Episode 14: Pipe | The Past, Present, and Future of ISVs in Embedded Finance
Our guest today is Luke Voiles. Luke is the CEO of Pipe, leading the charge on embedded finance with their super interesting and appealing product. We discuss the role of vertical software in the embedded payments and finance ecosystem doing a deep dive into past, present, and future in the space.
Read the full transcript below.
Episode 14: Pipe | The Past, Present, and Future of ISVs in Embedded Finance
Todd Ablowitz (00:09):
Welcome to It Pays to Know, the Infinicept podcast where we dive deeply into unexplored areas of payments, embedded finance and more. My name is Todd Ablowitz. I’m co-founder and co-CEO of Infinicept. And today, my guest is Luke Voiles. Luke is the CEO of Pipe, leading the charge on embedded finance with their super interesting and appealing product.
(00:30):
Today, we discussed the role of vertical software in the embedded payments and finance ecosystem doing a deep dive into past, present, and future in the space. Without further ado, I hope you enjoy our conversation as much as we did. Hey, Luke, good to see you again.
Luke Voiles (00:51):
Nice to see you too, Todd.
Todd Ablowitz (00:53):
Let’s get this party started. So, you and I have talked a lot about this topic where softwares changed. It’s become such a bigger part of commerce. So, why don’t we just start there, some of the observations I’ve heard you make on how software companies have transformed?
Luke Voiles (01:11):
It is a broad subject. I think going back and thinking about the customer pain point is probably the best way to think about this. One of the things I learned into it, which is a pretty amazing place to learn, like customer facing research and design. Scott Cook used to literally go to the Office Depot and wait for somebody to buy a shrink wrap package of Quicken.
(01:33):
And so, he could literally ask them when they check out, can I come to your house and watch you install the software? We created this, watch you install it and watch the first time use, and see what the pain points are on the product. That customer focus and thinking about the very specific nuanced things the customer might need to do. Yeah, you can think about what the problem is.
(01:52):
You’re not going to know until you see the customer do it. That type of thought process has been applied to entire industries now. I think Toast is probably the best example that people see most visibly. When they go to the restaurant, you can see they bringing the checkout device to your table. Any payments nerd is going to always look and see what the device is, or if it’s something new, if it’s Clover or if it’s Toast, or if it’s Square, whoever it is.
(02:14):
But when you start thinking about applying the problems to the entire industry of restaurants, there’re very specific things that those businesses need to do. And these new software platforms, these vertical software as a service platforms are solving those pain points end to end. And the verticalization is getting even more narrow. The example I like to use is Slice.
(02:35):
So, you go from Toast, you go to Slice for pizza shops. I talked to another company actually today that does brew pubs, and they’re solving the end-to-end problems for just craft breweries. We’re going to make it perfect for craft breweries to run their business. We’ll attach payments, and we want to add the other embedded financial services too.
(02:52):
That same group actually did flowers back in the day for flower shops. I think the example that you’ve used, and I’ve heard you say, I’m going to say it too, is going from dog walkers to poodle walkers, which is very, if you have a dog, it resonates pretty well. But that’s the future of all this. There’re 500 of these vertical SaaS businesses now. There’s going to be 5,000 of them in the next five years.
(03:17):
Everyone is trying to figure out how to be the most relevant for their business type. Nail salons, hair salons, yoga studios, daycares, gyms, all of these have their own SaaS vertical software offerings now. And business owners go there now to run their business. They don’t go to the bank anymore. That’s the future of software, it’s in the in-problem solving for an entire industry.
Todd Ablowitz (03:39):
It’s pretty amazing. And when you get in there, and you really see the depth of the use, and how it’s used and how important it’s to the business, it’s staggering. We’ve talked before about the next product. Once you have a software company in a vertical, a lot of times payments come in.
(03:56):
And I know you’re in the lending business and we’ll really dig into that a lot. But let’s start with payments for a second. From your vantage point, how has payments affected these businesses? And we’ll use that as a jumping off point for where we’ve been, where we’re going with payments and lending.
Luke Voiles (04:12):
I think that’s the first. If you think about pick an industry, pick a business, say it’s a nail salon or a hair salon, the first thing you need to do is probably get people in the seats. I need appointment software to be able to book appointments. I need to do a little bit of marketing, maybe have a website to help bring people in or some type of way to search.
(04:31):
And so, that’s the first thing. You have to have customers coming in the door, but once they’re in the seat, you provide the service. The next thing always is you have to take payment, and everybody has a wallet full of credit cards now, or Apple Pay or whatever it is. Nobody carries cash. You have to be able to enable digital payments immediately. Otherwise, you won’t be able to actually get paid.
(04:51):
I cannot pay for stuff anymore if there’s no cash. So, it’s always now, okay, we can do either tap to pay or it’s either cash only. You can do that, but no credit card sometimes. But the ability to take payment every single time is the first thing that pops up, and that’s how you start to drive your revenue is to actually be able to accept a payment through a credit card, or Venmo or whatever it is.
Todd Ablowitz (05:13):
And some of that focus is because somebody’s going to make the margin on that. So, somebody’s going to, and that vertical software company is now the most important company in the world of that merchant. So, I think they say to themselves, “Well, might as well be me. If someone’s going to make a hundred basis points on this, why not me? Pick me.”
Luke Voiles (05:32):
Right. We can have a very long conversation about the economics of payments and how that three points gets distributed, but fundamentally, you hit on the main piece of this. It actually drives revenue for the SaaS vertical business to accept payments. I led Square banking for a while, and 80% of Square’s overall revenue was payment processing.
(05:54):
20% came from the banking related services, but all that payments processing, everything Square did, that’s just about a point on the payments fee. And it’s a massive public company, a massive business. Any SaaS vertical business can actually keep about a point if they want if they partner with the right folks.
Todd Ablowitz (06:11):
So, Luke, why don’t we go to your background a little bit? Take me through your history, where you came from, companies that you were at, how you ended up at Pipe. Let’s go into that a little bit.
Luke Voiles (06:23):
Let me play it backwards in time. So, I’ve been at Pipe about 10 months now. It was a pretty amazing spot to land. The founders had raised $316 million of equity, and had started to try to build the business out, and decided they needed to bring somebody in like me to help them lead it. And so, I luckily was picked to be the CEO of this company.
(06:41):
And we’ve pivoted to focus deeply on embedded financial services instead of going direct, and building out a merchant finance business, like Pipe Capital as a service. But prior to this, my whole career I think was hopefully making me qualified for this seat, but most recently, I was at Square leading the Square banking team.
(07:00):
And so, that was the Square Capital product or Square Loans product, which was about $5 billion a year in loan volume. It was the Square Debit Card and Checking account, Square Savings and the Instant Transfer product. As I said a minute ago, that became about 20% of Square’s overall revenue. And it was the fastest growing part of Square.
(07:21):
The embedded financial services component embedded directly into Square’s offerings. I learned a ton at Square because… and if folks haven’t listened to the Jeff Bezos podcast with Lex Fridman, they should just because a lot of the stuff he talks about with decision-making, and meetings where there’s a perfect memo, and you read for 30 minutes, and then you just make decisions.
(07:43):
Alyssa Henry, who ran Square applied that same Amazon style stuff to Square. And so, I learned a lot about how to lead broader teams, and lead product teams with really high product velocity because you’re actually pushing decision making down to the product leaders that are closest to the customer, and know what the customer back to this Intuit style customer research.
(08:07):
So, those product managers, and designers, and engineers that are constantly talking to their customers about their specific product know what should be built because they’re closest to the customer. And when you allow those pods, or squads, or teams of peers, we call them at Square, to set their own destiny, they can move so much faster.
(08:26):
Don’t put constraints on them, let them go build what they think the customers need as long as it’s heading towards something that makes sense for the business as well. So, learned a lot at Square about how to have high product velocity in a broader corporation. That was a great experience. It was also very single threaded, which is an Amazon style thing too.
(08:42):
So, it was a single threaded GM, had everything but finance, legal and HR reporting into me, had five attorneys spending all of their time with us because we were four very different, highly regulated products in four geographies at the time. It’s pretty complicated pretty fast. Had five people on the finance team assigned to us full-time too.
(09:02):
And so, it’s close to a CEO/GM type role you can get, so tons of learning there. I was only there 18 months before the Pipe opportunity came along, but the Pipe opportunity was just too interesting to stay longer. I can say more about that in a minute. But before Square, I had my first opportunity to actually join the tech side. I’ll tell you about my past investing career before.
(09:24):
But when I left investing to join Intuit, I was there five years, and learned so much about how to focus on customer problems and solve customer problems. The other thing that Intuit was really good at is leadership, and mission-based culture and leadership. You can see that with the train of leaders coming out. I think the latest example is the guy that hired me, Alex Chriss, he’s the CEO of PayPal now.
(09:50):
He may not have perfect strategic experience around payments or consumer, but he is an unbelievable leader of people and can motivate entire teams the way that Brad Smith at Intuit was so good at. I can just see Alex standing in front of PayPal now talking about how they’re there to help the customers, they’re there to help the consumers, they’re there to help the small businesses.
(10:08):
He’s even divided PayPal into two business units now to focus on those specific customer problems. It’s the same playbook. Focus on those pain points, solve them and everything is solved from there. But Intuit just breeds leaders that way. So, Dan Wernikoff ended up being the CEO of LegalZoom. You have CeCe Morken as the CEO of Headspace.
(10:27):
You have Greg Johnson who went to become the CEO of McAfee. One thing Scott Cook should be the most proud of is the fact that he’s able to just train so many very highly empathetic, highly effective leaders that go on to run other technology companies. And so, learned so much about that mission-based leadership, and playbook, and how important it is to energize teams to get them to move forward.
(10:49):
So, my hope and goal with Pipe is to take the best of mission-based leadership and culture from Intuit, and the best of speed and product velocity from Square to have one of the best places to work where you build things fast and solve customer problems. So, that’s the tech chunk of my career for a decade before all of that, and I was at Intuit for five years.
(11:10):
At Intuit, we built QuickBooks Capital from scratch. We went as my first zero-to-one opportunity with a big parent corp like Intuit, but we went from zero to $2 billion in loans made. We made it $100 million revenue business. That was quite an experience too, learned a ton doing that. Before all that, so for a decade I was a distressed investor.
(11:29):
So, coming out of, I graduated grad school when I was seven and was working doing para-healthcare credit at a big CLO fund, and then the world fell apart. The fund I was working for blew up and they laid off half the staff. I didn’t know what the heck I was going to do. And so, I actually have a law degree from before that in grad school and an MBA too.
(11:50):
But I had never taken the bar because I didn’t think I wanted to take the bar and I didn’t want to practice law. But I got laid off from my hedge fund job about a week before the deadline to sign up for the bar. And so, I was like, “You know what? I’m going to go back to Sherman, Texas. I’m going to be a divorce attorney, or a criminal defense attorney, and I better get the bar so I can go do that because all this investing stuff doesn’t really… it’s like the world is falling apart.”
(12:12):
So, took BARBRI over Christmas break or the Christmas, and I took the bar on Jan, Feb, I think it was. But the Monday after I took the bar, I had a job at another fund, so I went to Lone Star funds. I was there just under two years. We bought a ton of securitized resi products, RMBS, and a whole bunch of special situation stuff we were looking at.
(12:33):
And then, I luckily was recruited out to San Francisco by the Sixth Street Partners team, which is part of TPG Capital at the time. And so, it’s like a $60 billion AUM business by itself now. So, Sixth Street became was the credit arm of TPG and now has spun out, but some of the smartest people I’ve ever worked with in my life. But we spent five years buying bad loans from banks and doing all kinds of distressed stuff.
(12:55):
And in the last year and a half, I spent lending money to lenders. So, we were talking to Max and Nathan at Affirm about doing $100 million deal before I left. For example, talked Ron Suber at Prosper. We were talking to Lending Club, and On Deck, and Funding Circle, and all those names about lending money to lenders. So, I learned a lot about the alternative lending space.
(13:16):
And so, that’s where the transition from investing into Intuit was it’s another long story, but fundamentally, Alex Chriss recruited me from TPG to come lead the lending business at Intuit, and that was the best decision I’ve ever made, is to leave the sharp elbow, not great culture from… even good cultures are not great cultures in the private equity space.
(13:36):
And landing at a place like Intuit, which has an amazing culture, and learning a lot from that. So, the short version of this is ten-year investing career, like seven- or eight-year FinTech career. And now that I’m in the embedded financial services space and around lending, that credit background makes a big difference.
Todd Ablowitz (13:52):
I don’t know about you. I could never have seen the potential of embedded lending back then. What a move to get into something that’s just hundreds of billions of dollar TAM opportunity. It’s pretty cool.
Luke Voiles (14:08):
It’s interesting, when I was in investing and lending, we’re credit investors, we’re buying loans from originators too. The minimum deal size at TPG was $100 million. And you go talk to companies that like, “Oh yeah, we had this neat new origination platform that can originate stuff. Well, are you doing enough?” None of them were really doing enough volume.
(14:27):
You had the old school factoring businesses that were 50 people in a call center, everything manual, and you had the old school MCAs that are just unfriendly, ISO driven, were not helping businesses at all, just way too expensive stuff. They had some volume, but none of them were big enough or friendly enough to make sense. And so, I didn’t see it out of the gate.
(14:49):
I saw the opportunity at Intuit because I asked Alex — Alex Chriss — how many customers do you have before I joined?” He said, “We have three and a half million customers.” How many invoices do they send? Because factoring works pretty well. Well, we send $2 trillion of invoices a year. Holy moly, you should be the one doing lending within that base because you have the customers, you have the data.
(15:13):
But I was thinking about it from building it within each of these things one at a time. That’s what Square was too. Jackie Reses and team built Square Capital based on that business. I think the aha moment for me coming to Pipe was that embedded lending part can then be exported to any payments acceptance type business and that then attaches to that SaaS vertical component.
(15:34):
So, all of these things are falling into place together to say, “You know what? Now is the perfect time to launch this embedded capital product for any payments processor or any payment facilitator.” If you look back and you think it seems obvious, but as you said, I didn’t see it coming. Even though I was doing it, I didn’t see it coming, honestly.
Todd Ablowitz (15:51):
Me either. Me either. And if you think about, and we’ve talked a lot about this, the connection between payments acceptance, and lending, and how that’s wrapped up in the bow of data and access to money movement. Why don’t you unpack that a little bit?
Luke Voiles (16:11):
The most critical component of getting people to take a loan offer, everybody sees this. Look at the offers you get from Capital One when they come in the mail or any credit card company, it’s always you’re pre-approved or you’re pre-qualified. It is so key to get to that pre-approved state. Pre-approved has real regulatory meaning.
(16:30):
If you’re the lender and you send a pre-approved offer, you have to do a back test and prove that 90 plus percent to people that you sent that letter to actually get approved. If you don’t, the FTC will come after you like they did to Credit Karma. Credit Karma got slapped by the FTC recently because they said pre-approved and it wasn’t actually 90%.
(16:51):
So, they did the sampling and back testing. But that pre-approval is so important because the click-through rate or the conversion is double when you go to pre-approval. And so, the critical piece with all these vertical software businesses is to be able to show a pre-approved offer in the product. And the only way to do that is to have all the data you need to actually do effectively the full underwrite.
(17:15):
There’s a very few products that allow you to make that decision quickly with limited data. What QuickBooks Capital did required FICO score, and bank transaction data, and all of the accounting data, plus just getting to full P&L cash flow debt service coverage ratio, that type of cash flow underwriting the banks traditionally do requires all of the data.
(17:38):
And so, those cash flow products are really, really hard to get to pre-approval on unless you already have all the data. Intuit uniquely does, but anyone like a funding circle, or an on-deck or folks on the outside, they’ve got to get all that data linked in and that’s a ton of friction on those processes.
(17:53):
So, the aha moment for me when I got to Square was that the only data you actually need to do the entire product and to take all of the credit risk is six months of transaction history from payments. The beauty of that product is that you can take six months of perfectly accurate data where you’re moving the money, you know what the transaction data looks like, and the payments process is moving the money.
(18:17):
You use that six months of transaction history to predict very accurately what the next 12 months looks like, and in a pretty safe way, you can lend about 10% of that. So, imagine a coffee shop that sells a thousand coffees a day, they’re going to do that 365 days a year. If you get six months string of history from that coffee shop’s payments data, you can very easily say, “Okay, this coffee shop is going to do $1 million next year in revenue just selling coffee with credit card.”
(18:45):
The lending business part here is that you lend them or advance them about 10% of that million. So, you can lend them or advance them $100,000, but you’re advancing it against that cash flow stream. And so, you’re getting paid back first in line on that cash flow stream. So, this is a lesson in how to narrow the problem set, and focus, and actually take risk.
(19:05):
That makes sense because underwriting the cash flow stream with perfect data, you’re lending against that cash flow stream, and you’re getting paid back first in line in that cash flow stream. So, because it’s so perfectly aligned with the data that the payments processes already have, you can get to pre-approval with just six months of transaction history, which actually is just 12 data elements.
(19:26):
You need aggregate monthly transaction volume, plus transaction count for six months. That’s 12 data points. So, with a unique identifier and those 12 data points, Pipe can spit back out a pre-qualified or pre-approved offer to put in front of the customer. There’s no other small business lending product that can get to a pre-approval with that small of a data set, without FICO score, without bank transaction data, without commercial bureau or commercial bureau attributes.
(19:54):
It’s very clean and that’s why the Square Capital works so well, Stripe Capital, PayPal Working Capital. These big businesses have figured this out and they apply it to their own payments data sets, but Pipe now is going to allow all the other payments processes to use the same. It comes down to the data has to match the risk, has to match the data you have on file, which is perfect. That’s why this product is so perfect for payments.
Todd Ablowitz (20:16):
I might be taking a leap here, but is it true that that puts you in a position to be able to give more what I would call main street pricing or more reasonable pricing on the advances or loans because you have better data while still making a fair margin?
Luke Voiles (20:34):
A hundred percent, there’re two aspects here. One is it opens up access to capital for people who just don’t have access. So, data from Square is that 51% of the loans they made were to women-owned businesses, 32% went to minority-owned businesses and many of them were thin file from a FICO perspective because you don’t need FICO to underwrite.
(20:55):
So, one, it opens access in a very fair and unbiased way to a massive population that just can’t get access anywhere else. It is also a baseline where if you see the consistency, if you see that coffee shop’s data so consistently, you can actually give them lower cost and longer term. You could go out to 24 months if you want on the payments data.
(21:15):
Most of the merchant finance players go out 12 or 18, but actually, effectively, you can add FICO score, add some bank data, find out what else is going on at business, and you have a perfect baseline with the merchant finance product and payments data. And then, you can see, okay, and they have all these other positive factors that could even then lower the cost from there and make it even cheaper.
(21:35):
So, you have a perfectly underwritable baseline that opens up access and then the other data can actually make it a cheaper product over time. So, you can lower the fee from 13 to eight and end up with an APR that’s under 10 if you want, or even lower the fee to five. This is before interest rates went up and risk-free rates are five now, but we had products that went down that far for the lowest risk populations.
(21:58):
So, yes, it can make it cheaper. So, that’s one of the things Pipe is trying to do is make this cash the Pipe capital product as friendly as possible because you can predict the risk so well, you can make it a friendly product, you can make it a multi-draw line of credit-like thing for the customer. You can cap APR if you want at whatever level you want and you can make it a very friendly product for the first time.
(22:21):
And the basic nature of the product, if you have a slow month because you’re only holding 10% of transactions, it automatically slows down payments to help the customer. So, the baseline product is friendly, but you can also make it friendly for the faster payers too by capping APR or stopping the holding, things like that.
Todd Ablowitz (22:39):
Well, I have to tell you, people who know Infinicept really well know that we have a couple of social missions. One of them is to keep bad people out of the payment system, and another one is to bring underserved good people into the payment system, and to allow the 51% you talked about in. That kind of thing is really important to us.
(23:00):
The other thing in the partnership that we’ve put together that really mattered is we represent the transition from the old way of selling payments, which is the guy in the plaid jacket, with the comb over, with a Verifone terminal in his backpack. And that really went along with that overpriced merchant cash advance MCA crap that was just siphoning off of these.
(23:26):
It’s like the opposite. It’s like stealing from these small businesses that really don’t have a lot of options. So, when we talk about these things, it’s the combination of providing real value and getting a fair margin for it where it’s at market. So, kudos to Pipe and to you, especially for pivoting the way you have with the money you raised to something not only needed, but so valuable to the market.
Luke Voiles (23:51):
We’re super proud of that part. There’s that older world of it was like middlemen. Here’s a good example. A couple of states passed laws now that say if you’re going to do even a non-loan capital product, you have to disclose all of the fees received by the brokers because the plaid jacket folks are the loan brokers too that are basically giving one loan piece of paper to the small business.
(24:17):
And then, turning around, and borrowing money from someone else, and taking a whole 10 points sometimes on some of these loans when the overall cost should have only been 10, doubling the cost of capital with this enormous fee. The only other space I’ve seen that egregious level of broker fees is life insurance brokers and people who are buying life insurance policies.
(24:38):
One of those true special sits type of things that I’ve seen in the past, but the brokers have the ability to squeeze margin out in a super unfair way. And that’s why the Pipe product, because you’re facing the small business directly coming through the application, it’s not possible to have somebody do that in between, and we can control it, and we can have a friendly product that way.
Todd Ablowitz (24:57):
And this isn’t about a commercial. It’s really about trying to educate the industry about there’s a way that this can be done that’s fair. There’s a way that this can be done that’s accessible. And we’ve talked a ton, both for software platforms on their payments and software platforms on their embedded finance. Let’s talk about the case of why they shouldn’t try to build it and first of all, why are they so relevant to this? How is that coming together? And what should they be doing, and why shouldn’t they try and build it themselves?
Luke Voiles (25:30):
The relevancy is that it comes down to where is the small business owner going? They don’t go to the bank anymore to deposit checks. They don’t go to the bank to get cash for the next day. Business owners used to go to the banks to solve problems. They don’t go there anymore. And so, there’s no chance to cross-sell a loan, or give them insurance, or give them another sit that they probably need, but they just don’t go there to get their problem solved anymore.
(25:54):
The business owners are going into the software, and that’s where the capital needs to be. And so, that’s why the future is here. Sorry, go back to the first question again for me please too.
Todd Ablowitz (26:05):
Yeah. And really, this is the punch line is why. If they build stuff all the time, they have some FinTech stuff with payments, why shouldn’t they be building lending?
Luke Voiles (26:13):
Right. Well, the answer is one, in order to break even on a lending business, you need about $100 million in revenue and 100-person team. That’s an enormous amount of volume. That’s about $1 billion in loan volume to get to break even. Once you get to break even, once you’ve covered all the fixed costs, the variable costs are really good.
(26:35):
The margin on lending business that I’ve seen in the past are about 60%, especially if you’re attaching to a customer base, you already control like an Intuit and Square, you can get to a 60% margin business. They’re super-fast growing. The problem is you have to have enormous scale to get to breakeven. Square got to breakeven on their lending business.
(26:53):
Intuit did. I’m sure maybe Stripe has by now, and I’m sure PayPal has on their consumer and their small business lending space. But in order to do $1 billion in loan volume to get to that breakeven level, this assumes that you’re as good as Square at converting customers into the loan product.
Todd Ablowitz (27:10):
A big assumption, big assumption.
Luke Voiles (27:12):
Which takes years to figure out, like I know how to do it now because I’ve done it for a decade practically, but it’s hard to figure out. That means you have to have $40 billion of payments volume to actually build, to get the right conversion, get to the breakeven, and then it actually starts to give you EBITDA. It’s going to be a lost leader for a long time.
(27:32):
Yes, it will drive revenue, but you’re going to lose money until you get to $1 billion a year in loan volume. It’s a really hard level to get to. And so, for anyone that’s less than that, you just shouldn’t do it. Start with someone like a Pipe to help you do it all and frankly, we’re sharing almost 25% of our revenue with every partner.
(27:50):
So, those payments partners get to keep money from every loan, the interest on every loan that goes straight to your EBITDA. So, you can get EBITDA margin improvements with this product without taking any risk, without doing anything. And so, knowing that you can do that now in a low tech, pretty easy integration type of way, there’s no reason ever to try to build your own.
(28:10):
Find the right partner. Pipe is one, but find the right partner to do that. Even if you’re bigger, even if you have $100 billion of payments volume already, there’re a lot of mistakes that can be made as you’re hiring the team, like five people, 10 people, 18 people, 20 people, and scaling this thing. You should still start with someone with a partner.
(28:28):
And here’s conversations I’ve had with some other really large players. Start with us. Let Pipe take the risk where you’re keeping 25% of the revenue and we have 75, call it, which is ballpark numbers. And then, at some point when you feel like you’re ready to take the risk or want to take the risk, continue to use our stack, we’ll flip into a software position, and let the partner take the risk and take more of the revenue.
(28:51):
And then, we’ll be just true lending as a service at that point, but it could be like a white glove service to build it out, and then we’ll flip, and let you take most of the revenue and we’ll move to a software position. And we’re fine with that because we can get way more scale that way if we’re not taking all the risk ourselves, and it just makes sense.
Todd Ablowitz (29:07):
That’s so funny because that’s how we got to $15 billion in payment volume is we were doing that SaaS play. And when we launched Launchpay, it’s exactly. Without even a degree of separation, it’s the same story, which is let us do the payment stuff for you, and when you’re ready, you can become a payment facilitator yourself.
Luke Voiles (29:25):
I remember you telling me this story, and we talked about how operationally difficult the managing chargeback risk, and fraud reviews, and the management of that. Logistical operational stack is way harder than people think, and the machine learning models to detect bad transactions, all that stuff is so hard to build that out.
(29:47):
And saying it’s exact same thing on lending, it’s slightly different risk, but it’s still moving money, and giving people money, and getting money back. Charge back and lending are very similar, but also very different at the same time, which is why you’re good at payments and we’re not, and we’re good at lending and you’re probably not, right?
Todd Ablowitz (30:03):
We’re definitely not. I can spell lending and I’ve taken a loan before, so you’re absolutely right, and the other thing that’s common is we’re dealing with people’s money. And when you deal with money, you have to take a little bit different consideration when you’re managing it. And that’s a good thing for software companies to ride along with us and learn that gradually.
Luke Voiles (30:27):
Well, this is where voice of the customer, and when you should be listening to the customer success calls, you should be like the hardest calls, should be flag for the team once a month for you to listen to them. And when you hear people shedding tears over that $500 that they need right now, or they’re going to miss payroll, and their employees are going to be hurt, that’s where it really hits you.
(30:50):
You’re really providing a pretty amazing service for people to give them access to capital or to even make sure their money is getting to them on time so they don’t just panic, and have a moment where it’s a disaster for them because they need that $100 or that $500 is so critically important for so many calls where people are in tears because of that. It’s unbelievable.
(31:09):
Money is one of the most important personal things for people, and if you mess up the flow of it, it’s a problem. If you can give them more, it’s amazing. These are aha fantastic moments from a product perspective for people.
Todd Ablowitz (31:20):
That’s amazing. Well, I’m going to close out with one last question and that’s where do you see all this going?
Luke Voiles (31:28):
Oh man. So much has changed. I felt a surge. My head immediately goes back to Sherman, Texas. My grandfather was the chairman of the board of a tiny, tiny bank called Grayson County State Bank in Sherman, Texas. And I went to the board meeting once or twice, a little kid, wearing a three-piece suit, I was like eight or nine years old.
(31:51):
From what banking was then to where the technology is now, to be able to do all of this stuff with your phone, just literally tap to pay on your phone, money can move that quickly. You don’t even need devices anymore, sometimes where blockchain is, everything is moving to a digital world. Everything you need to do as a business owner, those problems are going to be solved.
(32:15):
If it’s going to be obvious for you, if you want to go launch a pizza shop, for example, go talk to four or five business owners that are in that space. They say, “Oh, we all use Slice, or we all use this software because it actually has spent hundreds and hundreds of hours changing and fixing things for every problem of the pizza shop.”
(32:32):
So, I think the SaaS vertical future is just going to get better and better and better to even more narrow and more narrow types of functions for people. It’s just going to be so easy for entrepreneurs to go launch a new business, to go do your landscaping business.
(32:48):
A landscaping business that also does snow plowing, for example, was one that recently applied through Pipe. It’s like that’s pretty smart. You can actually figure out how to make your business less seasonal by doing two things, but for a business owner like that to say, “You know what? I’m going to go launch it.”
(33:01):
And when all you have to do is go sign up for one SaaS software subscription for 50 bucks a month to run your entire business, to set your appointments up, to start to order all the equipment you need, get financing for the equipment you need start, get all the appointments, start taking payments, sell lawn care stuff through your website or through a Shopify, LinkedIn, everything is just there.
(33:23):
You can get capital, you can do bill pay, you can pay your payroll all within that same software product with just a few clicks. That’s amazing. The other thing that Pipe has been working on and we’re going to keep experimenting on is what we call AICFO, which is you take all that verticalized data, and you finally can apply that sidekick to it.
(33:43):
And then, you can literally just talk to your sidekick and have it manage your entire business. The interface changes, so taking the SaaS vertical embedded financial services, and then changing the interface from what used to be going into the bank, to then going to your web browser, to then using your mobile device, it’s going to be okay, now, just talk to your sidekick to then tell it to do everything for you, and then give you visualizations in whatever your contacts that have stuff.
(34:10):
I’m a sci-fi nerd. I’ve seen lots of dystopian stuff, but I’ve seen lots of really cool stuff that’s pretty futuristic. That’s where we’re headed. You’re going to be able to put your business on autopilot because all these tools are finally there to do things automatically. And now, the AI is smart enough to just take those actions for you or say, “Hey, should I do this?” And you say yes.
(34:30):
When you say yes 100 times, you’re like, “okay, this thing’s pretty good. It can run this for me and I can go hang out with my kids.” That’s what I hope the future is here.
Todd Ablowitz (34:38):
If you think about it, what that’ll mean for the GDP, and the economy, and the efficiency that’s just keeps that whole efficiency trend going into the next 50, 100 years. That’s really cool. Luke, thanks so much. It was awesome talking to you.
Luke Voiles (34:53):
Thank you, Todd. I live and breathe this stuff, so it’s fun to chat with you. It’s fun to talk about this stuff. Thanks for having me.
Todd Ablowitz (34:58):
Awesome. See you soon. Thank you so much to Luke Voiles for joining us today. What a fun and interesting conversation. As always, many thanks to our awesome listeners for tuning into the It Pays to Know podcast once again. We very much hope you enjoyed it. To hear more from us, go to infinicept.com where you’ll also be able to learn more about our PayOps platform and how we get payments going your way.
(35:24):
We especially want to highlight our newest product, Launchpay, which helps software companies get the PayFac experience with all the transparency and openness of becoming a full PayFac without the expense and lift. As a founding member of the Embedded Payments Bill of Rights, we’re 100% committed to doing payments right. For Infinicept, this is Todd Ablowitz. Thanks again for tuning in, and we’ll pay you another visit next time.