Predicting Market Downturns with YCharts’ Connor Kitko
Is it possible to see stock market downturns developing in advance? YCharts' Connor Kitko describes 7 indicators that investors should be aware of.
7investing founder Simon Erickson chats with Paystand founder & CEO Jeremy Almond about the new world of digital payments. The two discuss why now's the time for "as a service" companies, innovation in they payments space, and why blockchains could be "cloud 2.0".
July 16, 2020– By Simon Erickson
That’s a ton of money being wasted — some $550 billion each year — to manually process all of the paper. And while credit cards and online payments are more time-efficient solutions, the intermediaries are still charging a plethora of fixed and variable transaction fees. Between the banks, the credit card networks, and the processors, merchants are consistently giving up nearly 3% of every sale whenever a card is used. That adds up quickly!
Does our current payments system make sense any more for larger enterprises? If businesses are doing large-dollar transactions with customers they trust and have worked with for decades, should they still justify the time and fees that gets paid to those traditional financial intermediaries?
Jeremy Almond founded Paystand to directly address those questions. Paystand is building out a business payments platform for the digital age.
I recently spoke with Jeremy about his innovative concept of “payments as a service.” Rather than acting as a typical financial tollbooth (and ringing up fixed and variable fees for every transaction possible), Paystand has created a modern digital platform that allows for transactions to take place absolutely free. Businesses just pay a fixed monthly fee for unlimited usage; maximizing their capital efficiency and recognizing significant savings to the bottom line. As you might expect, CFOs tend to love this solution.
In an exclusive interview with 7investing, Jeremy describes how blockchains play a pivotal role in Paystand’s platform and how they’re disrupting the multi-trillion-dollar payments industry. He also explains why regulators actually support the use of blockchains, and how they’re being used for social networks, global remittance, and digital identity.
As a global traveler himself, Jeremy shares his favorite international location to visit. He also lays out two trends that investors should be watching right now.
0:00 – Introduction: North America’s paper problem and why Paystand was created
2:16 – “Payments as a Service” to avoid excessive credit card fees
5:58 – The benefits for customers from using digital payments
8:06 – How and why blockchains are becoming a transformative technology
11:37 – Ethereum and Smart Contracts
14:11 – Social networks using blockchains: the balance between innovation and regulation
18:31 – Blockchains for digital identity
20:36 – Foreign exchange and global remittance
23:46 – Two trends investors interested in digital payments should be watching right now
Publicly-traded companies mentioned in this interview include Amazon, Apple, Facebook, Google, MasterCard, Square, and Visa. 7investing’s advisors and/or guests may have positions in the companies that are mentioned.
This interview was originally recorded on June 24, 2020 and was first published on July 16, 2020.
[00:00] Simon Erickson: Hi everyone! I’m 7investing founder and CEO Simon Erickson. This afternoon we’ll be speaking about digital payments. And I’m extremely excited to introduce my guest. His name is Jeremy Almond. He is the founder and CEO of Paystand, out in Scotts Valley, California. Jeremy, it’s so nice to chat with you. Thanks for joining 7investing this morning!
Jeremy Almond: Yeah, buddy. Happy Wednesday, Simon! Good to be here with you, man.
Simon Erickson: Well, as a way to introduce Paystand, let’s first look at the 10,000 foot level. Something that you point out on your site is that even with the digital transformation going on right now, where every company is innovating and doing everything digitally, North America is still spending $18 trillion a year on checks. On paper checks to do business. And that’s costing those businesses over half a trillion dollars a year just in the handling of manually processing those checks.
What is it that you’ve started Paystand to do? What were your goals for the company from the start, when you founded this business?
Jeremy Almond: Yeah, thanks, Simon. Absolutely. So as you mentioned, commercial payments. A lot of people talk about consumer payments. So much innovation going on in the consumer payment world. But commercial payments have been left behind, they have not entered the digital age.
So I personally haven’t used a check in a very, very long time. But yet companies are, by and large, still operating in a pre internet economy. And so we started the company to say, “Hey, look, we need to see transformation change on the commercial side of payments.”
So Paystand; a simple way to think of Paystand is we are a business to business payment network. So imagine what Venmo does for consumers, making payments entirely digital, entirely modern. We do that for commercial payments, large transactions between large enterprises. And, you know, I think one thing I’d almost point out is, especially in today’s day and age, where we’re in a post COVID kind of world, how does the enterprise operate where so much of the rest of their business is now digital in a work from home kind of economy. And yet they have to send people to the office to actually collect their money. Right? And that’s a safety concern. It’s an operation concern. So how does the fuel that runs the business, the revenue side of their business, how do companies actually make that digital as well?
And so that’s what Paystand is focused on helping doing.
[02:16] Simon Erickson: Sure. Okay, so you’re a B2B platform. So like you said, businesses doing business with other businesses. And the first tenant that you have on your site is “no paper.” Which is what we just addressed. We want to get away from checks.
But another one is “no fees.” And we’ve kind of gotten used to this infrastructure of credit cards, which are charging a long list of fees. For every transaction, there’s transaction fees, there’s variable fees. But you guys have introduced a new concept called “payments as a service.” This seems very innovative when I took a look at it. Can you explain payments as a service, and also the kinds of customers you think this might be right for?
Jeremy Almond: Yeah, thanks, Simon. So the way to think about payments as a service is: a central part of our thesis is money is just becoming software. And so how do we think about software in a digital age? Well, on the personal side, movies and videos became software. I use Netflix and I pay $10 a month and I get to binge watch Stranger Things all day long. So it’s a subscription model. When I use Spotify, and I love it, it’s one of my favorite bills I pay because I used to have to buy like CDs way back in the old days. And now, as music became digital, I get all the music in the world, all of the amazing artistry in the world, for $10 a month. And it’s an incredible delivery mechanism. And so, you know, that has become a subscription model.
Our view is “money itself is becoming software”. So the way enterprises, our customers, are used to paying software – whether they’re using Salesforce or Oracle or one of those people kinds of software – is a subscription as well. And so we create great software that delivers sort of great services to the CFO to help them get their money faster, cheaper, and more automated.
We do that with a business model called payments as a service. The unique thing there is most of the payment industry is, as you mentioned Simon, is a transactional business model. So when you use your credit card and you go buy a $5 cup of coffee, like I did this morning, Visa and MasterCard and the banks, they get a percentage of that. They get 2% or 3% typically. So if you know company like Square or Stripe, that’s how their business model charges. Now, you might argue 3% on a $5 cup of coffee, that might be a reasonable amount of toll charge, so to speak, to use the network.
But why do companies still live in a paper age? Why do companies still use paper checks for their commercial payments? Part of the reason, our belief is, is because large transactions with companies that business to business organizations operate with, companies they’ve worked with for a decade, they have contract and invoice terms together. They are companies that have been really well established. Why would you pay a Visa or MasterCard or a bank? Let’s say on $100,000 invoice with a company you worked with for a decade, why would you pay them 3% or 2%, or 1%? That seems fundamentally unfair. Because all they’re doing is moving ones and zeros around between banks.
So our view is the business model of credit card transactions doesn’t work on the commercial side. And so we’ve innovated by creating a new technology by turning money software and a new business model that creates alignment. And what that does is create basically bottom line savings for our customers, which are generally CFOs at mid to large enterprises. So we will oftentimes save them millions of dollars on fees that the banks would charge. Whether it’s wire fees, card fees, or other fees that they’ve incurred, to basically just run their business.
[05:58] Simon Erickson: And so when you’re going to look to acquire a new customer: You go out, you talk to the CFO. Is the acquisition strategy to just say, “Hey, how many transactions are you doing? You have a complex supply chain. You’ve been doing business with these other large organizations for years.”
Is it kind of a cost savings approach? When you say “we can save you this much money if you switch over to using Paystand?”
Jeremy Almond: Well, it’s a little bit of both. So it’s a transformation conversation, first and foremost. Which is, probably if you’re like most enterprises, you have a big chunk of your payments that are coming in through paper. And that causes you all these manual process problems, right? And it’s hard to scale your business, you’re throwing labor at it. You have to wait for your money to come in. This age-old adage of “check’s in the mail.” So they want to move digital.
They oftentimes, when you talk about our sales strategy, they oftentimes have moved so much of the rest of their business, their DNA of their business, digital. So they have an ERP, which is what runs their finance and operations that’s in the cloud. They have a CRM, their customer records. That’s in the cloud. So there’s already this wave of moving the rest of their business digital. But the revenue part isn’t. So the first conversation for us is, you need to move the revenue side digital so you can be strategic and you can grow.
And then, how do you pay for that? Well, the nice thing for us is there’s a cost savings component. So we’ll say we’ll cut your cost of receivables usually in half. 50% savings. Whether that’s through the actual fee savings that we’re doing, by cutting their card costs, their wire costs, their bank costs. It’s also across DSO. So they’ll get their money faster. Meaning that they have to borrow less, they become capital efficient.
And they can scale more, because we basically make the process automated. So whereas the companies are growing, we have some great enterprises in, for example, healthcare tech that are growing really, really quickly. And so they’re growing so fast, you know, how do they do more? How do they do more with the same amount of people? How can they supercharge their own finance teams? So we help them do that as well.
So across all three lines, we will help sort of transform the business and save them an enormous amount of money at the bottom line.
[08:06] Simon Erickson: Sure thing Jeremy. I want to change gears a little bit and talk about blockchains. You mentioned cloud. But I would like to talk about blockchains. We talked about a year ago, was the last time you and I got in touch. And you had a quote at that time which I wrote down, which I thought was pretty amazing. You said, “Blockchain is the new cloud. It’s the cloud 2.0.” And that stuck with me, by the way. I wrote that down and brought that to this interview here today.
But, you know, blockchains have kind of gotten a mixed reception from people when they think about everyone. Here’s Bitcoin, and they were really excited because everyone and their grandma was buying Bitcoin. And then the volatility, of course, and a lot of people lost money off of that too.
But then you’ve kind of got this this enterprise blockchain, that’s kind of being worked on, in addition to the consumer side of that.
What’s going on with with blockchains today? What’s the status of the industry right now?
Jeremy Almond: Yeah, that’s a great question. So notice that a lot of the parts that I talked about with our business. When I said “money is becoming software” and then I talked about a lot of how that creates value for the organization. Now the magic secret sauce for Paystand is Paystand’s technology is blockchain. But at the end of the day, the CFO, they care about are we going to help them get their money faster and more automated and save a bunch of money. It’s up to us as technologists to actually make that magic happen.
The “magic” though is partly blockchain. And the reason why is, like you said, Simon, our thesis on the technology is cloud was transformative to enterprise software. Because you were able to bring, whether it’s your CRM software, your ERP software, you’re able to deliver better, cheaper, faster, better experience to customers through cloud. But at the end of the day, no one cares that cloud is just cloud. It’s ultimately what does it do?
So where are we at in the blockchain space? We’re at a stage where a lot of people have talked about the technology for a few years now. And I believe we’re at a stage where the technology is valid and mature and has massive advantages.
But a few companies need to kind of put their heads down, build a great organization to prove in the market that it actually is a better experience and better value.
The analogy I would give here is when I got started in tech in the .com days. Lots of people were talking about e-commerce. They said, the way we were going to buy was going to change. We go into retail stores. But now, all of a sudden, we’re going to buy digitally. In the 90s, there was lots of money flowing in the system. Everybody was talking about it. There’s pets.com. I’m going to order my dog food online. But the reality was, you needed a couple companies to actually show “Oh, I could buy books at a better process. I could have a cheaper, faster and more efficient.” And so what did Amazon do? They kept their heads down. They built a great business that showed the experience itself of buying was better. It wasn’t just that the internet was new. Magic. It enabled a better experience.
So our belief is blockchain is kind of at that stage right now. Where you need a few breakout companies, particularly in the enterprise side, that can say, “Look, we’re going to use this to enable transformative experience.” And so that’s what we’re focused on.
I think there’s a class of companies that’s much bigger than just us that are saying “It’s the next wave. It’s the next Internet. It’s the next cloud.” And so we’re going to kind of prove it.
Simon Erickson: Sure. And so we should make sure that when we hear blockchains, we’re able to mentally kind of separate Bitcoin, cryptocurrencies, tokens, things like that from the fundamental technology. Which is what you’re using to enable your solution.
Jeremy Almond: Indeed.
[11:37] Simon Erickson: I believe that Paystand is built upon the Ethereum blockchain. And I wanted to ask you: I’m sure you’ve looked at quite a few of those over the years. What led you to Ethereum? And how did you evaluate which one you wanted to build off of?
Jeremy Almond: Yeah, that’s a good question. So, you know, you have in general this overall, I’d say, “pools” in the blockchain world. You have a crypto pool, which is like the Bitcoins of the world, right? And then you have these private blockchains. And our point of view is, you actually need a little bit of something in between.
So what Ethereum does is quite interesting. It uses something called smart contracts. Now, where do we think of the term contracts? We actually use this in our daily lives, right? As B2B companies, you have contracts and invoices that say, “When I deliver goods and services, in 30 days, you’re going to pay me when my truck ships my pallet of beverages or whatever.” So enterprises use contracts all day long. So then Ethereum is this notion that you can actually create an automatic contract, and you can carry commercial terms that execute some kind of contract.
Well, that actually sounds pretty similar to a B2B payment, doesn’t it? So there’s lots of use cases for smart contracts. But one of the most undeveloped use cases that we thought was very important is “How do you match contracts and invoices to something automated and open?” So Ethereum’s a really, really good use case for it.
Now, one of the things is that Ethereum is called a public blockchain. Meaning it’s completely open. And Paystand’s point of view is we say three things. We say we’re focused on “no paper, no fees and creating an open financial industry.” And so we think it’s important that financial services become more open. So one of the reasons why we’ve invested in Ethereum is we believe that financial services can evolve more rapidly by using open technology. That’s in contrast to there are a number of large organizations who are trying to build their own private blockchain.
Our point of view is if you build a private blockchain, you take some of the advantages that open blockchains enable. And so we wanted to support a more open industry. We’ve done a lot of work on how do you make that scalable? How do you make that secure? How do you make it private? How do you make it all of the things an enterprise needs to do? But we believe in open blockchain, and built on smart contracts is, we think, one of the critical functions for enterprises they look at what’s next in cloud.
[14:11] Simon Erickson: Sure thing. One of those big enterprises that’s interested in blockchains is Facebook. We talked about Libra a couple of years ago, Facebook was really making some progress with that. And then it got some political pushback here recently. What is your take on social networks using blockchains, as a payments solution?
Jeremy Almond: I’d say one really interesting trend in general with social networks and tech companies in general, is they’re re-thinking “what does banking mean?” So they’re rethinking, whether it’s Apple or Facebook, you know, what does it mean to be able to have an account in the wallet and money movement. And so I think that’s a larger trend happening in financial services on the consumer side and on the retail side.
Then the really, really progressive ones are thinking, “Well, maybe just like the internet, we should have some kind of open standard.” So instead of just trying to own and become a new bank, maybe there’s a new model. And so I would say I applaud the Facebook team for thinking about not just trying to own their own sort of new bank, but create a blockchain so other participants can come. So that’s the good. The thing I think a lot of us are trying to thread a key needle is “how do you do that in an open way?” When you have understandable concerns about privacy, security, authority. And I think the government’s looked at this for good, good reasons.
And so our point of view is you need you need a balance. It’s good to have companies looking at progressive blockchains. It’s good to have innovation in financial services. It’s better and best, we think, if you can enable that in an open way. As opposed to try to create sort of recreate the banking infrastructure; recreate sort of ownership. Because I think there are reasonable privacy and security concerns around that.
Simon Erickson: And regulatory concerns too. Do you have an opinion on what would be necessary to get the regulators on board with blockchains?
I mean, Facebook’s got 3 billion people now. Which is almost 10 times the size of the United States population.
Of course, there’s an aspect of control. The regulators want to have the banking system on all those systems that they have regulations for. Is there a way that the regulators could accept blockchains, for something of that magnitude?
Jeremy Almond: An interesting point on regulation is it’s in everybody’s incentive to have good actors on the system, right? So in payments, there’s something called KYC. Which means “Know Your Customer.” Because it’s really important that we all want to ensure that money movement is happening in a legal way. So no one wants to fund terrorism or other sorts of sort of bad actors, whether it’s state bad actors or otherwise. So I think everyone kind of conceptually would agree with that.
So now the question is, “how do you do that?” And so I think a key way to bring regulators into the fold is say, “Look, regulators aren’t scared of open.” Regulators helped enable the internet. The government actually funded part of the early stages of the internet. And so, there are smart people in government who are open to figuring out how to enable blockchains.
I think the area we can get common agreement around is how do we ensure that the people that are entering the financial networks, whether they’re open or they’re private, are good actors? I think that’s a really good common area. And the blockchain can actually help in that way. So one of the areas that the blockchain is at the emerging level, working on, is identity. So as a payment company, one of the things I have to think about is “When a new customer comes on board, who are they to ensure that they are good actors.” They’re not on a money laundering lists. They’re not on a terrorism watch list. Those sorts of things.
Well, I have to do that once. And then there are thousands of banks in the US that also have to do that every time they bring on a customer. Is there some way that we can have sort of shared validation to ensure that identity, in a private way that doesn’t give access to identity that you don’t want to, but just just as a way to validate I’m okay, right? I’m not on some bad watchlist.
So I think there’s some areas of actually common collaboration that the blockchain can enable. That regulators actually want to see. And companies would be in their best interest to participate with.
[18:31] Simon Erickson: Sure. And is that your project “Blockchain Assurety?” Is that related to the digital identity? Actually confirming people on the internet are who they say that they are. Know your customer, so to speak?
Jeremy Almond: Yeah, exactly. It is an offshoot of that. Which is how do we ensure that…we talk about, there’s a big company that for a long time was known as their slogan, you know, “don’t be evil.” But here’s the funny thing about that. That sort of it requires us to validate, how do we ensure someone’s not being evil? And so one of the concepts blockchain at least enables is this notion, how about “Can’t be evil.” What I mean by can’t be evil is if I put information and how do I ensure that no one has changed it? How do I ensure that nobody is, you know, spoofing my identity? How do I ensure that maybe in a financial record, somebody hasn’t changed it to fraudulently take money behind the scenes. Companies all over the world are prone to that. And there’s lots of really crazy stories about how that happens. And so blockchain is this way to ensure what they [the audio cuts out] sort of fraudulently move it. It’s kind of fundamental to how blockchain works.
So Assurety for us is something we internally use, to ensure that our payments are secure. They’re authenticated. They’re validated. They get done on the blockchain. Even Paystand can’t change them. A bad actor at Paystand can’t mess with them. We’ve now opened that up so other companies all over the world can use it. We’ve put it through the paces; we’re one of the largest commercial use cases of blockchain. And they can use it completely free of charge, because we think it’s our way to give back. To say, “we want to make the system better. And everyone is incentivized to do that. And so go ahead and use some of the work that we’ve done.”
Blockchain Assurety is our version of that. And blockchain in general enables this sort of secure for fraud proof identity, validation.
[20:36] Simon Erickson: Sure thing. Jeremy, just a couple more questions. You know, business is going global all the time. Big customers are international now. They’re doing business all over the place. I guess, it seems, one of the big issues is foreign exchange rates and remittance fees. So you know, moving money across borders. Just kind of the fees that stack up with that.
Have you seen that as a pain point or a use case for blockchains or for your own business?
Jeremy Almond: It’s a great point Simon. We talked about no paper, no fees, right? The no fee side: Paystand has been, I’d say, the first four years of our business has been focused a lot on the transactional fees side. And the bank fees side. But you could actually look at the global side is even worse than that. Because not only do you have sort of bank and transaction fees, that are sort of unfair, but at the global level, you have FX fees, cross border fees, remittance fees that are even worse.
And that comes from not just sort of bad people in the financial system. It’s just part of what happens when the system is not well connected. There is no standard. So in the US, we have a different payment infrastructure than we do in Europe. And in Europe, there’s a different payment infrastructure than in Asia. And so by definition, that means that people sort of exploit that sort of margin between those two systems. So with that needing money overseas. Or, you know, “My family’s from Mexico and they’re sending back money or receiving money from someone in the US.” And there’s very high remittance costs. Or it’s a business and I’m moving money over the supply chain. And they really have to think about their cost management on the supply chain.
There’s a really huge opportunity to standardize that. Use something open and drive the cost down. We think blockchain is a huge area of emergence. There’s some really interesting companies that are working on that. On the consumer to consumer side. And there’s not that many yet on the commercial side. But we think that’s the next big area. And so you’ll probably see some some announcements from us in the future about it.
Simon Erickson: I will look forward to those, Jeremy. Now I also know that you’re a world traveler as well. Do you have a favorite country to visit or to vacation to?
Jeremy Almond: Oh, man! Well, I would say one of the areas that I love personally is I love to spend time with Latin America. We have an office down there, and FinTech in general in LATAM [Latin America] is really fun to see how that area is just exploding in general. And so I try to get down there as often as I can to spend time with the team. And I just love the culture.
It’s so cool to see how, for so long Silicon Valley and New York and a couple hotspots have been like the concentration of tech. But one of the amazing things about globalization in general is there’s amazing innovation, amazing tech happening all over the world. So that’s just an area where I personally get so excited to see. Is where are the next Silicon Valleys? Where is the next innovation happening? And it could be from anyone, anywhere, in any part of the world. And that’s just a really, really cool thing.
[23:46] Simon Erickson: And that’s my final question for you right there, Jeremy. Is that next innovation that’s taking place.
Our audience here at 7investing is mostly individual investors. We’re interested in digital payments and what’s going on out there. You obviously live the space every single day. What are a couple things that you think we should be watching out there?
Jeremy Almond: Yeah, well you’re the expert in the space, not me, on advice. But here’s what I would say.
I think with the shift that’s going on, because of the new reality, there’s two things that are very interesting that are happening in my world. One is “What are the areas of digital transformation that have been taking time. But now in a work from home, digital world, there is a forcing function.” So we’re seeing digital transformation up-end a lot of industries that were predominantly taking longer. So we have really amazing stories and health care companies and supply chain companies that were predominantly manual process that we’re seeing move, digital, really fast. Processes that were going to take years are now moving in the course of weeks. So I would look at some certain industries, that transformation was coming but were moving slow, is one area that I think there’s a lot of innovation going to happen. And we’re seeing it even in our own customer base. We’re processing so much volume. We see really, really fascinating things in healthcare, supply chain, that sort of thing.
The second area I would say that I would look at is, there’s some sleepy companies that are focused on, let’s say, B2B cost savings and that sort of thing. That for quite some time, maybe they weren’t as cool as some consumer company in the middle of a very up economy. But all of a sudden, if you look at some of the stock around companies that are focused on cost savings that are B2B focused. These are very, very consistent businesses that are SaaS businesses. That every year, you’re just seeing them put growth on the board. And so, I would say that’s another area that if you look at those companies today, they’re continuing to grow. Oftentimes, they have CEOs that are focused very, very long term out. And so those are businesses we’re watching very closely at Paystand.
And we’re still growing. We’re still a private company. But we look and say, “Look, there’s long term, 10 year transformations.” So we’re betting on that. There’s long term opportunity in cloud. In blockchain. We’re betting on that. And then there’s long term opportunity to build a great company that’s focused on helping drive cost savings, efficiency along the enterprise. And so we’re focused on that.
Simon Erickson: Well Jeremy, make sure you let me know when you do IPO and go public, so that we can buy shares of your company!
I think you’re an incredibly innovative person, incredibly innovative company, in an industry that really needs it very badly right now.
Jeremy Almond: Appreciate it Simon! Always appreciate time talking to you man.
Simon Erickson: Yep. And thanks again to Jeremy Almond, CEO and founder of Paystand out in California. Really appreciate his time and all the things that his company’s doing.
And thank you for tuning in today. Once again, we are 7investing. We are here to empower you to invest in your future. We are 7investing!
Is it possible to see stock market downturns developing in advance? YCharts' Connor Kitko describes 7 indicators that investors should be aware of.
Upstart's stock has been all over the map this past year. Now at $25/share, is it an opportunity for investors?
Snapchat's stock has been silenced by the market this year. Is the company an opportunity or a landmine for investors?