Food Stamp-Focused Fintech Raises $22 Million

San Francisco, California (August 8, 2022) – Each year, 42 million Americans receive food stamps–now known as SNAP benefits–which they can use at 250,000 retailers. But despite the surge in e-commerce and grocery delivery since the Covid-19 pandemic began, there are only about 100 retailers where you can use SNAP benefits to pay for online grocery delivery today.

Forage, a 17-person San Francisco fintech startup founded in 2019, is trying to fix this problem with software that helps grocers accept online SNAP payments. The company has raised $22 million in Series A funding led by NYCA Partners. PayPal Ventures, EO Ventures and angel investors like Instacart founder Apoorva Mehta also invested, valuing Forage at about $100 million.

Three years ago, Anthony Grullon, who grew up in Paterson, New Jersey, receiving SNAP benefits, had the idea for a consumer-facing app that let low-income consumers get discounts on groceries. While he was a Wharton M.B.A. student, he founded Forage with entrepreneur Justin Intal and software engineer Victor Fimbres. But in the summer of 2020, Grullon left Forage after getting in a car accident, during a period when he was battling mental health issues.

As Covid swept the country and many Americans opted to get groceries delivered instead of going to the store, Intal and Fimbres found a bigger problem than food discounts that needed solving: Few retailers accepted SNAP payments for online delivery orders. They pivoted the business, aspiring to become a sort of Stripe for SNAP payments. Intal left Forage in the spring of 2022 after deciding he wasn’t the right person to lead the company, while Fimbres stayed on as chief technology officer.

Around the same time, Ofek Lavian joined Forage and became its new CEO. Before Forage, Lavian had been a Deloitte consultant and led Instacart’s payments team. He grew Instacart’s payments group from 5 people to 50 and oversaw a project to let grocers that partnered with Instacart for online delivery accept SNAP payments. He saw firsthand the difficulty of it, as it took Instacart nine months to complete the process for retailers like Aldi and Publix. As the grandson of two Holocaust-survivor parents who grew up below the poverty line, 29-year-old Lavian says that the SNAP project was his proudest achievement at Instacart.

Forage relaunched in May 2022 with Lavian as CEO and struck a partnership with e-commerce giant Shopify to let Shopify merchants take SNAP payments. So far, Forage has landed 30 customers, including discount grocery site Flashfood and grocery delivery site Farmstead.

There’s strong demand for online delivery among SNAP benefits recipients, says Jimmy Chen, an investor in Forage and the CEO of Propel. Propel has a popular app called Providers that’s used by 5 million SNAP benefits recipients and lets them see their SNAP balances. “There’s a mistaken belief that low-income Americans don’t have money, but they have tons of time–they’re just sitting around, not doing anything all day,” Chen says. “But we’ve found over the years that’s very much not true . . . they are just as time-strapped as they are cash-strapped. And that's because they're running back and forth between two or three different part-time jobs, they’ve got to pick up the kids, they’re in a single-parent household.”

Today, few grocers accept online SNAP payments because they’re difficult to set up. Government-disbursed payments run on their own Electronic Benefits Transfer (EBT) rails, requiring their own technical integration, and until 2019, EBT didn’t support any online payments whatsoever. Payments giant Fiserv began enabling online EBT payments for the first time in 2020.

The other hurdle is that retailers must get separate government approval to accept online SNAP payments. The U.S. Department of Agriculture has strict rules that prohibit people from using SNAP benefits for anything other than food, so grocers have to go through their whole catalog and electronically tag all of their food items, making sure cleaning supplies, toiletries and other non-food goods aren’t eligible for SNAP payments.

Lavian says that, with Forage’s software and knowledge of the regulatory approval process, the startup can get a retailer up and running with accepting online SNAP payments in 90 days.

Forage’s business model is nearly identical to Stripe’s—it charges a fee of 2.9% plus 30 cents per transaction. It has processed less than $10 million in payments so far. Each year, the U.S. government disburses $120 billion in SNAP benefits, and Lavian aims for Forage to be processing billions of dollars in transactions “in the next few years.”

As it gets off the ground, Forage faces an array of challenges. Low-income customers are more price-sensitive to delivery fees. It can take longer than expected for retailers to get government approval. And a bigger player like Stripe could enter the market.

Lavian thinks that specializing in the niche of SNAP payments will help Forage beat these obstacles. “Our mission at Forage is to democratize access to government benefits,” he says. “This is our core focus.”