Episode 6: Revolv3 | A Full Circle Conversation on Tokenization, Orchestration, and Innovation
Our guest for this podcast is Revolv3 Chief Product Officer, Robert Podlesni. We discuss the importance of tokenization, recent rules changes at Mastercard and Visa, the opportunities, therein, and how Revolv3 is helping Infinicept customers benefit from it all.
Read the full transcript below.
Episode 5: Payroc | A Full Circle Conversation on Tokenization, Orchestration, and Innovation
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 Robert Podlesni. Robert is Chief Product Officer of Revolv3. Such a cool new company that has been doing really interesting things, innovating around recurring payments, billing tokenization, payment orchestration, multiprocessor things. It’s just super cool what they’ve been doing. Today, we discuss the importance of tokenization, the rules changes that Mastercard and Visa have been coming out with, the opportunities in those spaces, and how Revolv3 is helping our customers do some really cool things in that space. Without further ado, I hope you enjoy our conversation as much as we do. Great to have you. I am super excited about this conversation, Robert. Why don’t we start out by giving us a little bit of your background. We’d love to hear about what you’ve been doing for the last while.
Robert Podlesni (01:09):
Let’s see. I got into payments by way of Motorsports, so actually had a sponsor that was a payment processor and I got into at the time was high risk. They called it recurring billing, and it was sort of a niche industry. And now I’m very fortunate that the business, and particularly e-commerce, has gone the way of being everything recurring, so it’s no longer just a high risk game. I moved from the acquiring side to the consulting side on all the merchants, and then most recently I was at Experian, where I managed their in-house billing and fraud for the consumer services in North America, and then moved over to take the chief product role over here at Revolv3.
Todd Ablowitz (01:47):
That’s awesome. Who was the payment processor that sponsored you?
Robert Podlesni (01:51):
Was a company out in Agoura Hills, California, and they used one of the local banks out there, so was a fascinating little niche called Terminal Velocity.
Todd Ablowitz (02:01):
Yeah. Agoura Hills has their share of high risk cases, definitely been… It’s like a little niche neighborhood there. So let’s talk about Revolv3 and why’d you start the company? What’s special about it? Let’s get into some of the meat of Revolv3.
Robert Podlesni (02:17):
So being at Experian consulting for a number of the enterprises beforehand, it became apparent that a lot of the third parties out there, third party billing providers weren’t really cutting it, right? There was these one size fits all type solutions and the reality was that no business was one size and nothing fit everything. And so, after piloting a number of those, my recommendation when I came into Experian was: you need to build your own system. You need to really step up into the cloud space and manage it. But that is also a huge expense there. And I think not only them, but other big enterprises are facing that same fact that they’re spending millions of dollars building their internal systems because the third parties really don’t offer them everything that they need in order to optimize collections.
So my CEO here at Revolv3 actually left Experian, founded the company, and said, “Hey, why don’t you come and build it for everybody instead for just one merchant.” And that’s where we are. I took the role here in June, after he’d put together the funding and the platform and everything else, and really took off after that.
Todd Ablowitz (03:20):
So that’s really interesting. Let’s double click on what was not being served in the market and what you saw as the gaps that all these companies were building in-house, which is dreadful obviously. In 2022 and 2023, and beyond, companies should not be building their own software stack for one single use case. It’s absurd. So tell me more about that.
Robert Podlesni (03:42):
So the providers out there, everybody can handle a recurring invoice. That’s sort of table stakes in the game. And then there’s various iterations of price, product configuration, or different niches that these certain businesses solve, and they do a very good job in that space. There’s nothing wrong with that end of the business, but the reality is that they’ve… In order to facilitate payments, integrated a number of gateways, they integrated a number of third parties that degrade that transaction message, getting to the actual call it payment network or issuing bank.
And so what started to happen was: as more and more recurring regulation has been put on merchants from the networks to comply with data requirements and things of that nature, these third parties haven’t been able to keep up. So they’re either not passing the data they really need to, they’re not supporting all iterations of direct platform integration. They’re adding things like gateways or different middlemen effectively in the process. (Also, a great payments movie if you have the time.) But these middlemen degrade the message, and so the issuing bank doesn’t know what they’re supposed to be looking at and they don’t trust the payments. And so the decline rate goes up despite good processing, good history, and good merchant trust.
Todd Ablowitz (04:51):
That’s interesting. And I think the other day I was looking at the Mastercard network fees, and I mean, they’ve just ballooned on these things. There’s all these new fees for sending the wrong codes, and I think we were talking about that in our last conversation, just that there’s a whole bunch of new metadata expected that has to make its way all the way through the system or else you get dinged as a merchant.
Robert Podlesni (05:13):
Yeah. There’s everything from recycle regulations on number of tries in a given time period. You have various requirements for network transaction ID. I think one of the interesting developments is the first time ever, they’ve come out and said, “We’ll give you a discount if you use network tokens and start complying.” Which I like the idea of incentivizing people to comply, but there’s huge amounts of data. You look at things like ECI, transaction codes, all of this has to work together, and it’s all extremely taxing on the merchant side because they’re effectively held accountable. The merchant pays the bill if they’re not compliant, even if their third party’s not compliant, it’s not the billing provider in this case.
Todd Ablowitz (05:55):
Well, you hit my favorite topic. I’ve been absolutely obsessed with network tokenization. As far as I can remember, it’s the first mainstream product that would be widely used across the payment system that has differential interchange in my career. They had it. They started it with card present versus card not present when they wanted to get terminals deployed in the ’80s and early ’90s. And they created what we thought of as base interchange was actually a discount from the higher card not present interchange way back in the early days of electronic payments.
And here we are again. So when I saw network tokens start to proliferate around Apple Pay and Google Wallet when they were coming out, I marked it as a major innovation, maybe the first major innovation that the card brands had come up with in some time, and seeing it with different shoulder change blows my mind, and probably a bunch of the listeners are like, “Why is he so geeked out about this payments thing?” But if you’re a payments geek, this is-
Robert Podlesni (06:57):
It’s pretty cool.
Todd Ablowitz (06:58):
It’s pretty cool. So let’s double click on it and what is it? And I mean, there’s a lot there. Let’s open it up.
Robert Podlesni (07:03):
Yeah. So the interesting part for me is it’s the first time I’m aware that the networks have actually dropped the cost of processing by complying with a particular regulation. Typically, if you understand interchange, you have these qualified rates, and if you don’t send it right, they penalize you, but if you do send it right, you just get the standard published rate. And what I found so interesting was I think that incentive has had a big interest from the merchants because despite, I think, the general, I’ll call it lack of payment understanding in the business, everybody understands cost. So no matter what your role is within an organization, you understand, “Hey, my cost is going to go down if I do this, I really need to take advantage of it.”
There’s a couple key factors here. One, the network token problem solves a lot of the complexity and issue around having a multi acquirer model. So if you have multiple different platforms, whether that be domestic in the US or whether that be globally, you have the ability to use these long-term across a lot of these different processors maintaining the same information on the merchant or billing platform side.
The other cool thing about it is that it provides a layer of security to abstract this from the actual cardholder information to the merchant, which I think is great. And it’s something that I think really drives for that overall EMVCo type vision of the future to reality. It’s also something that the US has adopted fairly quickly when you look at the payment space versus historically the US has been left behind and has to catch up on the payment side. This is something I think where the adoption of it is rapidly growing.
Todd Ablowitz (08:42):
I think it’s fascinating. Are you seeing that there’s good adoption on the issuing side for network tokens and what are you seeing on the issuer side of it?
Robert Podlesni (08:52):
So mostly, yes, and this goes back to that one size doesn’t fit all model. You have a number of merchants, particularly in e-commerce, they’re using debit network routing, things of that nature. You can’t use network tokens for that, right? This is strictly processing on the Visa, Mastercard, Discover, AMEX rails being able to make those transactions. So if you’re still using debit network routing or if you’re looking to use it, you either need to host the PAN or that processor token or however you’re routing those. But when you look at the prevalence or use of network tokens, merchants are picking it up rapidly, but I’d say there’s more than 80% adoption from the issuing side overall. Each merchant’s portfolio may vary within that number, but it’s growing rapidly and to the point where there’s not a huge amount of gap that we’re seeing anymore.
Todd Ablowitz (09:40):
Well, it’s not trivial from what I understand to put together a network tokenization platform. From what I understand, and you can maybe expound on this, the trick is in the fallback when, even if you only had 2% of cards not registered for network tokens with the networks, you have to be able to fall back and deal with a PAN or a processor token instead of the network token for the fallback. And there’s quite a bit of logic in that if my facts are organized correctly.
Robert Podlesni (10:10):
Yeah. So it’s hard being first, right? There’s a lot of hoops to jump through. Doing the integration directly with the networks is probably the reason I think I lost the rest of my hair. But it’s really not an easy process. You have to do integrations that are bespoke to each of those, those have to be maintained. They have to be tested and QA across all the different processor integrations. And then there’s the compliance and security part of it because to your point, each payment method effectively has to fall back on something.
So as a merchant integration, it’s probably a pretty big ask to do that for most merchants. I think that we’ll see larger adoption of either systems like Revolv3 or others out there that will provide it as a service. On my end, I took the perspective in designing this over the last few months on our side that we should support network tokens, we should support the storing of the PAN for the meantime, and then also support the processor token, not just for the security and the fallback, but also because if anything were to happen, if there’s an outage for one of the networks, if a processor outage happens, there’s always an option to get the transaction through.
Where if you’re strictly reliant and all your eggs are in one basket and something happens there, you’re going to be lost in line to collect. And that’s our value to the team is we always have the ability to process it and we can always dynamically route it.
Todd Ablowitz (11:32):
And do you have your own token that you associate with all of those? The network token, the PAN, possibly a processor token?
Robert Podlesni (11:38):
So we can configure that a number of ways. Typically, if there’s a full integration, the merchant or ISV will choose to just use that. It’s not a token, it’s just really a payment method ID for all intensive purposes. And then we can configure that where we can pass any of those tokens back or create a token vault. So it depends on the integration really. And I think that’s one of the issues in supporting this overall is that every platform and merchant has their own methodology, and the biggest attacks effectively on them of making a change is making changes to their internal logic of a completely separate logic, integrating payments. So when we created the system, we designed it in a method where we could implement it in a way that it was the least disruptive to an existing integration. And the onus of owning that logic was on the Revolv3 side.
Todd Ablowitz (12:30):
So you just abstract all that stuff away from the customer. The customer gets an easy API to deal with.
Robert Podlesni (12:36):
Correct. It makes PCI compliance, very easy for them.
Todd Ablowitz (12:40):
And whether you think of it as a token or a payment ID, essentially you get a payment ID for each ultimate credential that’s out there, and then you just sort that stuff out for the-
Robert Podlesni (12:50):
Todd Ablowitz (12:51):
And there’s just a ton of orchestration to deal with. If I understand it correctly.
Robert Podlesni (12:55):
Yeah. We have a pretty extensive QA team to go through all of this. Certainly, the complexities added, the more platforms and processors are added because not every processor supports it the same way and not every processor supports the same functionality. So the methodology of routing that and then providing a seamless flow is definitely a time consuming one. I mean, just candidly, we’ve been working on network tokens for the last, I don’t know, six or eight months.
Todd Ablowitz (13:25):
We have the same thing, as you know, we deal with reporting and the payouts and onboarding, and things like that. And the trick is that you want to support all the beautiful differentiation among the processors while giving a common experience. And those two are not often working together.
Robert Podlesni (13:44):
Yeah. I think that’s why you’re such a good partner. You have to deal with all the other complexities that we don’t. So it’s great to put that on the Infinicept side.
Todd Ablowitz (13:54):
Ditto. Ditto. And we talked a little bit about routing and orchestration, and I think you touched on that. I think as I’ve gotten it on Revolv3, there’s a few other key pain points that you addressed. Why don’t we… Anything else you want to say about routing and orchestration, and then get into some of the others?
Robert Podlesni (14:07):
Yeah, and we’ve even found this with a lot of the Infinicept merchants and conversations, it’s easiest to have one integration and support that within the merchant side. And then there’s conversations around, “Do I need a second processor or a third processor? What’s the value of this?” And then the moment you add more than one, it infinitely complicates a tech stack, right? Everything from the compliance to the ability to route to potential failure points. And so that’s where I think the data is really important. So when you onboard a merchant looking at them and saying, “Could you benefit from a second processor? Could you benefit from switching your primary processor and retrying elsewhere? Are there data elements decline problems, overall collection metrics, we call it.” So effective collection rate, what are we looking at? If you collect 100% of everything owed to you, you probably don’t really need to add that complexity in your space, but if you’re only collecting 80% of all the invoices out there, even with your retries, there’s a huge amount of money on the table.
And I think doing that analysis and providing insights back saying, “Look, we’ll support any processor out there or anyone who will underwrite the account, but we think these are the best places to go because they fit your business the best”. And I think that’s what our partnership’s been so great about as well, is being able to support in an agnostic way the best thing for the merchant. Because if the merchant gets the best solution, they’re going to be the happiest, and they’re going to be the most successful.
Todd Ablowitz (15:34):
We absolutely agree. That is fundamental to our strategy is, I was sitting on a panel with a friend of mine, Ned May, he’s from a private equity firm, and he was on a panels about five years ago. He was talking about how they look for companies that create value so much that they can get their fair share and everybody’s doing well as opposed to extracting value and taxing it. When you talk about this, that’s what I think about. There’s so much value to be derived. I mean, just the network tokenization discount alone is huge, but when you get into businesses that are not collecting 100% of what they could and they have declines, when you get into the routing problems, it really gets pretty substantial on the opportunities to create value. Tell me a little bit about reconciliation. When we were talking last week, we talked a little bit about reconciliation and performance. Tell me a little bit about how you see that working and where Revolv3 plays in there.
Robert Podlesni (16:42):
It’s a huge pain. I mean, I’ve had teams of multiple tens of people that their entire existence was extracting data, analyzing the data, and figuring out one fundamental questions. Was everyone who’s supposed to be billed getting billed? How effective were we at billing those customers? And then breaking down the analysis within those with one processor, again, not the hardest thing in the world. There’s usually one data element you can look at. When you look at multiprocessor, it becomes infinitely more complicated because everyone’s reporting is different. Some of it you pull the API, some of it’s via batch files, SFTPs, it runs the gamut, right? So one thing advantage to that is we designed our system backwards. So we didn’t look at how customers were going to integrate to Revolv3. We looked at how we were going to support a future state of effectively any processor out there, created a data structure where we could ingest data from anywhere, and then be able to serve that up within our environment, and then said, “Okay, these are the most likely ways a customer is going to come to us. Let’s allow them to integrate.”
And being able to serve that up. So for instance, from the Infinicept platform, we’re able to pull all of the payouts, all of the information, anything that’s on hold, any of that data directly from that platform and serve it up. We can also do that directly from a processor and create that accountability not only on ourselves to say, “Here’s what we did, and we did it correctly, and everyone got billed, and send out a daily outline on that.” But then also provide that deeper analysis, saying, “Hey, look, these deposits were ones that could have been addressed better if you had done X, Y, and Z. Or we think that if you made these adjustments, it would lower your chargeback rate and therefore increase your approval rate.” And being able to provide insights on that, so not just handing it over and saying, “Figure it out.” But providing something that says, “Here’s what we think is the best next step for you.”
Todd Ablowitz (18:35):
That’s incredible. And it’s so interesting to parallels between how we did Infinicept and how you did Revolv3 because we did the same thing. It started from the processor, a source of truth for us, and that was the unique thing that we saw as being very different from the alternative providers that people consider. I’m going to change gears just to touch and let’s get a little bit of a profile on Revolv3. Tell me about the stage and how many employees, whatever you’re able to talk about publicly, about Revolv3.
Robert Podlesni (19:08):
Well, I’m not at a public company anymore, so it makes it a little bit easier, I guess. So I joined earlier this year, platform was in existence. We’ve been adding network tokens and a lot of the different functionality since then. I’d still consider us an early stage startup. We passed the beta. We’ll be having our public go-to market party here the end of November-ish, and then getting our scale from there. So far we’ve got… All of our merchants are definitely higher volume recurring merchants, so we tend to cater more towards that, not because of any particular reason, but I guess the value there is really more there for the larger recurring billing spaces. We do have an SMB product that we’ll be coming out with, which is a seamless onboarding. Thanks in large parts, a lot of the work Infinicept has done. So definitely appreciate your expertise on that side of the business and looking forward to being able to serve effectively anybody in the recurring space.
Todd Ablowitz (20:09):
That’s incredible. And you said you’re relatively early stage. Have you announced fundraising, or have you talked about how many employees or revenue, or any of those types of metrics?
Robert Podlesni (20:21):
Haven’t released revenue or anything like that yet. We’ve got probably going on 50 people overall, either working on the platform or around the country effectively. Anyone can work remote. We do have a small office in Southern California where we have some people out of. We did have a few seed rounds, like seed A, seed B. The last one was led by Rosecliff out of New York, which was been a fantastic partnership. Really, they’re far more supportive than I could have ever imagined. So it’s a huge credit to them.
And then trying to take it at a pace of growth where we can sustain ongoing support in that specialized care, I think, that these merchants need. The people coming to us, the merchants coming to us typically either have had bad experiences in their merchant processing history, and therefore they have that lack of trust out in the marketplace that people are going to treat them right or give them the right information. Or we have merchants come to us that say, “We’ve been through this, we’ve built it internally. It’s now becoming effectively too much for us to continue maintaining. And we’d like to reallocate that head count to actually business causes, product releases in their core competency.” So that’s really where we’re at now.
Todd Ablowitz (21:33):
Awesome. What’s next?
Robert Podlesni (21:35):
Ooh, there’s all kinds of ideas out there. I’m excited to release the SMB for seamless onboarding through the Infinicept platform. That’s a huge win for us. We’re starting out US only, so our merchants right now have all been domestic. For the US, we will be doing an international release, likely sometimes summertime, 2023. So platform has been designed for that. But again, I think one of the things I’ve seen in this space is that so many companies have tried to scale so quickly and lost a lot of that polish that got them to that stage. I want to make sure that Revolv3 maintains that trust and white glove service, if you will, because I think it’s what really makes us in the space and what will continue to allow us to grow.
Todd Ablowitz (22:21):
Phenomenal. Well, this has been great. I really appreciate you spending the time with me today.
Robert Podlesni (22:26):
Appreciate it, Todd. Looking forward to continuing the partnership.
Todd Ablowitz (22:28):
See you soon, Robert.
Thank you so much to Robert, for joining us today. I learned something, as always. I hope you did, too. I really thought this was a cool conversation, and I’m so excited to see how Revolv3 is taking their product to market and innovating. There’s nothing better than companies that really drive innovation and payments. As always, thanks to our active listeners for tuning to It Pays to Know Podcast. Once again, we hope you enjoyed it as much as we did. 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. For Infinicept, this is Todd Ablowitz. Thanks again for tuning in, and we’ll pay you another visit next time.