On today’s episode of Thriving at the Crossroads, I introduce Charlie Youakim, CEO of Sezzle. He’ll introduce us to a better way to pay and significantly reduce card fees while simultaneously providing transparent pricing.
More details on Sezzle can be found here: https://sezzle.com/
In the second segment of the show- I will cover the recent announcement by Microsoft regarding their plans to implement blockchain technology for Trade Finance: http://www.afponline.org/trends-topics/topics/articles/Details/microsoft-is-partnering-with-baml-on-a-blockchain-trade-finance-producct/
Slash Your Card Fees With Sezzle
Hello, fellow Thrivers. Welcome back to, Thriving at the Crossroads, where real business problems meet real solutions. Welcome to episode one. In today’s interview, we’ll be talking with Charlie, CEO of Sezzle. Sezzle was out to disrupt the payments world with the technology many of you will be familiar with. Welcome to the show, Charlie.
Thank you for having me.
We would like to ask you a few basic questions about your company as we get started. How about you tell us about the problem that Sezzle solves?
We’re solving the problems associated with the high cost of merchant processing. Right now, if you’re a merchant that wants to sells online goods, let’s say you’re selling a sweater for $100, the typical fee is around 3% plus 30 cents. You’re going to pay a merchant processing company $3.30 just to sell a $100 sweater. For a lot of merchants today, that’s hard to swallow. My background was as a merchant. I did a mobile payments company that took a lot of payments and it really bit me. It stuck in my head and that’s the founding story behind Sezzle, solving that problem.
A retailer is the only one that has this problem around card fees? Are there other companies or industries that are affected?
No. Basically, anyone taking card payments today is going to feel the pain associated with merchant processing. It could be any reason for taking a payment, B2B payments, if you’re paying a business, if you’re buying something at a store in person, if you’re buying something online. Typically, you see it in any merchant situation. Anytime you use a credit card, the same fees apply.
Now that we’ve talked about the problem and who has the problem, how does Sezzle have a unique solve for this problem?
What we’re doing is we’re basically applying a long existing payment system towards merchant processing. ACH is the underlying mechanism for our payment system. It’s the same system that you use to get your payroll, to pay for your mortgage, to actually pay your credit card bill. It just never been applied to merchant processing in the past outside of PayPal. If you remember signing up for PayPal the first time, maybe like 15 years ago when they first launched, you had to enter your routing and account number into the system, and those are numbers that people generally don’t remember. That’s the first problem.
The second problem is they’re public numbers. I could enter someone else’s numbers in and use it to pay. The way we make sure that you’re entering the correct numbers is we would test it in the past. We’d send a couple of micro deposits to your bank account, make sure you owned it. Everyone probably remembers at least one experience doing this.
Still does this today.
That’s right. But the problem with that system is it takes a couple of days to complete. If you’re a merchant, you’ve never seen this in merchant processing because as a merchant, the most important thing to a merchant is conversion at the checkout. The last thing they’re going to want to do is wait two days for you to buy that sweater. They want you to buy it right now while you’re thinking about it. They don’t want you to think about it again. That’s why you’ve never seen merchant processing apply ACH, but now we’re taking new technology. It’s a bank sign-on technology. You may have seen this with Mint or Venmo. It’s been applied to different aspects of fin tech. Now we’re applying it towards merchant processing.
You sign in to your bank account through Sezzle. By signing in, we’re about to gather your routing, gather your account number, even gather your balance at the time to make sure that you can pay for it. Also, most importantly, show that you have ownership of the account at the spot of the checkout, so we don’t have to wait for two days. We can check you out right then and there.
It’s immediate processing.
Which is much more like what we’re used to in the B2C world, so you’re going to be taking something that is a traditional product in the B2C space and moving in into the B2B space effectively.
It’s still a B2C product but you just use it elsewhere. Now it’s being used in merchant processing. In some cases, you may have used it in merchant processing but it’s a unique case. Some merchants may have taken the time because it’s worth it for their high fees. In most cases, in an online checkout you would have never used your bank account to pay.
Now, that you’re getting started and building in your local Minneapolis startup here as well. Tell me a little bit more about your customer base. Because one of the things we want to make sure as part of the Thriving at the Crossroads is we want to talk about the practicality of implementing for a customer. We recognize, as corporates and others that are looking for innovation in their systems, that really it’s more about transparency and where you’re at in the customer process, so that companies know where you’re at as a company.
You’ve got a very promising technology. You’re building upon existing things with the ACH network, which is very encouraging. A lot of our listeners will already recognize this because they know what an ACH is. This is tried and true and something they’ve done for years. Talk a little bit more about how Sezzle’s being deployed in your first customers. How is that process going?
The company started in January of this year, so very early stage essentially, but we’re making headway. As an early stage company, we’re very conscious of the customers we’re choosing at this stage. We’re starting very, very small. Our typical merchant that we’re selling to is a Shopify merchant. Shopify is an e-commerce platform, very similar with WordPress. If you’re a small breaking order store and you want to sell products online, you’d sign-up for Shopify, you’d upload your product list and images of the products. There you have it. You have an online store. You could sell online.
Those are our typical merchants. They sell about maybe half a million to $3 million a year in online sales, very small. We’re going to work our way through Shopify to other e-commerce platforms, but we’re pre-launched at the stage. We have around 30 to 40 merchants signed up for our pilot. We’re launching our pilot in November. We’ve got another 30 or so waiting for that pilot to launch with those pilot clients to see if they want to join onboard. We’re continuing to have more and more of these smaller merchants through Shopify, and then we’re going to walk our way into the other e-commerce platforms, WooCommerce, 3DCart, Magento. As we gain steam, we’ll probably walk our way into more traditional executive type of sales, larger clients and work our way forward.
For our Thriving at the Crossroads listeners, that means that they’re the ABC customer stage, what we call the Alpha-Beta Customer. They’re proving it with their first customers. How does someone find out more or get on your list to find out more as you start to prove the model?
On our website today, we have a contact form. We welcome people to sign up at Sezzle.com. We’ll get you on the list, we’ll keep you on our newsletter, we’ll keep you up to date with how the progress is going with our pilot group and how the product is gaining steam. We understand that larger merchants may not want to launch this early with the company, so we understand that as well. We really get it. If you’re a larger merchant, by getting on that list, we can keep you in the pipeline of understanding how things are going with our smaller merchants or the consumers adapting to technology, how they’re loving it, is everything working well in this situation? If it is, it makes a lot of sense for merchants from the million or half million-dollar revenue merchants, all the way up to like Delta Airlines and Best Buy, who do $40 billion a year. They have the same issues with merchant processing. The cost is just too high. Across the entire spectrum, we can reduce cost.
It was interesting, we were just talking to someone in innovation a partner with Best Buy. In this public record, their operating margins are 3%. Imagine saving half a percent on merchant processing. It goes right to the bottom. It will go right to adding to that operating margin, and of course they will be ecstatic about it. We think this makes sense for any type of merchant, but we’re starting our way in the smaller end and working our way up.
Fantastic. Now we’re going to shift on to a little bit of a fun question, so we get to know you as a human as well, not just as a company. Tell us your favorite travel destination that you’ve ever been to?
It’s a toss-up. I think Cinque Terre in Italy is probably my favorite. The other destination I really love is Australia, the Great Ocean Road. Both have one thing in common, you’re on a coastline, on an ocean, it has probably a similar theme. Cinque Terre was just really special. I went there just out of college and I remember cliff diving. It was just so much fun. Just cool little towns along the coast. I want to go back. I haven’t been back for quite a while.
If people want to find out more, they can sign-up on your website. Can they follow you LinkedIn, Twitter?
Yes, I’m on Twitter. Our company’s on Twitter, as well. We’ve got a pretty decent following at this point. We’re also in LinkedIn. We’re pretty active in our blog and publishing on Twitter. With people that want to follow the fin tech space, we push articles out from the industry not just ourselves.
Fantastic. You heard it here first, Sezzle. They’re an the early stage of company. Thank you so much for joining us today, Charlie.
Thank you for having us.
Charlie and I had such a good time during our interview that we continued our conversation after we finished the initial recording. At a certain point, we stopped, looked at each other and said, “We really should turn the microphone back on and see what happens.” We talked about working in Silicon Valley versus anywhere else as a startup, the war for talent, and a lot of other interesting tidbits that will give you more insights into Sezzle and how they operate. I decided to include this segment as a bonus. Hope you enjoy our conversation.
As you were saying, we were talking about Silicon Valley versus Minnesota.
It was my home town. When I was in Charlotte, thinking about where to start the next company, as an entrepreneur you always think about Silicon Valley, you have to. It’s like the Mecca. It was between coming back to the hometown with friends and family or going to Silicon Valley. Actually the weather out there is pretty nice too.
Yes, it’s true. As some of my business partners remind me, yes.
When I went out to Silicon Valley with my girlfriend in January or February, we were looking around and I couldn’t believe how expensive it was. I was blown away. We were looking at an article while we were out there, the median price of a home was around a million, basically. The stat said only 10% of the people that actually live in the area can afford a house. Only 10% of the people who live there can actually afford to buy a house there. It makes no sense. I thought, I couldn’t even justify myself living out there, how can you justify hiring people for your team to live out there? It just seemed crazy to me. That was actually one of the ideas behind, maybe this doesn’t make sense.
We’ve talked about it within the team here, that if for some reason someone wants us out there, an investor, they need us out there, it would make sense, either we’ll open up a wing there of the business or potentially move. I doubt we’d move, but potentially we might open up a wing in the Bay Area. Because there are positives for a number of reasons, access to capital, marketing-wise, if you’ll go to the website, it looks better.
That’s true, that address looks better.
If we have an office there, maybe I’d locate out there for January and February.
That’s my season in Minnesota. I tell my friends this, that is my philosophy about Minnesota winter, I’m a wimp, let’s admit it. I can say this, leave early, leave often in the Minnesota winter because it’s tough.
My girlfriend, she’s lived down in Charlotte almost her entire life, from age twelve onwards. She’s really getting worried about the winter here. I’ve been pretty honest about it. I say the same thing. We just need to schedule trips. We’re going to San Diego in December for a weekend, or we’re going to Cabo San Lucas in February. We’ll see.
My favorite are the winter conferences. Someone wants to run a conference in February or March, I’m really interested.
Actually, we’re going to a Shopify conference in March in San Francisco. We’re going to another eCommerce conference in Las Vegas right before that. We have some conferences that are like that too. I totally agree.
What did you find the talent market to be like, in terms of access to talent in Minnesota?
It’s actually really interesting. The two developers that we have on the team here, I think we found a couple of gems. I say that because we’ve continued to look for developers here. I think it’s always smart as an entrepreneur to always be talking to investors, and also always be talking to potential employees and the team. We need three things for a successful business, a great idea, great people and capital. You start with your idea and you will migrate it based on the demand of your customer. You can be pretty flexible there. Great people are hard to find, so always have a pipeline of who you’re talking to. We’re always talking to people, always talking to investors.
Part of the process of talking to people right now is mainly the developers because we’re building product. I found that at least the younger developers we’re talking to are trained at delivering product today, really smart people. Talk to people that are smart, you can tell they’ll succeed once they’re trained in. I don’t know if it’s really a Minnesota thing necessarily or a mid-West thing, because we’re in Charlotte, but colleges and universities aren’t training people enough vocationally to hit the ground running.
Right. There’s a skills gap.
That’s totally it. There’s just a skills gap. We’ve talked to these developers, we’re looking at interns and stuff, so we’re talking young developers and we give them a challenge, and it’s not that hard of a challenge really, it’s pretty simple. It shows that you can do an enterprise software in an hour, if you can accomplish it. Most of the developers we’re talking to can’t do it. I even give tips, like “Hey, look at these tools, they’ll help.” Like cheat sheets. “Look at this cheat sheet, this will tell you how to build it.” and even then, a little bit of struggle, which makes sense. It’s hard the first time you’ll learn a tool. If there’s anything with the market here, at least for startups, because you generally hire younger, I’m not trying to be ageist here, but it’s just generally what happens, because the salaries are lower. It’s sort of self-selects.
The benefits are worse, the salaries are lower.
It self-selects for younger talent. But the younger talent here in the area probably doesn’t see that that often. They’re used to getting hired by bigger companies that are willing to train you vocationally for whatever job. I think if you were in Silicon Valley, everyone going to the area knows, if you want a job, you’ve got to know how to do it. I think the talent is probably just more educated towards the goal, at a younger age probably.
I mean I’ve spent a fair amount of time in Silicon Valley with some various people that I work with. Everywhere you go, someone has a startup. I sit down in a restaurant by myself to have dinner and the guy next to me starts telling me about a startup. My Uber driver had his startup and was showing me his startup, while I was in the car on the way to an event. Don’t you think it’s just part of the culture?
I think you’re right. It’s probably, we’re the oddball here.
Yes, we are the oddball. Let’s face it.
It’s like, “You do what? You’re a startup, so you’re unemployed?”
Or you’re unemployable, nobody else wanted you, so you got your own thing going here.
Exactly. It’s a little bit unique. I think the talent market is probably going to be awesome. It just might take a different approach. What we’re doing with these younger developers, what I’ve been trying to do is basically, “I’m going to send you tutorials. Learn this tool but do this in your own time and while we’re growing as a company, we’ll keep on talking with you. Hopefully, if you’ve shown interest in learning those tools, which a good employee would, we’ll know in three or four months by the time you’ve learned them and shown us and keep on communicating with us, you’re ready to go.”
That’s a really interesting strategy. As you’re looking to grow your company, you’re basically coaching them along a little bit and saying, “If you’re really interested in working with me, you need to develop these things.” That’s a really interesting strategy.
We’re being nice, we’re helping people because we’re training them on the tools they need anyway. That’s what I basically told some of the people we’re talking with. “Hey, we need you to learn these tools and we can’t afford to train you on them.”
We can’t afford to send you to training.
Exactly. These developers we have in the company right now, we can’t distract them. I should probably make some templates because I do this so often now. Basically, sending out these instructions on how to learn enterprise type software tools. If we lose a couple along the way that would have been talented, it’s probably going to happen. Hopefully, by training ten and seeing the three or four that rise to the occasion and still are available, we’ll have some really good hires.
You actually have people basically selecting in your funnel. They’re self-selecting out of your funnel, so that by the time you’re actually ready to hire them, you have someone who is far closer to hitting the ground running.
Totally. They probably had a relationship with us.
Because they’ve been following you, so clearly they want this job.
Exactly. The same thing as investors. Right now, we’ve already finished our seed around, and so we’re already talking to a series A investors, even though we probably won’t get funded for another twelve months. But it’s the same idea. They have a relationship with us, we give them updates, they see that taking off, they already have a good feeling towards us because they’ve been working with us a little bit, having conversations. It’s the same type of approach on the investors’ side, both employees and investors.
Now, I’m hearing same approach with the companies as well. This is really interesting. It seems to be a lot of your philosophy in really saying, “Here’s where I’m at and here’s where I’m going to be.” It’s really a transparency philosophy is really what I’m hearing. It’s the same with the companies. “I’m starting with these small companies and I’m with Shopify.”
Yes, we let them know that we’re starting.
Exactly, that you’re a startup. Complete disclosure so they know there’s going to be bumps in the road, we’re going to adjust as we need to in this model. Is there a feedback mechanism for those first people on Shopify? How does the feedback loop work for you guys to grow your product?
I think it’s really important with your first customers, you have to have success. I don’t know who said this quote but basically the idea, “You can’t lose a customer, you can’t ever lose a customer.” The first customers, when they’re giving feedback, it can be a direct to our dev team for all we care. Later on, as the company grows, that’s usually a no-no. At this stage of the company, everyone’s in it to win it. We’re going to be very active with those merchants and customers, because we’re two-sided, finding out what kind of glitches are you seeing, is anything going wrong? We’re going to fix it right away. Fix it fast. That’s the main thing. Fix things fast, be very transparent about issues that did happen.
I generally think if you show your customers that you’re trying your hardest to fix things and make things better and make them happy, you’re going to have happy clients. If you’re not doing those things because you signed the client and you’re worried about getting the next one, that’s the best way to turn off your customers is just show them, “Yes, you cared about me until you got me, and then you moved on.”
Once you’ve got me, you went somewhere else. I know a big trend that I’ve seen in the corporate space too, particularly around a lot of software providers, is someone buys out another one and all of a sudden they go, “Oh no, XYZ Company just bought us. That means no service anymore.” It’s nice to hear a service philosophy.
It’s huge for the young companies, I really believe. If you have a good service philosophy, first of all, you’ll learn from those first customers a ton. It’s going to help you in your later customers because they’re going to tell you, “We really need this.” What you’re going to find is those first five, ten, twenty customers, they tell you they really need this, while the next 2,000 need it too. They’re going to just tell you what the rest of the clients are going to need anyway.
And it’s less for the big guy to tell you.
Yes. If you’re listening early, you’re going to have less pain later, and be better prepare to win more business too.
I find it really interesting from a first mover perspective. I’m really curious about who are the corporates that will look at it as you’re ready to move into that space, and look at the pain point of that fee. You brought up that great example about Best Buy and there’s other large, plenty of other large retailers as well, where like you said, half a percent makes huge to the bottom line. Even better, what I like about it even more is there’s no direct people impact. You’re using a technology solution to make a process better to return money to the bottom line. We’re not saying fire a bunch of your people when you do this. We’re just saying this is a lower cost alternative.
Yes, it’s a process improvement.
It’s a process improvement, exactly.
It gives you a potential actually to hire more people.
Right. We could feel a little warm and fuzzy about it to a degree. Except some certain players won’t feel warm and fuzzy about it in the market.
That’s true. The example of Best Buy with half percent, I’ve also looked at Delta Airlines, the same example because they both do the same business. If you’re a $40 billion a year company like Delta Airlines, one percent is $400 million a year. These are huge numbers. The one thing, when you look at the United States versus other countries, our payment mechanism using your bank to pay is actually very common in other countries, like India, Germany etc. It’s not that common here.
Merchant processing rates in the United States are also very inflated compared to other countries. We think that this change is going to start to change the tide towards cost in the United States. A good example, we were talking to a potential investor in the company, and he’s from the UK. He said, “When you buy an airline ticket in the UK, if you want to pay with a credit card you, have to pay like 10 or fifteen pounds extra to buy the ticket with a credit card. They basically want you to pay with your bank or debit.
That’s not happening here today, but we think in five years, it probably will be the case. Because Delta Airlines is going to see the solution, whether it’s from Sezzle or others, it’s coming. They’re going to say, “We want the lower cost payment system to become more popular.” They’re going to start to incentivize people towards it. They’re going to figure out different ways to do so. Maybe through rewards, through extra fees or discounts, they’re going to figure out a way.
With large companies, something I commonly see are credit card programs, but the complexity that can get in to some of those programs is then it all has to do with whatever your adoption level is, and then it’s a certain amount of money that gets refunded. What I think is interesting here is it feels like it’s a little bit more upfront, maybe a little easier cost structure to understand. Can you run through the cost structure one more time about how it actually works in today in Sezzle?
The underlying cost of ACH are very low. Most people out there know that it’s a low cost payment system. What we do is, because we know we’re getting a low cost payment system implemented, we’re lowering the cost for the merchant, we’re dropping it in half. The typical fee in the market is 2.9% plus 30 cents for a credit card or debit card transaction online. Obviously, if you do a higher volume, you get maybe lower than that. We’re charging 1.5 plus 15 cents as our “market rate.” We can also price squeeze it lower for higher volume clients.
What we’re doing is taking 1% out of that fee and passing on the consumer to have them choose our payment mechanism to check out. We’re basically taking all that value and we’re redistributing it to the stakeholders involved in this transaction, the merchant, the consumer and of course, us. We have to pay for the system we built. We’re trying to use these incentives to get everyone on board with a lower cost payment mechanism. Hopefully, those value propositions to everyone involved can draw everyone in and everyone benefits from the choice.
Industry Article Review
This week’s article is from AFP online and can be found at AfpOnline.org. The title of the article is, “Microsoft is partnering with Bank of America Merrill Lynch on a Blockchain trade finance product.” We’re hearing a lot about Blockchain. It’s going to revolutionize our world. It’s going to change the game on everything. Many of us have been waiting for those first practical use cases. I know in the SAP industry, they’ve released information about how the first bank to banks have participated in Blockchain transactions between SAPs systems. This was done as a pilot project earlier in the summer of 2016.
This article by Andrew Deichler actually talks about a new project that’s coming out with Microsoft. Microsoft is really choosing to be the guinea pig here, and it’s all about trade finance. At Sibos 2016, they announced they’re partnering with Bank of America Merrill Lynch on a Blockchain solution for trade finance. Their treasury department are going to be the first movers in this situation, and they’re going to be establishing block chain transactions between corporate treasuries and financial institutions.
It’s a pretty common place for Microsoft to lead the way on these types of developments. They decided that it would make sense for the instrument to use on the Blockchain transaction, to be a standby letter of credit. Not a traditional payment but a different type of treasury instrument. They wanted a use case that had business value and wasn’t technology for technology’s sake, or in other words Blockchain for Blockchain’s sake.
They really want to start trying to exploit the value of the network. They picked the standby letters of credit because it was really one that had a lot of payment complexity in the channel. There’s fourteen or fifteen steps on the process and there’s a lot of errors involved in the trade finance process, which for most of us means a lot of manual reconciliation. Phone calls, faxes, email etc. It can be really difficult, especially when there’s multiple counter parties involved.
Microsoft is getting involved and starting to work on this Blockchain development. Once they built this system, they’re trying to track how long does it actually take to get through to a standby letter of credit? How many steps? What’s the human error rate? They’ve actually gotten it down to four steps, and really been able to reduce the error rate and human involvement. Now, they’re starting to add additional counter parties a part of this as well.
In their words, once you start to multiply the number of counter parties, the complexity goes up, as many of us now. The error rates go up and the time involved goes up. What they’ve noticed around cost is when they’re using Blockchain, that even though they’re adding additional parties, the Blockchain cost line stayed flat, which is telling them that the value of the network is increasing exponentially as you add participants to the network. Everybody’s benefitting by lower costs and the network effect. They’re proving that there is actual business value in being able to utilize Blockchain.
They’re doing full pilot for the program in 2017 once they can get more of their customers and banks enrolled. They are encouraging people to say, “Hey, get out and use the network. It’s going to cost you less. Eventually, we’re all going to start reaping the savings of this.” There will be better visibility because we all have visibility into the Blockchain and this can help you understand your positions better, where your exposure is, real time treasury data. All in all, it sounds like Microsoft is a fan of the new Blockchain technology. If you’d like to read the full article, you can go to AfpOnline.org.
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