduces fraud and improves credit risk decisioning. It is also a critical input into certain corporate and fleet card solutions, though the tools used to capture and relay the information in those contexts are fairly primitive. That said, the real opportunities lie in the types of use cases that the Forage team is pursuing. They are unlocking access for merchants (and consumers) to pockets of funding that can only be accessed when the decision maker can look into the shopping cart and confirm that the funds are being used for their intended purpose. Government benefits are one use case, and an important one.
The ability to order groceries for delivery resolves a significant challenge for the 26% of EBT recipients who have disabilities, as well as many others who reside in food deserts or hold jobs that pay hourly. And beyond EBT payments, we believe that there is also a significant opportunity to simplify online acceptance of healthcare payments, transportation payments, and other specialized payment methods.
When we found a team with passion for the problem and experience tackling it, we knew that we had to jump in with both feet.