Latest / Leaders In Payments / Embedded Finance Series: James Armijo, CEO of Inktavo | Episode 239

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Embedded Finance Series: James Armijo, CEO of Inktavo | Episode 239 · Leaders In Payments

• 0:16
  SPEAKER_00: Why is it so powerful and growing exponentially?
• 0:19
  SPEAKER_00: And where is it headed?
• 0:21
  SPEAKER_00: Most importantly, what does it mean to your business?
• 0:24
  SPEAKER_00: Whether you're an ISB, ISO, PayPal, or bank.
• 0:28
  SPEAKER_00: In a world of squares and stripes, be solid.
• 0:32
  SPEAKER_02: So if I think about our industry specifically, the core workflow that our customers do is they buy equipment, they buy blank goods.
• 0:39
  SPEAKER_02: So in our industry, that means blank t-shirts and ink and all the other things that go into making a decorative shirt.
• 0:44
  SPEAKER_02: And they have to pay for labor.
• 0:46
  SPEAKER_02: And these three things have to come together before really, in many cases, they're even collecting revenue or the majority of their revenue.
• 0:52
  SPEAKER_02: But their biggest one-time expense is really usually around equipment.
• 0:56
  SPEAKER_02: And so for us, lending is incredibly important.
• 0:59
  SPEAKER_02: I'm no macroeconomic or banking industry expert.
• 1:02
  SPEAKER_02: I'm sure everybody hears the same headlines I do.
• 1:04
  SPEAKER_02: What I know is that it's very hard for small businesses to get capital these days.
• 1:08
  SPEAKER_02: And because we have data, because we know they have a reliable source of income, we've been able to provide embedded lending as part of our platform.
• 1:14
  SPEAKER_02: And we've seen a very strong uptake among our customers who need access to capital, who have real business opportunities.
• 1:28
  SPEAKER_01: That was James Armijo, the CEO of IncTavo.
• 1:31
  SPEAKER_01: And he is my special guest on this episode, episode 239 of the Leaders in Payments Podcast.
• 1:36
  SPEAKER_01: And I'm your host, Greg Myers.
• 1:38
  SPEAKER_01: As we continue our deep dive into the BeSolid campaign brought to you by NMI, James and I discuss his company, IncTavo, and we take a deep dive into embedded finance.
• 1:46
  SPEAKER_01: Inctavo is a vertical SaaS software company that is in the branded merchandise industry, think screen printers, who take blank t-shirts and add a graphic or a design.
• 1:56
  SPEAKER_01: They have already embedded both payments and lending into their software platform.
• 2:00
  SPEAKER_01: If you're interested in hearing about how a vertical SaaS company views embedded finance, this is the episode to listen to.
• 2:07
  SPEAKER_01: We also talk about future financial products like payroll and ARAP solutions.
• 2:12
  SPEAKER_01: And James provides some very insightful thoughts about challenges and opportunities in the embedded finance space.
• 2:18
  SPEAKER_01: We've got a great episode ahead, so let's get started.
• 2:26
  SPEAKER_01: Hi, James, and welcome to this episode of the Leaders in Payments Podcast, where we're going to be doing a deep dive on embedded finance.
• 2:32
  SPEAKER_01: So welcome to the show.
• 2:34
  SPEAKER_01: Thanks for having me, Greg.
• 2:35
  SPEAKER_01: Absolutely.
• 2:35
  SPEAKER_01: So why don't you tell us a little bit about your current role at Inktav and a little personal and career background about how you got there?
• 2:42
  SPEAKER_02: Yeah, absolutely.
• 2:44
  SPEAKER_02: So I am CEO at InkTavo.
• 2:46
  SPEAKER_02: I've been with the company a little over a year now.
• 2:48
  SPEAKER_02: Prior to this, I worked in a number of roles.
• 2:51
  SPEAKER_02: I actually started my career in finance, pivoted out of finance when I realized that spending 16 hours a day in a spreadsheet probably wasn't going to be a thing that brought me a lot of career satisfaction.
• 3:00
  SPEAKER_02: So spun out of that role and went down a career path that was focused largely on marketing sales and customer success at a variety of SaaS businesses that served primarily small business customers.
• 3:12
  SPEAKER_02: So in my early days, I was at a company called 8x8, which provided hosted phone solutions to small businesses, then went to a company called Carrio, which provided software to doctor's offices, then to a company called PatientPop, which had a similar business model to Cario, and then on to a company called Smart Care, which provided software to daycare centers, and of course now at Inktavo.
• 3:30
  SPEAKER_02: And along the way, I got exposed to payments.
• 3:32
  SPEAKER_02: So I've kind of seen the transition over the last 15 years of how embedded payments works at a variety of different SaaS businesses serving a variety of different end customers and had the opportunity to come to Inktavo, which serves apparel decorators, uh small businesses using a SaaS solution to make their businesses better, very much in line with things that I've done in the past and feel very passionate about, that also has an embedded payments opportunity.
• 3:54
  SPEAKER_02: And so I was very excited to have the opportunity to join the company.
• 3:57
  SPEAKER_01: Okay, well, let's talk about the company a little more.
• 3:59
  SPEAKER_01: So tell us exactly what Inktavo does.
• 4:02
  SPEAKER_02: Yeah, absolutely.
• 4:03
  SPEAKER_02: Our end customer are uh what we call uh apparel decorators, oftentimes called screen printers.
• 4:08
  SPEAKER_02: These are businesses that serve generally the other small businesses and community organizations in their community, like churches and schools, and they provide decorated apparel, which to a large extent means t-shirts with something on that t-shirt.
• 4:21
  SPEAKER_02: So you take a blank t-shirt and you put an image on it.
• 4:24
  SPEAKER_02: It is obviously more expansive than that and includes a variety of types of apparel and other goods.
• 4:28
  SPEAKER_02: And of course, the the way in which you do that decoration can be embroidery, it can be printing, there's there's a whole variety of technologies.
• 4:35
  SPEAKER_02: But at our core, that's the customers that we serve.
• 4:37
  SPEAKER_02: Our goal is to be the all-in-one software solution for those customers.
• 4:42
  SPEAKER_02: So they have some unique needs that are unique to the industry that software is best able to solve.
• 4:47
  SPEAKER_02: That includes being able to come up with designs for all those images that their customers want, creating web stores that allow them to sell products on behalf of their customers in ways that are very unique to how the industry works, and then ultimately to track those orders through the production process.
• 5:04
  SPEAKER_02: So scheduling them on pieces of equipment, getting them put in boxes, getting them shipped or delivered to the right location.
• 5:10
  SPEAKER_02: And we serve all three of those verticals with our uh integrated software solution.
• 5:14
  SPEAKER_01: Okay.
• 5:15
  SPEAKER_01: And what would you say differentiates you in the marketplace today?
• 5:19
  SPEAKER_02: If you look at our industry, say two years ago, what you would have seen, if you remember I described those kind of three vertical solutions that all of our customers need, you what you would have seen were companies that were really good at one of the three, but not at all three.
• 5:33
  SPEAKER_02: Our vision was to become the all-in-one platform.
• 5:36
  SPEAKER_02: And we did that by merging Printavo, Inksoft, and Graphics Flow into a single organization.
• 5:41
  SPEAKER_02: Each one of them specialized in one of those three things.
• 5:43
  SPEAKER_02: So we are now differentiated insofar as we are the all-in-one platform.
• 5:47
  SPEAKER_02: We have all the features that the customer might need.
• 5:49
  SPEAKER_02: But I think what's also really great about our story is that we've stayed very true to our understanding of who our customers are and the founder-led focus that all three of those companies had.
• 5:59
  SPEAKER_02: So all of our founders are still part of the business, still very much involved in how we do product development, customer outreach, and education.
• 6:05
  SPEAKER_02: And we've built on that by also building a really strong thought leadership program.
• 6:09
  SPEAKER_02: So not only do we provide you this all-in-one software solution that's unique to your needs, but we're also going to help you as a customer understand other aspects of the business outside of just our individual software application that'll help you be a more successful business over time.
• 6:22
  SPEAKER_01: Okay.
• 6:23
  SPEAKER_01: Just curious, and it may have been a little before your time, but how did the whole pandemic, I mean, was that good for the industry, bad for the industry, or really saw no effect?
• 6:31
  SPEAKER_02: It's interesting in that I think on net it was good.
• 6:35
  SPEAKER_02: It definitely had an effect, though.
• 6:37
  SPEAKER_02: What happened was so if you think about our industry, kind of diving just a little bit deeper, there are a number of sort of core purchasing workflows that exist.
• 6:47
  SPEAKER_02: One of them, and one of the most common, is around schools and education and athletic programs.
• 6:53
  SPEAKER_02: And in the old days, you know, think I'll use a very basic example.
• 6:56
  SPEAKER_02: Kid's going to be on the football team, he's he's a freshman, and so the summer between eighth grade and freshman year gets an order form and it says, okay, you got to buy all this stuff for football.
• 7:06
  SPEAKER_02: And oh, by the way, do you also want to buy some sweatshirts from the booster program and maybe you know send grandma a t-shirt to all you'd have this paper order form, he'd go home.
• 7:15
  SPEAKER_02: Well, during COVID, that that no longer existed.
• 7:17
  SPEAKER_02: And so there was this massive disruption to figure out how to digitize all of those types of purchasing.
• 7:22
  SPEAKER_02: And that was generally pretty good for the industry.
• 7:25
  SPEAKER_02: Now the downside was all of the production workflows were built around getting those paper order forms in, right?
• 7:31
  SPEAKER_02: And now you've got digital orders coming in in a variety of different ways, and you also have different fulfillment methodology.
• 7:36
  SPEAKER_02: So in the past, we'd have a big pep rally, and all the boxes of all the stuff that people ordered over the summer would get delivered and people would pick them up.
• 7:43
  SPEAKER_02: But now you've got to figure out how to ship them.
• 7:45
  SPEAKER_02: And that also just created a lot more complexity.
• 7:47
  SPEAKER_02: So now you have an online order form.
• 7:49
  SPEAKER_02: And maybe in the old days, if you just came home with a paper order form, you didn't buy grandma a t-shirt.
• 7:54
  SPEAKER_02: But now if there's an online form and you send it to grandma, grandma definitely wants a t-shirt with her grandson's picture and his football jersey on it.
• 8:00
  SPEAKER_02: So now she's gonna buy it.
• 8:02
  SPEAKER_02: But now that means grandma's definitely not gonna pick it up at the pep rally, even though the pep rally has come back.
• 8:06
  SPEAKER_02: So now you got to ship something out to grandma.
• 8:08
  SPEAKER_02: And so it created this just you know, much more complex.
• 8:11
  SPEAKER_02: I sort of joke we went from playing checkers to chess in as an industry.
• 8:15
  SPEAKER_02: Overall, I think that's good.
• 8:16
  SPEAKER_02: But of course, in the short run, that creates a lot of angst and challenges and transition and kind of growth challenges for many of our customers and for our software platform as well.
• 8:24
  SPEAKER_01: Yeah.
• 8:25
  SPEAKER_01: It's interesting you don't you don't think about that industry as being so challenging or so complex, but you just explained it very well.
• 8:32
  SPEAKER_01: It certainly can be.
• 8:33
  SPEAKER_01: Sure.
• 8:33
  SPEAKER_01: So we're gonna talk a little bit about embedded payments and embedded finance, which, you know, just for the audience, you know, embedded finance meaning broader than just embedded payments.
• 8:44
  SPEAKER_01: Embedded payments obviously a huge part of what software companies are doing and have been doing for several years now.
• 8:50
  SPEAKER_01: So maybe start, if you don't mind.
• 8:52
  SPEAKER_01: Let's let's talk about the embedded payments part, because you mentioned you you've done that a few times in in your career.
• 8:57
  SPEAKER_01: So maybe talk about that at Inktavo first, and then we'll jump to maybe the bigger picture.
• 9:02
  SPEAKER_01: So, what does InkTavo do around embedded payments?
• 9:06
  SPEAKER_02: Sure.
• 9:06
  SPEAKER_02: So today we offer embedded payments in a variety of different touch points.
• 9:10
  SPEAKER_02: But if you think about our core offering, as I mentioned, one of the things we do is we stand up all of these e-commerce solutions.
• 9:16
  SPEAKER_02: Our customers use our platform to create a variety of e-commerce solutions for their customers.
• 9:20
  SPEAKER_02: And so embedded in all of those workflows are, of course, transactions that happen and we capture those.
• 9:25
  SPEAKER_02: And so that happens.
• 9:26
  SPEAKER_02: The other primary workflow around payments is we do have a lot of business-to-business transactions.
• 9:31
  SPEAKER_02: So a very simple example, you know, the local restaurant needs to buy uniforms for all of their employees.
• 9:37
  SPEAKER_02: They go to one of our customers.
• 9:39
  SPEAKER_02: That transaction typically happens via an electronic invoice, and there's a different payment workflow that's built around that.
• 9:45
  SPEAKER_02: Um, so all of those workflows were supporting the embedded payments component as those transactions are happening.
• 9:51
  SPEAKER_01: Okay, and I'm assuming you're monetizing those transactions.
• 9:55
  SPEAKER_02: Yeah, absolutely.
• 9:56
  SPEAKER_02: So pretty core, you know, I would say uh it's interesting.
• 9:59
  SPEAKER_02: I I think back to my carryo experience.
• 10:01
  SPEAKER_02: We were an ISO at SmartCare, we were at PayFac.
• 10:04
  SPEAKER_02: I've sort of seen all the different models, and of course they have morphed over time.
• 10:08
  SPEAKER_02: We've gotten to a point where, you know, my my perspective on embedded payments specifically, maybe as a subset within embedded finance, I think you did a great job at sort of differentiating what those two mean, even though sometimes they get a little confused in industry parlance.
• 10:20
  SPEAKER_02: Uh what I think of embedded payments, I think of it a lot as like the utility coming into your house.
• 10:26
  SPEAKER_02: You know, if I think about my house, I just want to turn on the light switch and have the lights come on.
• 10:30
  SPEAKER_02: I really don't want to know what turbine is being used and what gauge wire is on the transmission and all these other things, right?
• 10:37
  SPEAKER_02: I need somebody else to kind of handle that for me.
• 10:39
  SPEAKER_02: And I think customers think about payments in very much the same way.
• 10:41
  SPEAKER_02: Now, what's key is that it should be cost effective and it should be really easy to use.
• 10:46
  SPEAKER_02: And so what we have really focused on is what is our customer's experience of payments?
• 10:50
  SPEAKER_02: Can they get a merchant account up and running quickly without having to leave the platform and go fill out a bunch of unnecessary paperwork?
• 10:56
  SPEAKER_02: Once they get that merchant account provisioned, are their customers able to use all the different payment methods that they might want to use?
• 11:02
  SPEAKER_02: And once they receive a payment, is that reconciliation remittance process really straightforward, easy to reconcile to their accounting system, to their bank account.
• 11:10
  SPEAKER_02: And so that's the focus that we've really taken.
• 11:12
  SPEAKER_02: And then behind the scenes, we have a great network of partners that are fulfilling a lot, some of which we do in-house and much of which we do through partners to make sure that that customer experience is as positive as it can be.
• 11:22
  SPEAKER_01: Okay.
• 11:23
  SPEAKER_01: Yeah, and I think where this is headed with you know, a lot of software companies, payments seem to be first for whatever reason, maybe because it's uh almost to your point a utility companies have to have it.
• 11:35
  SPEAKER_01: But beyond that, it seems like software companies have so much data on their customers and their customers' customers that then creating other financial products is starting to make more sense.
• 11:46
  SPEAKER_01: So things like checking accounts and insurance and lending.
• 11:50
  SPEAKER_01: So maybe let's step up a level to the embedded finance.
• 11:54
  SPEAKER_01: Like how do you view embedded finance in your world?
• 11:57
  SPEAKER_02: Yeah, great question.
• 11:58
  SPEAKER_02: You know, I would say it was interesting.
• 12:00
  SPEAKER_02: Uh, a couple of weeks ago I had the opportunity to go to a CEO conference for our investor group, probably about 70 other businesses there.
• 12:07
  SPEAKER_02: And we all have, we're all software companies, we generally all do payments, but we all serve a variety of different needs.
• 12:12
  SPEAKER_02: And a similar, you know, we were sort of talking a similar question, and the observation I had, which probably isn't unique to me, but it certainly was obvious talking to some peers of this group, was that there is this large menu, right?
• 12:23
  SPEAKER_02: It's it's a buffet of options you can have around embedded finance.
• 12:27
  SPEAKER_02: And ultimately, companies I think that are most successful figure out what is relevant to their customers and their industry.
• 12:33
  SPEAKER_02: And so if I think about our industry specifically, the the core workflow that our customers do is they buy equipment, they buy blank goods.
• 12:41
  SPEAKER_02: So in our industry, that means blank t-shirts and ink and all the other things that go into making a decorated shirt, and they have to pay for labor.
• 12:48
  SPEAKER_02: And three three things have to come together before, really, in many cases, they're even collecting revenue or the majority of their revenue.
• 12:55
  SPEAKER_02: But their biggest one-time expense is really usually around equipment.
• 12:58
  SPEAKER_02: And so for us, lending is incredibly important.
• 13:01
  SPEAKER_02: I'm no macroeconomic or banking industry expert.
• 13:04
  SPEAKER_02: I'm sure everybody hears the same headlines I do.
• 13:06
  SPEAKER_02: What I know is that it's very hard for small businesses to get capital these days.
• 13:10
  SPEAKER_02: And because we have data, because we know they have a reliable source of income, we've been able to provide embedded lending as part of our platform.
• 13:17
  SPEAKER_02: And we've seen a very strong uptake among our customers who need access to capital, who have real business opportunities, right?
• 13:24
  SPEAKER_02: If they can go buy another t-shirt press, they're able to produce more t-shirts and they have the demand.
• 13:29
  SPEAKER_02: But because the banking system is what it is, or because they don't have access to data or or all the other barriers to traditional bank lending, that's not an available source of credit to them.
• 13:38
  SPEAKER_02: Ours is, and they're using it to great effect.
• 13:40
  SPEAKER_02: Um, we see this anecdotally and across, you know, in sort of in data across the board that people are using lending.
• 13:46
  SPEAKER_02: You know, on the other hand, I've talked to other industries, uh tes and other industries where insurance is a is a big issue, right?
• 13:52
  SPEAKER_02: Like construction is one of these industries that comes to mind.
• 13:55
  SPEAKER_02: And so having the ability to have an embedded insurance product is really important.
• 13:59
  SPEAKER_02: In our industry, there's not a lot of risk in producing a t-shirt, so insurance isn't nearly as important and it's not you know as focal as it could be maybe in other places.
• 14:08
  SPEAKER_02: But yeah, I think all of those options are interesting and and really solving the needs of your customers is what's most important.
• 14:13
  SPEAKER_01: So you've already embedded a lending product into your platform.
• 14:17
  SPEAKER_02: Correct.
• 14:17
  SPEAKER_02: So lending is outside of payments, is our our largest kind of embedded finance solution.
• 14:23
  SPEAKER_02: As I mentioned, you know, I sort of talked, we don't really see insurance as being a big need.
• 14:27
  SPEAKER_02: Most of our customers have easy access to the they need limited insurance anyway, and they have easy access to it through existing markets.
• 14:34
  SPEAKER_02: So I'm not sure that we would add a tremendous amount of value there.
• 14:37
  SPEAKER_02: We haven't really gone down the path of integrated checking either.
• 14:41
  SPEAKER_02: And the main reason I would say is that again, most of our customers have access to a local bank that'll provide a checking account, or they really run into problems around the credit and the lending component of the business.
• 14:52
  SPEAKER_02: It may be something we do because it does facilitate a lot of these transactions if you have banking as sort of an integrated process, but it isn't necessarily a massive pain point, if you will, for our customers today.
• 15:03
  SPEAKER_01: Okay.
• 15:03
  SPEAKER_01: And you know, you you've done payments, you've done lending, and and you mentioned, you know, the the banking part.
• 15:10
  SPEAKER_01: Do you kind of have a roadmap?
• 15:11
  SPEAKER_01: And you don't have to share what it is, but I mean, is is embedded finance something that kind of keeps you up at night and you think strategically about it a lot?
• 15:18
  SPEAKER_02: Yeah, I do because I think that they're, you know, it's interesting.
• 15:21
  SPEAKER_02: I I I sort of see the evolution, both from my historical career experience, but also, you know, vantage point of thinking about the business going forward, is going through three big phases.
• 15:33
  SPEAKER_02: And phase one was payments.
• 15:34
  SPEAKER_02: So and I think that's why payments and finance get confused so often or used incorrectly but synonymously.
• 15:41
  SPEAKER_02: Where that's to your point, that's behind us.
• 15:43
  SPEAKER_02: Everybody knows they should do payments, and there's a variety of options.
• 15:47
  SPEAKER_02: Phase two was sort of like, let's do the basic, I would consider what are the things that a banking branch should do, but because maybe banks aren't technologically advanced, or because you need data to make better decisions and banks don't have access to that data, that software companies would be better off.
• 16:03
  SPEAKER_02: Checking credit cards, lending, insurance, I think all fall in that category.
• 16:08
  SPEAKER_02: And we're still very much in that sort of phase two category.
• 16:11
  SPEAKER_02: And I, you know, the as I just mentioned, I don't think the adoption will be universal, it'll be customer specific, but those will get implemented and there are solutions that are out there.
• 16:19
  SPEAKER_02: I do think, though, that there's this kind of interesting phase three that's on the horizon.
• 16:24
  SPEAKER_02: And this is the one that it keeps me up at night, but more so in the context of being exciting than being scary, where there are a number of other solutions that feel a lot like embedded finance.
• 16:37
  SPEAKER_02: The one that's most obvious in our industry, and again, I think it'll be very much industry-specific, is payroll.
• 16:42
  SPEAKER_02: So our customers tend to employ an hourly workforce that have fluctuations in the number of hours that are worked.
• 16:48
  SPEAKER_02: So they come in, they have the big, you know, back to school football order.
• 16:51
  SPEAKER_02: Okay, great, we're working a bunch of overtime, but you know, maybe there's a slow time and there aren't as many hours being worked during that time period.
• 16:58
  SPEAKER_02: And what we see is their ability to attract labor is really critical.
• 17:01
  SPEAKER_02: And I look at what's happening in some of the payroll companies that are doing embedded finance things, and it's really interesting.
• 17:07
  SPEAKER_02: There are payroll companies that are offering the ability to do off-cycle payrolls, right?
• 17:12
  SPEAKER_02: Employees could get paid every day or to get the equivalent of a payday advance loan through a payroll at much more attractive rates than you would get in a traditional payday landing facility.
• 17:22
  SPEAKER_02: And so, you know, certainly our customers aren't the only software users in the world that have employees.
• 17:27
  SPEAKER_02: I do think that that whole area around payroll is going to be a really interesting one that probably gets engulfed into the embedded finance world in the future.
• 17:34
  SPEAKER_02: And then likewise, you know, there's been sort of a standalone around AP and AR, and they're obviously very successful build.com, right?
• 17:41
  SPEAKER_02: Companies that kind of focus on that platform.
• 17:43
  SPEAKER_02: But that is also something that I think how you factor those receivables, how you time out those payments is really, really critical and will be something that will probably become more of a utility rather than a standalone feature as the industry progresses.
• 17:56
  SPEAKER_01: Yeah, I think there's a lot of good insight right there as far as the future and other types of products that might get embedded in the future.
• 18:04
  SPEAKER_01: I know one of the challenges that a lot of software companies have had when they've embedded payments was getting adoption by their customers.
• 18:13
  SPEAKER_01: So maybe talk about that in the lens of payments and lending.
• 18:16
  SPEAKER_01: Did you do specific programs to get people on board, or was it like, hey, you have to switch over to us or you can't be on our platform?
• 18:24
  SPEAKER_01: Maybe talk about how that adoption by your customers went.
• 18:27
  SPEAKER_02: Yeah, great question.
• 18:28
  SPEAKER_02: So we are approaching about a 90% adoption rate and we'll certainly be there by the end of the year, which you know, something that I'm really proud of our team for having accomplished for all the reasons that you said.
• 18:38
  SPEAKER_02: I kind of have seen, again, somewhat unscientific, but just observations of my point.
• 18:43
  SPEAKER_02: I've seen a few things that work and that don't work.
• 18:46
  SPEAKER_02: The the overarching guide I would give or observation I would make is that if you start from the premise of I am trying to solve a customer pain point, and it happens that payment functionality solves that pain point, invariably I think that that approach and perspective will lead to better adoption.
• 19:04
  SPEAKER_02: If you start from the perspective of I need to generate X amount of revenue per customer by monetizing y amount of payments at Z net cake rate, you've inherently set yourself up to be really challenged, I think.
• 19:16
  SPEAKER_02: And it's it's sort of counterintuitive that not focusing on how you're monetizing it actually leads to better monetization.
• 19:23
  SPEAKER_02: But I do think it's because if you take one approach or the other, it leads you to different results.
• 19:28
  SPEAKER_02: And I'll give you a great example.
• 19:30
  SPEAKER_02: We know today that one of the biggest pain points before we launched our embedded payment solution, one of the biggest pain points that our customers had was refunds.
• 19:40
  SPEAKER_02: It was really a pain in the butt to do refunds, but they actually do a lot of refunds.
• 19:44
  SPEAKER_02: And the reason is, you know, go back to my grandma example.
• 19:46
  SPEAKER_02: Grandma orders the shirt, but she wants to send it back because it wasn't the right color, she didn't really know how to order it the right way, you know, whatever it might be.
• 19:53
  SPEAKER_02: And so because of that, refunds was a big problem.
• 19:55
  SPEAKER_02: So we focused, one of the first payments features we launched was the ability to do embedded refunds, and we made it really easy.
• 20:00
  SPEAKER_02: You could find the order, you could do a simple one-click, you could refund it to the same card, you could do partial, you could do all this stuff that was really important around refunds.
• 20:07
  SPEAKER_02: Now, refunds wasn't a great way to monetize payments.
• 20:10
  SPEAKER_02: We make a small transaction fee, but we don't make a lot of money on a refund.
• 20:14
  SPEAKER_02: And it seems kind of counterintuitive that's something you would want to do.
• 20:17
  SPEAKER_02: But because we had this feature, people were like, oh man, I would love to solve this pain point I have around doing refunds.
• 20:23
  SPEAKER_02: And if that means I got to take all my payments to the platform, okay, great.
• 20:26
  SPEAKER_02: You know, I'll do it.
• 20:28
  SPEAKER_02: And so we got, I think, a lot more adoption by solving the customer pain point than had we just said, you need to do all your payments, and oh, by the way, we'll solve refunds later because you don't even have it today, and we're not gonna monetize a lot by doing that.
• 20:39
  SPEAKER_02: So I think that perspective is really important.
• 20:41
  SPEAKER_02: The second thing I would point out is I do think that making it opt out versus opt-in is critical.
• 20:46
  SPEAKER_02: Every business I've ever seen that says you have to sign up something extra for payments is gonna have a lower adoption.
• 20:53
  SPEAKER_02: Some of that is just basic psychology, right?
• 20:54
  SPEAKER_02: People don't like friction, but also because it forces people to then consider their options.
• 21:00
  SPEAKER_02: Think about I go back to my electricity in my house.
• 21:02
  SPEAKER_02: If I bought my house and then all of a sudden you said, oh, now you need to go select your electricity company.
• 21:07
  SPEAKER_02: Well, I'm gonna go shop for the best electric rates, right?
• 21:10
  SPEAKER_02: Or maybe I'll put in solar because it's a better option.
• 21:12
  SPEAKER_02: But if instead I buy my house and I just here's the flyer that says, okay, activate your electricity, well, I'm gonna activate my electricity because I sure as heck don't want you know the family yelling at me that the refrigerator doesn't work.
• 21:22
  SPEAKER_02: And so that approach I think is really critical and gets lost on people.
• 21:27
  SPEAKER_02: And then the last thing I would just mention is my concept of around smart pricing.
• 21:31
  SPEAKER_02: You know, I what I would say is that I think there is a narrative, one that I've heard, and that academically I don't disagree with, which is that because I've embedded payments in my software platform, I should be able to charge more than what a non integrated, non embedded payments option is.
• 21:49
  SPEAKER_02: There's more value to the customer, right?
• 21:51
  SPEAKER_02: It's integrated in their experience.
• 21:53
  SPEAKER_02: And so I see people price payments higher than sort of generic competition in the market.
• 21:59
  SPEAKER_02: And I think That leads to suboptimal outcomes because while the academic argument isn't true, you are also giving your customers a reason not to use you, right?
• 22:08
  SPEAKER_02: Whereas if you just price it equivalent to or maybe even a little bit less than what the some kind of third-party offer would be, you've completely eliminated a reason not to use it.
• 22:17
  SPEAKER_02: And again, each one of those reasons, it doesn't mean 100% of customers decide not to use it, but it means maybe one out of 10.
• 22:23
  SPEAKER_02: And if you have three reasons that one out of 10 customers aren't going to use it and they're mutually exclusive for the sake of the argument, you know, now you've already excluded 30% of your customers.
• 22:31
  SPEAKER_02: And the answer is you probably exclude a lot more than that.
• 22:33
  SPEAKER_01: Yeah, so obviously you can think of payments and your customers adopting them.
• 22:38
  SPEAKER_01: I think lending probably a different metric.
• 22:40
  SPEAKER_01: So how do you think your lending product is doing?
• 22:42
  SPEAKER_02: Yeah, lending is doing really well.
• 22:44
  SPEAKER_02: I mean, definitely the uptake is slower there.
• 22:47
  SPEAKER_02: Um what we see is that in general, people adopt a software solution, they adopt payments the same day.
• 22:53
  SPEAKER_02: You know, there are some exceptions, but they're very rare.
• 22:56
  SPEAKER_02: You know, lending is kind of like more in like the 30 to 40 percent.
• 22:58
  SPEAKER_02: We've only had lending though since the start of this calendar year.
• 23:02
  SPEAKER_02: And what we're seeing is that every month the adoption is fairly consistent.
• 23:06
  SPEAKER_02: And if you go back to why are people using lending on our platform, the majority of people are using it to buy equipment.
• 23:11
  SPEAKER_02: And so in our industry, you don't buy equipment every month.
• 23:13
  SPEAKER_02: You you buy equipment every couple of years.
• 23:15
  SPEAKER_02: And so I think what we're seeing is that as those episodes occur across the customer base, okay, it's time to buy new equipment, or I've signed up this new big client, and you know, I need more equipment to fulfill their orders, whatever it might be, that's causing the need for lending, and we've got the product there you know to support it.
• 23:30
  SPEAKER_01: Right.
• 23:30
  SPEAKER_01: Okay.
• 23:30
  SPEAKER_01: Well, we've talked about all the sort of positive things.
• 23:34
  SPEAKER_01: What are the roadblocks that you think software companies have to embed whether it's payments or other financial products?
• 23:41
  SPEAKER_01: What do you see as some of the roadblocks?
• 23:43
  SPEAKER_02: Yeah.
• 23:44
  SPEAKER_02: I distinctly remember uh going to the Money 2020 conference in 2017, sitting down.
• 23:50
  SPEAKER_02: We were looking for it this time, we were looking for a payments provider.
• 23:54
  SPEAKER_02: This is at a company called Smart Care.
• 23:56
  SPEAKER_02: We did a uh you know a variety of pitches with uh all the software teams.
• 23:59
  SPEAKER_02: They all kind of you know gave us their pitch on why we should use their platform and why it was gonna be easy.
• 24:03
  SPEAKER_02: And we had we had these you know pre-canned questions and RFP and responses.
• 24:07
  SPEAKER_02: And at the last meeting, I was pretty burned out at the end of the day, and it was sort of like it was the same pitch we had heard you know five times before.
• 24:14
  SPEAKER_02: And I said, I sort of feel like I'm a customer who has gone up to a bank and I said, and I being the customer is analogous to the software company, the bank is analogous to the to the payment provider.
• 24:26
  SPEAKER_02: And I said, Look, here's what I want.
• 24:27
  SPEAKER_02: I want to be able to come to the outside of the bank in my car any time of day, go up to a machine, put a card in it, tell it, you know, enter some information and have it give me money, or be able to maybe make a deposit or check my balance.
• 24:40
  SPEAKER_02: And in response, the bank says to me, That sounds like a great idea, Mr.
• 24:45
  SPEAKER_02: Armijo, but instead of that, why don't we do this?
• 24:47
  SPEAKER_02: How about you can only come from eight to five?
• 24:49
  SPEAKER_02: You have to come in, stand in line, talk to a human to get whatever you need.
• 24:53
  SPEAKER_02: But don't worry, we're gonna provide you all the free pens and paper deposit slips and and checks that you could ever want.
• 25:00
  SPEAKER_02: And yeah, I sort of laughed and I was like, guys, that's that's kind of what this feels like, right?
• 25:04
  SPEAKER_02: And it and today, I say that to say, today, unfortunately, things have gotten better, but I don't know that they've entirely changed.
• 25:10
  SPEAKER_02: The needs that a software company has around an embedded payment solution, just simply like it's still a little bit like going to an old school bank.
• 25:17
  SPEAKER_02: And so specifically, you know, there are a couple of things that I would point out, and I'll admit I'm also not an expert on solving them.
• 25:22
  SPEAKER_02: Maybe these are unsolvable problems, and that's why the industry doesn't exist.
• 25:25
  SPEAKER_02: But certainly the the process around applying for a merchant account and the KYC requirements that come along with that are big barriers to both implementation and adoption.
• 25:35
  SPEAKER_02: And so I would love to see the industry come up with ways to make that process more seamless, more real-time, especially for smaller customers, small businesses that you know aren't Fortune 500 companies with with a lot of data uh available to them and need to get moving quickly.
• 25:51
  SPEAKER_02: The other big issue that I've seen is around funding timelines.
• 25:55
  SPEAKER_02: It is a painful day when you have to tell your customer how a notcha file works and how ACH files get settled every night and what the return period looks like and why that impacts when they can get their money.
• 26:08
  SPEAKER_02: I think most of our customers today say, like, we're it's in 2023.
• 26:13
  SPEAKER_02: Isn't there a way where like I could just say, hey, does this person have the money?
• 26:17
  SPEAKER_02: And yes, they do, okay.
• 26:18
  SPEAKER_02: Now move it from their account to my account, right?
• 26:20
  SPEAKER_02: And the answer is yeah, there should be.
• 26:22
  SPEAKER_02: But because we don't live in that world and we've created a lot of issues around that, that creates issues for customers because customers say, well, if it's going to take me eight days to get my money, I might as well just still take a paper check or take cash, but even better yet, right?
• 26:34
  SPEAKER_02: Go spend that cash tomorrow.
• 26:35
  SPEAKER_02: So I see that being a continued issue that hopefully the industry will really solve.
• 26:40
  SPEAKER_02: And then lastly, I you know, I would really point out just the overall issue around fraud management.
• 26:46
  SPEAKER_02: Clearly, there's a big issue.
• 26:48
  SPEAKER_02: It's really hard.
• 26:49
  SPEAKER_02: And this is somewhat embedded in the in the know your customer and the and the new account, but this is really more so around transaction management.
• 26:55
  SPEAKER_02: But having a better standard, a better way to resolve transaction disputes is certainly an ongoing barrier to increased adoption across the industry.
• 27:04
  SPEAKER_01: Okay.
• 27:05
  SPEAKER_01: Thanks for sharing those.
• 27:06
  SPEAKER_01: I think you know, we always talk about all the great things, but there's always some challenges.
• 27:10
  SPEAKER_01: So appreciate you bringing those up.
• 27:12
  SPEAKER_01: So when you step back and go up to the 50,000 foot level and think of the future, maybe, you know, two to five years out, where do you think or what do you think the future of embedded finance looks like?
• 27:24
  SPEAKER_02: Yeah, it's a great question.
• 27:26
  SPEAKER_02: I kind of touched on in when we were jamming earlier when I said, you know, I see payroll as being a really big one, and AP and AR being the other.
• 27:35
  SPEAKER_02: I think those are both really interesting solutions that many, especially vertical software solutions, will eventually figure out how to integrate.
• 27:43
  SPEAKER_02: The other big challenge that I've seen, this is somewhat an answer to your last question, but more so a solution, I think, as we go forward is that you know there is so much behavior that is tied up in the idea of payment rewards.
• 27:58
  SPEAKER_02: This is across the board, right?
• 27:59
  SPEAKER_02: I have a credit card, it gives me some kind of rewards, and therefore that changes how I do my behavior.
• 28:05
  SPEAKER_02: It also is a barrier to changing.
• 28:07
  SPEAKER_02: So if I think of companies like BREX, for example, that have you know done a really interesting job at coming up with corporate credit card solutions.
• 28:15
  SPEAKER_02: I know one of their biggest challenges is customers lose all their rewards points if they go to them, right?
• 28:21
  SPEAKER_02: And so they've had to come up with their own reward solutions.
• 28:24
  SPEAKER_02: I do think that there will be a lot of innovation around reward solutions.
• 28:28
  SPEAKER_02: That is a barrier, and wherever there's barriers, there's generally innovation to reduce those barriers.
• 28:33
  SPEAKER_02: I wish I knew what the answer was.
• 28:35
  SPEAKER_02: I I would probably go found a company to do it if I knew what the answer was.
• 28:39
  SPEAKER_02: But I'm sure there's some smart people out there way smarter than me that are coming up with a solution right now or will in the near future.
• 28:44
  SPEAKER_02: And I'm really excited to see what those options are because I think that'll open up a lot of different doors to how transactions happen and the types of accounts that people use for those transactions over time.
• 28:54
  SPEAKER_01: Yeah.
• 28:54
  SPEAKER_01: I I agree.
• 28:55
  SPEAKER_01: I wish I knew too.
• 28:57
  SPEAKER_01: We go found that company together.
• 28:58
  SPEAKER_01: Yeah, let's do it.
• 29:00
  SPEAKER_01: So so we've obviously covered a lot of ground.
• 29:02
  SPEAKER_01: I mean, uh, you know, I I think we've done a great job of understanding, you know, the software side.
• 29:08
  SPEAKER_01: And just by the way, this is the sixth episode in a six-part series, and this is the first software company that we've talked to, so it's been very interesting to get your unique perspective.
• 29:17
  SPEAKER_01: So I really, really appreciate that.
• 29:20
  SPEAKER_01: And, you know, we've covered ground about the company and about embedded finance and your views there.
• 29:24
  SPEAKER_01: Is there anything else you'd like to add before we wrap up the show?
• 29:27
  SPEAKER_02: Yeah, I I'll just one point and it's an obvious one, but it's one that for some reason in in the payments industry gets lost more so than in many other kind of parts of the business that I'm involved in, which is just focusing on the customer need.
• 29:40
  SPEAKER_02: If you start with, I'm a customer and I want to do this or I don't want to do that, and you solve that need, the money will follow.
• 29:48
  SPEAKER_02: Like the BIPs will be there, I'm sure of it.
• 29:50
  SPEAKER_02: But if you don't start there and instead, you know, you say, okay, well, the government, you know, for example, says these are the KYC requirements, so we're just gonna tell people they have to do it.
• 29:59
  SPEAKER_02: Even though the the, you know, a customer perspective is I'm gonna get up and running on your solution quickly.
• 30:04
  SPEAKER_02: I think if you start with, let's go solve the customer requirements, and knowing we got to comply with all these other things that we need to do for sure, can't ignore them, but we start with solving the customer need.
• 30:12
  SPEAKER_02: I think as an industry, we'll be better, and that'll lead to all of these other solutions.
• 30:17
  SPEAKER_02: I think you know, within payments very specifically, that's a great opportunity, certainly within the current offerings in a broader embedded finance world, like around lending, the example I used earlier, that's what our customers need, so that's what we led with.
• 30:29
  SPEAKER_02: And then as we get in this new frontier of other stuff, um, some of which I might know is happening, much of which I probably will be pleasantly surprised with.
• 30:37
  SPEAKER_02: I think we can focus in on that.
• 30:38
  SPEAKER_02: The industry itself will do better around adoption, we'll have faster innovation, and certainly all the players in it will be more successful.
• 30:45
  SPEAKER_02: And so really excited to see everybody kind of take that perspective as time goes on.
• 30:49
  SPEAKER_02: And lastly, I just wanted to thank you for your time.
• 30:51
  SPEAKER_02: This has been a great conversation today and excited for uh the future of the industry.
• 30:55
  SPEAKER_01: Thanks, James.
• 30:56
  SPEAKER_01: I know your time is very valuable, so you know I want to be sensitive to that.
• 30:59
  SPEAKER_01: But thank you so much for sharing all your insights and you know all the great things that you guys have done there.
• 31:04
  SPEAKER_01: So again, thank you so much for being on the show today.
• 31:07
  SPEAKER_02: Yeah, thank you, Greg.
• 31:07
  SPEAKER_02: Have a great rest of your day.
• 31:08
  SPEAKER_01: You too.
• 31:09
  SPEAKER_01: And to all you listeners out there, I thank you for your time as well.
• 31:12
  SPEAKER_00: And until the next story Thank you for listening to this episode in our special series, Beastolic, brought to you by NMI, the fully integrated payment solution built to scale.
• 31:25
  SPEAKER_00: For more information on embedded finance and this episode, please visit www.nmi.com slash resources slash five.
• 31:35
  SPEAKER_00: And remember, in a website where it's a good idea.