Plastiq Files for Chapter 11 Bankruptcy Protection

The economy seems to be a constant source of discussion these days. Wherever one looks, there’s a new report of a big bank going bust, or a tech company on the AI hype train riding the wave to previously unimaginable stock prices. 

Whatever the case may be, it seems that the financial technology space has not been trending in the right direction ever since the closure of Silicon Valley Bank, which backed many such projects.

The latest casualty of the fintech crunch appears to be Plastiq, a company famous in the Miles & Points community both for its enabling of consumers to pay for just about anything (including taxes and rent) via credit card, as well as for its generous promotions.

Let’s take a look at what befell this former titan of the Canadian Miles & Points scene.

Plastiq Files for Chapter 11 Bankruptcy Protection

Plastiq recently filed for Chapter 11 bankruptcy protection in Delaware. What this means is that the company is slated to continue operations, so long as they find a willing buyer – and fortunately for Plastiq, they already have one lined up, but more on that later.

The reason many Miles & Points enthusiasts are likely to remember Plastiq (which either rhymes with drastic or mystique, depending on who you ask) is because of the great value the company has provided to the community in the past.

Plastiq’s success among consumers was because it offered the ability to pay virtually any bill with a credit card, including on transactions that were notoriously difficult to pay with a credit card, such as taxes to the Canada Revenue Agency or rent to large property companies.

This meant that it was easy for Miles & Points aficionados to rack up points by paying for almost anything via credit card, so long as they were willing to part with a small transaction fee. Over time, this fee went up from a low of 2.1% a few years ago and worked its way up to Plastiq’s most recent transaction fee of 2.9%.

Initially, Plastiq often provided generous promotions, which included Fee-Free Dollars (FFDs) for new users and through referrals. Once earned, FFDs could be used to offset the transaction fee levied by Plastiq.

This helped us side-step the need to pay extra fees to put anything on our credit cards, which was a fantastic way to keep costs down.

And perhaps, therein lay the problem. Since Plastiq had to manage the underlying interchange fees levied on the gross total of every transaction – fees that could be as high as 2.5% – their margins were enormously thin, even after charging a 2.9% transaction fee that so many of us bellyached over.

Well, Plastiq is still a fintech-style company, and had enormous overhead costs in retaining and paying their staff, managing their payment platform, and marketing their products.

For example, for a long time Plastiq was one of the partners on the American Express Business Gold Rewards Card‘s “Your Three Suppliers” program, which doled out 2 Amex Membership Rewards points per dollar spent at Plastiq.

Clearly, promotions such as this were not sustainable, and the Plastiq team must have breathed a sigh of relief when Amex cancelled the program entirely. However, despite hiking fees and curtailing the FFDs the company handed out, Plastiq still has found itself in a position where a bankruptcy followed by acquisition and restructuring by another firm are necessary for its continued survival.

Fintechs Falling from Favour

When we analyze what’s occurring at Plastiq, we can see that it is not anomalous to this enterprise. On the whole, fintechs have been suffering for the past couple of years as interest rates rise and tech-friendly financial institutions such as Silicon Valley Bank collapse.

Here in Canada, two notable examples are the Stack card, which was forced to abolish almost all of its positive benefits and start levying fees before being sold to a private equity firm, and then the MogoCard, which famously offered bitcoin cash back before also slashing its benefits entirely. Mogo also recently announced its cards will cease operations on June 6, 2023, before recommending customers transition to EQ Bank’s new, more competitive offering.

The latest casualty in this realm is Plastiq. Initially, the company sought to bail itself out via a Special Purpose Acquisition Company (SPAC). This complex process would have raised capital by merging Plastiq with another company already listed on a public exchange, thus allowing its shares to be traded on the public market.

In turn, this would have allowed retail investors and other backers to fund Plastiq just like any other public company.

Sadly, the SPAC route didn’t pan out, though perhaps this was for the best as SPACs have not had the best reputation over the course of the past few years. Sir Richard Branson’s failed Virgin Orbit and the infamous Nikola Corp are two examples of SPACs gone terribly wrong.

On the upside, Plastiq has received a “stalking-horse” acquisition proposal from Priority Technology Holdings. For now, this means that its business operations are planned to continue with minimal interruptions, pending regulatory approval of the acquisition.

This means that Canadians with planned payments through Plastiq on the horizon will not be obligated to use competing services such as Paysimply or Chexy.

Only time will tell if Priority Technology Holdings can turn around Plastiq’s fortunes, but for now, it appears to be another cautionary tale of the ending suffered by many similar companies during the past few years during red-hot technology speculation.

Conclusion

Plastiq has filed for bankruptcy protection in Delaware, and has a deal to be bought out by Priority Technology Holdings, pending regulatory approval. Hopefully this means that Canadian consumers and businesses who use Plastiq for the flexibility and rewards offered by credit card payment solutions will not experience an interruption to their services.

It’s clear that a shakeup is happening in the tech industry, and that external economic forces are playing as drastic a role in it as hot-topic items such as Artificial Intelligence. Plastiq may be the latest casualty among the fintech/startup space, but it’s unlikely to be the last.

Until next time, use promo codes while they last.