Every year, 42 million Americans receive food stamps — now known as SNAP benefits — which they can use at 250,000 retailers. But despite the boom in e-commerce and grocery delivery since the start of the Covid-19 pandemic, there are only about 100 retailers where you can use SNAP benefits to pay for delivery. grocery store online today.
Forage, a 17-person San Francisco fintech startup founded in 2019, is trying to solve that problem with software that helps grocers accept SNAP payments online. The company 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 around $100 million.
Three years ago, Anthony Grullon, who grew up in Paterson, New Jersey, receiving SNAP benefits, came up with the idea for a consumer-facing app that allowed low-income consumers to get discounts on the grocery. While a Wharton MBA student, he founded Forage with entrepreneur Justin Intal and software engineer Victor Fimbres. But in the summer of 2020, Grullon quit Forage after being in a car accident, during a time he was battling mental health issues.
As Covid swept the country and many Americans opted to have their groceries delivered instead of going to the store, Intal and Fimbres found a bigger problem than food discounts that needed to be solved: Few retailers were accepting SNAP payments for online delivery orders. They pivoted the business, aspiring to become something of a Stripe for SNAP payments. Intal left Forage in the spring of 2022 after deciding he was not 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. Prior to Forage, Lavian was a consultant at Deloitte and led the payments team at Instacart. He grew Instacart’s payment group from five to forty people and oversaw a project to enable grocers who partnered with Instacart for online delivery to accept SNAP payments. He’s seen the difficulty of this firsthand, as it took Instacart nine months to complete the process for retailers like Aldi and Publix. As the son of two Holocaust survivor parents who grew up below the poverty line, Lavian, 29, says Project SNAP has been his proudest accomplishment on Instacart.
Forage relaunched in May 2022 with Lavian as CEO and partnered with e-commerce giant Shopify to enable Shopify merchants to accept SNAP payments. So far, Forage has landed 30 clients, including discount grocery site Flashfood and grocery delivery site Farmstead.
There is strong demand for online delivery among SNAP benefit recipients, says Jimmy Chen, investor in Forage and CEO of Propel. Propel has a popular app called Suppliers that is used by five million SNAP benefit recipients and allows them to view their SNAP balances. “There’s a misconception that low-income Americans don’t have money, but they have tons of time — they just sit around, do nothing all day,” Chen says. “But we’ve found over the years that really isn’t true…they’re just as time-strapped as they are cash-strapped. And that’s because they go back and forth between two or three different part-time jobs, they have to pick up the kids, they’re in a single parent family.
JToday, few grocers accept SNAP payments online because they are 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 did not support any online payments. Payments giant Fiserv started enabling online EBT payments for the first time in 2020.
The other hurdle is that retailers must obtain separate government approval to accept SNAP payments online. The US Department of Agriculture has strict rules that prohibit people from using SNAP benefits for anything other than food, so grocers must go through their entire catalog and electronically label all their food items, making sure ensuring that cleaning products, toiletries, and other non-food items are not eligible for SNAP payments.
Lavian says that with Forage’s software and knowledge of the regulatory approval process, the startup can set up a retailer accepting SNAP payments online in 90 days.
Forage’s business model is almost identical to that of Stripe – 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 US government pays out $120 billion in SNAP benefits, and Lavian aims for Forage to process billions of dollars in transactions “in the next few years.”
As it takes off, Forage faces a series of challenges. Low-income customers are more sensitive to the price of delivery charges. It may take longer than expected for retailers to get government approval. And a bigger player like Stripe could enter the market.
Lavian believes specializing in the SNAP payments niche will help Forage overcome these hurdles. “Our mission at Forage is to democratize access to government benefits,” he says. “That’s our main goal.”