Spinning up products that move money without freaking out the CFO
My chat with Daniel Yubi, Founder & CEO of Payable
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“Money movement,” as a startup category, can be a misleading label because the companies that “make money movement easy” are not actually moving money. The card networks like Visa and Mastercard don’t move money. Companies like Plaid and TrueLayer don’t move money. Similarly, most startups in the category focus more on software and less on moving money. They are pipes that facilitate moving money from one account to another. A reasonable 101 analysis by outsiders digging into this could be like, “well, that sounds dumb! Why would you ever want to be in that position? Shouldn’t the players that move money find a way to talk to each other?” What gives?
I first connected with Payable’s CEO, Daniel, when he was a PM at Checkout in London almost two years ago.
In this chat, Daniel and I talked about:
Challenging problems in payments at Marketplaces
Money movement is the lifeblood of business
Discovering the money reconciliation problem at Checkout
How it’s about the software and data
Going past the spreadsheet era of money flows
Why the payment gateways don’t dominate
Relationship with the banks
Common misconceptions & competitive landscape
Learnings from fundraising
Diversity of London
Sar: What have been the most challenging problems of building payment products for Marketplaces that outsiders would underappreciate?
Daniel: Yes! Marketplaces have quite fun payment challenges. Let’s start with what a marketplace is. It is a platform that allows users to exchange products and services provided and supported by a third party, e.g., Seller, Drivers, Riders, etc. As you can see, you have multiple entities or users in the payment flow. The money needs to be split so each user can successfully get their money. So the first challenge is to slice money in any way or form to support a marketplace.
Let’s use Uber as an example; when a payment happens, the first challenge is splicing the payment between the rider and Uber. Sar orders an Uber. Some money will go to the rider, some to Uber for their commission, and then you add another tip at the end of the trip. Plus, you need to account for taxes and other random fees that a marketplace might track (card fees, postage, or for uber city taxes or fees). Your APIs must be flexible, so the marketplace builds its ideal payment experience, including payment requirements (regulatory or card network requirements) and product requirements.
There are many other interesting nuances when a marketplace is so big that it requires solutions around banking, treasury, and FXs. What happens when a buyer purchases an item from a seller in another country? Should the buyer see the prices in her local currency? How would you acquire the funds in another country and pay the seller? I had a chat with Etsy, a sophisticated marketplace. The way they solved the cross-border challenge is that different legal entities (Etsy US and Etsy EU) will pay each other and net out, so money doesn’t need to be moved across the border, which is pretty cool.
Sar: Help us contextualize what the money movement category is all about.
Daniel: When I go home to Mexico, I see “money movement” in a tianguis, cash-based, open-air markets having their roots well into the prehispanic period. Let’s say you pay 100 pesos in cash to the taco stand lady to get a quesadilla. If she doesn’t have any change, she will go to the next stand and exchange money with her friends. The more money circulates, the better for the tianguis economy.
When you go to Amazon and buy a product. You don’t care if DHL, UPS, or FedEx delivers your product. You care that the product arrives as fast as possible. That is happening with money as well. When you withdraw money from your favorite trading platform, you don’t care if they use Faster Payments or ACH.
For a company to operate, it needs to have the ability to move money. The bigger the company, the more complicated the money movement flows. It is a hidden pain. As an end-user, you only care that your money arrives. Behind the scenes, companies use bank files like XML, complicated processes like EBICS, and clunky systems to initiate ACH transactions or SEPA payments, which require human intervention. We need those protocols because that’s how banks talk to each other to move money. If we really want to move money faster, companies shouldn’t need a person to track and move money, which is what this new category is tackling.
Money movement is the lifeblood of a business. The easier it is to exchange money for goods and services, the more productive the business and the economy. So should “money movement” include acquiring merchants and processing card payments? I don’t think so. The money movement category (also known as payment operations) is a communication layer that helps companies interact better with their banks. It is more of a software philosophy than actually touching money.
Most of the innovation has historically happened in card payments, which are mostly B2C. Today, more than $4T in bank transfers are processed each year, and a lot of manual effort is still involved. I started Payable to help companies move and reconcile money easier. I realised that, as companies scale, they need to spend more time on low-level financial data, integrating with corporate bank accounts, and redirecting engineering and finance resources from building cool products for their end customers.
Accepting payments is easy nowadays, but it’s much harder to understand exactly where your money is. The customer data is in your database, but your customer’s cash is in your bank account. How do you connect the two if your bank gives you clunky bank files? That’s why this category is more about data and software. Improving the experience of the actual “fin” side of things.
Sar: It’s tempting to think that all the popular payment companies like Stripe, Adyen, and Checkout should be able to dominate this category. You left Checkout to start a company to make money movement easier. Talk about how your work there helped you see the money movement problem closely.
Daniel: I had an amazing time at Checkout. I saw the problem up close. Raz (my cofounder) and I built the Checkout.com for Platforms product. We helped marketplaces onboard sub-merchants or sellers to accept payments and get paid out. In our case, acquiring funds (money processed by all sellers) arrived in Bank A, but we use Bank B for payouts. The problem is moving money between different bank accounts, which happens manually. Europe’s regulation requires money belonging to third entities (sellers) to be safeguarded (protected/fenced).
Imagine you move money from Bank A to Bank B for payouts (remember, bank B is only for payouts). If the bank account details are wrong, the bank transfer will fail, and the funds will be returned. The challenge is that the bank account is only for payouts, so the money needs to be returned to the fenced bank account. This happens because companies evolve with new product features, and there is not always a strategy behind how payments and money will move, so suddenly, they realise they have a manual process to solve this scaling problem and need to solve this by building bespoke solutions.
Now imagine that but for thousands of payouts to thousands of sellers. How do you make sense of why a payment happened? It gets challenging when you bring together the lack of APIs for the corporate banks, the product experience you want, and the scale you need. Plus, the consumer experience is affected as the speed of getting paid decreases due to human intervention. My vision for Payable is that any product team can spin a product that moves money without freaking out their CFO. From in-app payments to wallets to rewards etc.! Many companies want to become “fintechs” but have no idea how to do it.
In the UK, startups use BaaS providers with great APIs, but money is fragmented, and reconciliation is needed. In the EU, you have to handle bank files to make payments to make SEPA payments; it is even more fragmented. Today, as we are focused on the UK market, we have a robust reconciliation platform where you can connect different sources, such as your database and your bank, to reconcile payments, build reports, and comply with regulatory requirements. Companies can now understand why and when to move money. We have already connected with their corporate bank account, so they can use our API to move the funds. We aim to increase the use cases for moving money to enable direct debits and go deeper into SEPA and Europe.
Sar: It’s easy to think that all the popular payment companies like Stripe, Adyen, and Checkout should be able to dominate this category. Why is there room for new companies to emerge? A very high-level answer here is they mostly deal with B2C credit card transactions while money movement companies handle the debit volume, which is a much larger pie.
Daniel: Some might think Stripe Adyen or Checkout.com could enter this category, but it will be challenging as they have a set of horizontal products and quite a wide set of customers. The main goal for them is to increase coverage for their card-acquiring product. Don’t get me wrong. They do offer payout products. But, facilitating money movement is against their nature. We are a software company that enables payments, whereas they are a regulated payment institution requiring a different mindset.
Sar: What kind of companies are you focused on? How do your customers see you as one of their vendors in their payment stack? Who is the most interested buyer at companies? What are you displacing?
Daniel: Payable acts as a software layer on top of corporate bank accounts, so they don’t have to deal with bank files and spreadsheets, our main customers are the companies, but our partners are the banks. Banks are great at banking but lack experience building software, so that’s where we fit in. We focus on neobanks, marketplaces, BNPL players, and other fintechs with complex payment flows. Normally, our buyer is both the finance and product/engineering teams, as they are the ones who have to upload the files or build and maintain bank integrations.
As our category is so early, we are displacing the spreadsheets and the need to hire finance and engineering professionals. I think about this just to what happened with CRMs. Before Salesforce, companies used spreadsheets to track sales processes. Payment Operations are in that spreadsheet era. Our goal is to educate and show companies a better, cheaper, and faster way to do this through software.
Sar: Can you talk about your relationship with the banks? You must build integrations with most banks and become the interface between your customers and their banks. You can’t cut them out because they still have customer accounts and move the money. You also have to have an interface experience that’s much better than even the banks with the best digital experience to avoid disintermediation.
Daniel: A strong product that solves our customers’ pain points forces them to demand that their banks work with us over time. In the short term, there is a cold start problem. We are starting to work with a few banks that recognise the importance of working with innovators like us to offer the best user experience to their customers. So it's a mix of working with banks and existing frameworks like Open Banking rather than trying to cut the banks out. Integrations are the core of what we do. We hired the early team from Truelayer, who built bank integrations across European countries. Integrations are the foundation of a great experience. If making a bank transfer requires seven steps or multiple API calls because the bank did not have good developer experience, our job is to make it as easy as possible for you to track, reconcile and move money.
Sar: What categories are you most often conflated with? I imagine you get compared to companies that sell themselves as “financial operating systems.” Payment ops stack is a much-used phrase these days.
Daniel: We are at the intersection of Treasury, Reconciliation, and Bank Automation. Sometimes, the lines get blurred. Inside a company, you have product and business operations. Enabling a company to have wallet payments or offer a BNPL solution increases the complexity of payment flows inside the product function. The company is enabling new ways to move money, and its finance and engineering team must track them. That’s where Payable fits in, and that’s our category. Business operations include other financial tasks we don’t necessarily enable, such as payroll, expense management, etc.
Sar: What did you learn from the fundraising process?
Daniel: I learned so much; Even though we raised a good amount of money, I did not enjoy doing it. Fundraising drains you so much that you can’t do anything else; it is time-consuming. What I learned about myself is that I prefer great people rather than money. I’d prefer a long-term relationship with someone who believes in me, the vision, and the team over the capital from an investor who will give me the money and will not help.
Founders must be careful with investors who drag; they ask a lot of your time, add no value, and can’t make up their minds. I remember this investor wanting to invest $2k in a $6M round, but his process was multiple in-person meetings and workshops; I didn’t move forward as time was limited. The funding landscape differs from where we were a couple of months ago. So the bar is higher, traction is key, and valuations keep fluctuating, but how I think about it is simple. As a founder, you need money to build a product you believe must exist in the future. So the first thing you need is money but aim to get value over money. This means selecting investors who will help you build that future because you sometimes need more than money to change the world.
Sar: What do you think about the competitive landscape today?
Daniel: Some companies in the financial operations space are surfacing to tackle the big US market, but it is getting crowded. The space has a lot of noise, and I disagree when a company uses “financial operations,” but they do something that already has a name. I’ve seen a couple of companies doing billing, subscriptions, or direct debits, but they go to investors and sell them sells as a “CFO solution.”
Financial operations are the set of actions that a finance team must do to keep the business running. I divide this into two categories: Business Operations and Product Operations. Business operations tasks in finance are doing payroll, paying invoices FP&A. This is a well-established market, and there is a lot of competition. When the company is adding more payment flows and new features that touch money, and its business model depends on complex money movements, the engineering and the finance team must do a set of tasks to support those use cases. For me, that is “Payment Operations.” We are just at the beginning of this category.
I’m excited to see how the space develops and if these two areas merge into a single product in the future.
Sar: What do you wish more people knew about London?
Daniel: The city and the culture are magical because they are so diverse, but they also have the charm of not losing the essence of where you came from. To unpack this, I can use New York City as an example. NYC is so diverse because you find people from different countries and cultures. Still, everybody has a strong American accent, and as time passes, people get immersed more into American culture.
In London, that doesn’t happen in the same way, you find a lot of diversity but people living many years still keep their roots, and some of their mannerisms, or 2nd generation families keep their traditions. I quite like that. That’s why London is a great place to start your tech career. You get access to much more without giving up so much! You are close to NYC, Paris, and Berlin. You can fly anywhere cheaply, and most US companies will open the London office first over Paris or Berlin. It is a no-brainer due to language, location, and the years London has compounded in tech and mainly fintech.
AngelList Stack is for startups that want faster fundraising, cleaner cap tables, and high-interest banking all in one place. Scaling companies such as Abound, Harness Wealth and Syndicate migrated from other vendors in less than a week with zero legal fees to gain an unfair advantage in managing their back-office. Learn more by signing up here.
Other chats with fintech founders and operators :
Building pipes for debt with Danielle Pensack, Cofounder of Rightfoot
Coming of age of fintech in India with Priyanka Kanwar, Cofounder of Falcon
Transforming farming with Jayce Hafner, CEO of FarmRaise
Supercharging the insurance benefits with Shannon Goggin, CEO of Noyo
Unblocking entrepreneurship with Kaela Worthen, Cofounder of Paintbrush
Servicing small family-owned businesses with Rahul Mathur, CEO of Verak
I had an amazing time working this with you Sar! 🙌🏻🙌🏻