Episode 8: Fortis | A Deep Dive Into B2B Payments
Our guest on this podcast is Greg Cohen. Greg is chairman and CEO of Fortis. Greg and Todd discuss Fortis, the company, and their stack. They go deep on B2B payments, and they dive a bit into Fortis’s business approach and philosophy.
Read the full transcript below.
Episode 8: Fortis | A Deep Dive on B2B Payments
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 the amazing Greg Cohen. Along with being a good friend, Greg is chairman and CEO of Fortis. I’ve known Greg for many years and have had the honor of being customers and partners with each other, as well as serving on the ETA board for a number of years together. Today we discuss Fortis, the company and their stack. We go deep on B2B payments and we dive a bit into its business approach and philosophy. Without further ado, I hope you enjoy our conversation as much as I did. So Greg, tell me about Fortis. What is Fortis? Tell me about its structure and how you look at the market.
Greg Cohen (01:00):
Yeah, Fortis is a platform really driven around helping software embed or enable payment experiences at a better level. And so we’ve got what we call our kind of guided journey where as a software provider, you can come into our ecosystem and choose, I call it the walk, jog, run approach to how they want to engage from a payment standpoint. We’ve got, from a transactional standpoint, a connectivity that allows you to connect to numerous different processors. We offer a referral type of relationship. If they need help driving adoption, we’ve got sales assist capabilities to help them do this. And if they want to click to agree or, call it a “PayFac-like” experience, we can do all of that all off of the same kind of integration stack. And what’s really interesting about our transactional capabilities is that we’ve really created an amazing omnichannel experience around that, where we offer everything from cloud EMV to interchange optimization, level three clearing and ACH for customers with that.
So a lot of the partners that kind of graduate into our system are moving up from a startup environment and saying, I want to be able to offer a little bit more. I need some help getting to X, Y, and Z. And that X, Y or Z could be around economics, could be around customization, could be around service, and in many cases around adoption, right? It’s great to have great technology, but if nobody uses it, it doesn’t really matter. And so we’ve been able to amass about $20 billion of volume on the platform, have well over 200 software partners and ERP customers leveraging that. And we go to market with them in many different ways.
Todd Ablowitz (02:50):
Wow, $20 billion, that’s an impressive number. Been around payments a while and there’s a handful of companies that get there, but that’s a big, big milestone. Congratulations, Greg.
Greg Cohen (03:00):
Todd Ablowitz (03:01):
So let’s dig in. I heard you say a number of things that revolve around business-to-business payments. It sounds like you’ve really built out that stack. You were talking about level three and getting good interchange for that. Let’s double click on what the different payment modalities and technologies are around that.
Greg Cohen (03:19):
Yeah. One of the verticals we spend a lot of time in is B2B. And one of the reasons I like about that market, there’s nothing wrong with retailers and restaurants, but the one thing about B2B, think about, in most worlds, somebody’s sending out an invoice, you’re waiting for a while to get a check back in the door. And that’s the way payments kind of has worked over the years in that space. And the ability to digitize that and making those things kind of immediate are really interesting. Because not only are you creating a better experience in many cases in that case for the buyer, but the seller themselves are getting the ability of faster cash, cash flow, right?
You’re helping out on the receivables side and speeding up cash flow as much as you’re helping on the other side of the equation. But the payment modalities, when you start thinking about that, huge amounts of ACH, you start thinking about, in some cases, you’ve got wire transfer, we talk in retail about buy now, pay later, but you’ve got receivables financing in the B2B space. So it does change a little bit when you think about the expectations and the way things work when you move to the B2B world. But it’s still a large amount of checks being processed in the world of B2B.
Todd Ablowitz (04:34):
I find it really fascinating because when you think of B2B, at least in my experience, you start from this concept of, oh well, a check is free or ACH’s interchange is a quarter of a cent or whatever it is. And it’s just this super cheap mindset. But from talking to you in the past, I know it’s really wrapped around this extra value around what’s happening on the invoice. What does it cost $100 to create an invoice and get paid for it at a mid-market company?
Greg Cohen (05:06):
Yeah, for sure. It is about efficiency in the back office in many cases. It’s about being able to adjudicate that, not only be able to send the invoice, be able to take cash or take dollars back in. And there’s virtual cards available now to make things easy. There’s different rails. The card networks have been aggressively trying to drive adoption with lower interchange rates for those types of transactions. From a business standpoint, you’re right, it is about the experience for the buyer and the seller just to digitize it. And one of the interesting things is, in most cases, we always talk about B2B as, you know, what was coming out of the invoice, but many of these B2B customers now have started putting up websites as well so that they can engage directly and a distributor can go to a manufacturer’s website and now buy a bunch of different products all at once.
And then you’re thinking about what the invoicing portal looks like. So you can choose which invoices to pay and in some cases, which to short pay because five of the products came in broken and things of that sort. And having those credentials on file for an ACH or a card or some kind of receivables financing is all part of driving really efficient commerce. And you’re right, a check may not cost anything to deposit it in the bank, but it sure takes a long time to get back in. Some human being’s got to open it, reconcile it, put it into the GL, do all of those things. And there’s real cost there, especially in the market we are today.
Todd Ablowitz (06:45):
Speaking of that, it sounds like the way you’re talking about the market, talking about the problems that customers are solving, I’m guessing you have some differentiators in this area that you speak to customers about and not looking to ever do a sales pitch, but I think it’s interesting to hear about the innovations and the things that Fortis and others are doing to make those things better.
Greg Cohen (07:06):
Yeah. First, if you think about the core of B2B, we think about the point-of-sale system in a retailer. The core of B2B customers is usually their ERP system, where they’re actually doing their accounting and GLs and creating their invoices. So I think first and foremost, it really is creating native embedded integrations into those systems. And those are not as simple as just being able to accept a payments transaction. You’re literally posting back into the general ledger as part of the workflow of the integration itself. So I think it starts with native integrations into those solutions, having connectivity to the other solutions they use in the other mediums. So in most cases, there’s a call center and maybe they’re using Salesforce in their call center and there’s a website where they’re maybe using Magento or BigCommerce or Shopify, and then there may even be a point-of-sale scenario.
So it’s being able to have all of those components connected together. And then, in some cases, be able to augment just the payment transaction with being able to provide invoicing capabilities. Not only invoicing capabilities for the seller, but in many cases, if you think about B2B, a buyer is buying from the same seller numerous times, right? I have my vendor and my vendor I order from on a regular basis. And so to be able to provide in some cases via API, in some cases via a hosted portal the ability to see all of those invoices, be able to manage all of those and pay them, or short pay them, or provide data back and forth through that. And then when you start thinking about cards and ACH and things like that, it’s being able to manage risk.
Some of these transactions are really high-ticket. I mean, you could be talking about, in some cases, we have seen million-dollar transactions. And then, in other cases, it’s being able to qualify those properly for the proper interchange and so that you can minimize cost of acceptance. In others, it’s being able to provide a proper surcharge to be able to make it work in different mediums. So there’s little different asks around that, but it really is about being able to surround all areas of B2B. B2B has got their own version of omnichannel that you have to be able to solve for.
Todd Ablowitz (09:15):
That’s super interesting. And if we zoom out a little bit, I’ve been hearing about B2B for the 26 years that I’ve been in electronic payments and it’s what, a $30 trillion US market, something like that?
Greg Cohen (09:28):
Todd Ablowitz (09:29):
So where are we in… What inning are we in for electronifying B2B and making those processes all they can be?
Greg Cohen (09:38):
I would say we’re probably in the second inning. We still have a long way to go. And if you think about B2B, there’s really kind of two sides of it. I spend most of my time on the accounts receivable side. There’s a whole other side of the equation with a lot of other technology providers on the accounts payable side, which is actually thinking about how to pay people efficiently and making sure invoices are proper before you actually pay them and things of that sort. But on the accounts receivable side, there’s still a long… There are still so many checks. So many paper invoices go out and so many checks that are just not efficiently run up and down the stack. And there’s a lot of people looking to solve those problems in different areas. But we’re pretty early days in how that grows. And I think one of the other reasons for that is there’s been so much investment.
If you think about the new cloud-based systems that you have in retail and restaurant, the Toasts and the Clovers and the Squares and all those things that float out there, that those areas have migrated to the cloud pretty quickly for efficiencies. First of all, the B2B side, the businesses don’t go out of business. Many often are handed from family to family and this and that and in many cases are running still a ton of on-prem solutions. The amount of people still using old Peachtree accounting or Great Plains software, SAP on-prem solutions is still out there. And so we’re starting now to get the migration to the NetSuites and the Intaccts and the new cloud-based solu… Acumatica is new cloud-based solutions that are in the market, but we’re probably five to 10 years behind retail and restaurant. When you think about B2B or healthcare or other areas like that to the migration of the cloud, that does help speed that up.
Todd Ablowitz (11:24):
Biggest conclusion I come to from hearing what you just talked about is that our kids will retire before electronic payments has stopped growing.
Greg Cohen (11:38):
When I think about kids these days, I can imagine the transactions in the metaverse, but look, I think we still have a long way to go to get legacy things out of the system. Deluxe still prints a lot of checks every single day, so I’m surprised today people still pull a credit card out of their wallet and even tap on a device when we all have phones that can do it just as easily as anything else. And I think if there’s anything I’ve learned in, shoot, 28 years in the payments industry is that we have a highly fragmented ecosystem in the United States and payments morphing to the next level, it’s an evolution, right? It evolves. It doesn’t just change overnight. And I think that’s one of the things that I’ve learned is that things that we think should just go away, it’s a long time to get them out of the system and you’ve got to be able to support all of those mediums until they’re all gone.
Todd Ablowitz (12:36):
Yeah, I’ve heard the saying that there’s never been a payment type that has gone away. The barter system still exists.
Greg Cohen (12:44):
Yeah, that’s true.
Todd Ablowitz (12:46):
I’m going to ask you one that we hadn’t talked about. For all these years we’ve been doing this, been friends a long, long time, I have heard that merchant acquiring is a race to the bottom for the last 20-plus whatever years. I’d love to hear what your thoughts are on this so-called race to the bottom.
Greg Cohen (13:05):
I think if you’re out there selling on price and dropping a terminal down to solve a merchant’s problem, I think it is a race to the bottom, right? I think value comes in around the way that you kind of drive interaction around that transaction. And I think that’s where value’s created and whether that’s in the faster way to enroll a merchant, right? Or whether that is to go into a segment where there’s very little acceptance today. But even in areas where there’s massive acceptance in retail and restaurant and some of these other markets, I think where value comes in is where you’re bringing in things to be able to help drive up average ticket, where you’re helping to meet customers where they are. Where you’re at a restaurant today, if you can order in advance and pick up when you come through, that’s a sale that didn’t exist for that restaurant five years ago when I think about mobile ordering and things like that.
So that’s where value’s created and I think people have figured out making merchant acquiring transaction fees or spreads, you can choose to charge it in that fee or you add in a SaaS fee, it all kind of nets out in the end. So it’s really the value that’s being added that creates the margins. And one of the interesting things that I have seen over 20 years, the actual merchant level margins have come down a little bit, but the greater margin degradation is actually what I would say is in the channels. Who’s actually making money? Doing authorization and settlement is a commodity…
Todd Ablowitz (14:39):
Greg Cohen (14:40):
…for those people who are doing that stuff at massive scale, I get the Fiservs and the FISs and the globals, but authorization and settlement is a commodity. Value is created as you’re creating these experiences. Otherwise, it just goes away. And so that’s why I think when you think about where you can create value and keep margin in, but look, if you’re just dropping a terminal and have something happening inside of that, there’s no real incremental value. And it is a race to whoever, the next guy’s going to drop the terminal for 10 basis points less.
Todd Ablowitz (15:14):
Yeah, I couldn’t agree more. And I’ve always recoiled from that concept because it’s so lazy. I have been impressed with companies, Fortis being one of them. There’s a number of them who have built real product value around a transaction where everybody needs the transaction. But where the value is created is around that buying behavior. We’ve got a number of… You mentioned retail, restaurant. We’ve got a number of the largest restaurant POS companies that use Infinicept and they’ve been a wholesale change. And I think probably driven by Toast’s innovation. Toast created a lot of stuff and a lot of the competitors are becoming PFs and building a ton more value. Toast gets 55 basis points on restaurants. That is an unheard-of margin in the restaurant space. It’s amazing.
Greg Cohen (16:10):
Yeah. Look, if the whole system works so well, you’re prepared to pay a premium for it because you don’t need to go out and buy 20 bespoke solutions to try it and then, by the time you figure out how your staff can manage the 20 solutions, your effective cost of doing all your stuff is more than it is by maybe paying an extra 10 basis points to Toast for their credit card processing.
Todd Ablowitz (16:34):
So let’s pivot a little bit, Greg. Let’s talk about the business a little bit. One of the things we talked about was the different horizons that you think about when you’re leading. You’ve led a number of businesses, you’re not a first-time CEO. So let’s talk about what it’s like looking at the business. I won’t say any more than that. Let’s hear your thoughts on it.
Greg Cohen (16:57):
Yeah, it is hard getting yourself out of the day. Everyone day-to-day in their business has crap they have to deal with. Whether it’s a customer’s upset at something, an employee’s not happy, some product you launched has a glitch or it’s not launched when it was supposed to. All that, you can get bogged down in all the negative, right? And I think it’s really important when you work, spend breakout, conscious times on a regular basis, for your leadership team and yourself separately, to look at the big path of what you’ve accomplished from a milestone pinpoint to make sure that you can continue down the path. Because if all you’re doing is putting out fires all day and working on those things, you cannot lead the group to where the greater vision is on the other side. So I’m a big fan of saying you’ve got to spend some time working on the business opposed to in the business. And I think at different levels, what percentage of your time should be spent on both?
And I try to keep about a 50/50 where I sit today, on versus in, doesn’t mean I’m not going to go out. If we have a big opportunity, I’m going to be out there with the customer and doing that. But that 50% where you’re working on is helping keep everybody else focused on moving the path forward opposed to just fighting those little pieces and that change. And I think it’s… I’m a big fan of the annuals plan and the quarterly refreshes and keeping your team above the fray for a few days each quarter so that you can really drive to the next step.
Todd Ablowitz (18:32):
We do the same thing. That’s really interesting. I think the fact that you can get 50% on the business rather than in the business has got to be a testament to a hell of a team. That’s a real compliment to your organization that you’re getting that time to do what you should be doing. It’s pretty impressive, Greg.
Greg Cohen (18:49):
Yeah, thanks. And I would say businesses at different levels…like if you’re a startup and have 10 people on your team, it’s probably 90/10. But I think as you get bigger, and quite frankly, we’ve done a lot of M&A in the course of Fortis, right? We’ve made 10 acquisitions in the last three years in different ways and that does force you a little bit to have an infrastructure and a team. And we’ve got a great group of founders that continue to help drive pieces of the business and some even on the executive team. But we’ve also complemented that with seasoned professionals who have scaled businesses. Because a lot of times, if you’ve built a business with 40 or 50 people that do this, now you’re asking them to do something for 250 people doing 10 times the throughput. You sometimes need some new blood into the organization that have seen the other side.
Todd Ablowitz (19:42):
Absolutely. Deana and I brought in almost entirely, maybe entirely, seasoned leaders at the VP and SVP level that have done their function things. In our case. We’ve never seen before some of these things because both being payments lifers, running an enterprise software company has some new and fun challenges, but we just brought in experienced people. So let’s talk about your biggest challenges. You talked about running the business, working on the business. What would you say are either your personal or Fortis’s biggest challenges as you look at this?
Greg Cohen (20:16):
Yeah, I always like to pick on myself first, my biggest challenge and I’ve struggled with this my entire life, it’s patience. Things take time, right? Now, you can’t let them take too long. But to really be patient and allow, think whether it’s products, whether it’s a team member, whether it’s changing the way you want to do something, look, there’s times to cut the cord and there’s times to be harsh, but be patient and let things naturally evolve, right? And so I struggle with that regularly a lot of times. When I want to shoot that email out, I’ll put it in the draft bin, you put it in the draft bin and you never send it and things like that. But that kind of level of patience and being able to step away is one of the biggest things I’ve dealt with. But from a business standpoint, the team, right, is really just keeping good people motivated, having them aligned around a strategy.
And like in any business, you have some attrition. How do you backfill? What happens when that happens? It is really a team. Look, there’s a competitive thing and we’re all going to… It’s easy to sit here and say we’ve all got tough competitors and we do this or that or the other. But being able to keep that team focused on the prize, on the end goal, celebrate the wins and quite frankly keep them motivated and engaged. Look, it’s fun when it’s all going great, it’s when it’s going hard to do those things to me is a struggle.
I would say, generally speaking, it was probably more of a struggle two years ago when the hiring was crazy and all kinds of things in the world were going nutso, and people were hiring all over the world. It was just tough to hire and retain people. It’s a little bit better market now for that, but it’s still the number one asset that we have. So now balance, I want a lot out of people because I’m impatient with people being the challenge and now you see where my personal struggles come in.
Todd Ablowitz (22:19):
That’s super interesting. And when I hear about patience, certainly share that with you, Greg. And the biggest humbling event when it comes to patience for me being a software company is how hard is it to build software and how patient you have to be. You hire an engineer and it takes six months for them to really be productive, and then you hire a whole bunch of them and product people. And when you do all of that and you’ve got this roadmap coming together, talk about the need for patience, because forcing it has so many bad outcomes, has so many unintended consequences. So I resonate with that so strongly, Greg. It’s such a wise thing you’re saying and definitely something I’ll take away from this conversation. Let’s close out with the future. Maybe one or two things that you see for the future of Fortis or the future of electronic payments or embedded finance. What’s the future that you see that maybe not everyone can see yet? Because I know you have great insight.
Greg Cohen (23:23):
Yeah. Look, the future of Fortis is pretty bright, right? Embedded commerce. I mean, you live in this same ecosystem, Todd, right? The all ships rise. There’s a lot of demand of different solutions for different folks and different ways to get there. As I think… I kind of break it into two things. This kind of embedded finance ecosystem where I actually, I take a little bit of a different view from a lot of folks. I believe there’s, kind of, especially when you talk about the larger-scale platform partners. At the end of the day we’re all saying these software ecosystems or what attaches to them is businesses that run their own software internally to run their enterprise. It’s really the hub of a business enterprise is this whatever business management system runs their business. I actually think the larger enterprises are going to go best-in-breed.
They’re going to get payments from their payments provider, they’re going to get lending from their lending provider, they’re going to get bank accounts from their bank proprietor and they’re not going to go to one provider and get them all. I don’t believe that, where other people are saying, oh, I’m going to be the center point for all the APIs that you’re going to consume. Within a realm, look, if somebody wants buy now, pay later from me as well, I think that fits in the payment tender world, but I find it a big leap that someone’s going to come to my set of APIs to get a DDA when the banks are going to be offering robust APIs to get DDAs from them. And if someone wants payroll, Paylocity is going to do a great job of giving great embedded payroll solutions. And so the bigger players are going to go best-in-breed, just like we’ve always seen the bigger merchants go best-in-breed on other things.
Maybe at the micro level where you see Stripe do it, I think that’s a lot of startups and so startups do one-stop shop. So that’s kind of about it. As I look at the next couple years, the M&A frenzy that we are about to see with the pent-up demand of capital, the more realistic valuations of companies today, we’re going to be sunsetting here in the next few months, kind of the 12 month LTMs of a lot of the public companies that are down 50% to 75% from their all-time highs and value. And companies that need cash in the next funding round are going to be down around… I think we’re going to see… And then you’ve still got incumbents with a lot of cash on their balance sheets, whether they’re banks, whether they’re the big tech companies, whether they’re others, and a bunch of capital sitting on the sidelines.
I think we’re going to see the next year-and-a-half is going to be M&A frenziness. And it may look creatively different than we’ve seen in the past, but I think we’re going to see a ton of activity, especially when the credit markets start to open up a little bit, which we’ll probably start to see here in the next three to six months. So that’s my shorter term. As it relates to payments, I look out 10 years from now and I still struggle to understand when I have a phone in my hand and 10 different big companies know where I’m standing and I’m inside of a business and 10 other companies know exactly where that business is, why in the world there’s any kind of hardware device sitting between us and actually making a transaction happen and how can I just be much more efficient about these things? And that’s the physical adaptation of making commerce invisible. And that’s kind of a theme I’ve lived by that commerce just needs to be invisible. Everything we do needs to look like an Uber ride.
Todd Ablowitz (26:57):
I think it’s a great vision, I think it’s a great plan. I think that it will happen and I think 10 years is too short, but I think it’s exactly where… I think it’s… Well, I lived through going to work at a contactless payment company in 2005 and we built contactless payment readers 10 years before anyone needed them. And it’s interesting how these things move, but the M&A insight you had is super interesting to me. I wonder, and you are certainly much more adept at this than I am, I’m just wondering what the seller psychology will be and how long it takes seller psychology other than fire sales or sales of need, how long it will take seller psychology to find buyer-seller agreement. I think there’s a pretty big spread between bid and ask right now.
Greg Cohen (27:46):
Yeah. Well, seller psychology changes when you need cash, capital. And I think, as you know, look, many of the growthier companies that we’ve seen in the past are not cash-flow positive. They still are not. They’re adjusting their models to become so, but many of them have a lot of other investors in that business too. And there’s a right number now that was probably different than what the right number for those people was a year ago. And I think we’re going to see those things start to kind of come in and maybe you’ve got a bank who’s now going to stretch a little bit. Where in the past, they wouldn’t have stretched to the extent that they needed to.
And a seller on the other side who’s like, ah, it’s not where I thought I was going to be, but where we are and now I’ve been in this business for five or six years, this works, right? It’s good enough. And so I think that’s where it comes to meet. So I actually am very optimistic from, I think we’re going to see a lot of acti… And there’s still so much capital. I mean, Thoma Bravo last week announced $34 billion capital raise on top of all the capital that’s already on the sidelines. It’s going to be an interesting couple years.
Todd Ablowitz (28:58):
I completely agree. And the conversation was awesome. I think this is really going to be an interesting period of time. It’s always the greatest companies are forged in the toughest times, and we’re going to see some really cool stuff coming in the next couple years.
Greg Cohen (29:15):
I agree. Good stuff. Thanks, Todd.
Todd Ablowitz (29:18):
Yeah, thanks, Greg. Thank you so much to Greg Cohen for joining us today. As always, I learned something and I hope you did too. I thought it was an awesome conversation and I can’t wait to do it again. As always, many thanks to our awesome listeners for tuning in to the 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.