Mission statements, company values, guiding principles — every company has them. Yet even at the most mission-driven companies, it can be easy to focus more attention on activities such as unlocking growth and winning market share, than it is to make sure the company values are being consistently conveyed.
On this episode of Growth Hacks, Kunal and Katja speak with Ken Serdons, chief commercial officer at online payments processor Mollie, about how being loved by customers is more than just words on a mission statement. Ken takes us deep into the strategy of how Mollie restructured its hiring process, reengineered its partnerships with external service providers, and strategically chose the number of markets it entered, all in pursuit of creating a Mollie experience that its customers loved. In the process, the company gained tremendous market share in each of its local markets.
Why Mollie adopted a customer-first mentality. After seventeen years of growth, the Mollie team realized they’d outgrown their initial mission statement that cited values such as passion, courage, and impact. When they coined “Be Loved” as the first of three new company values, they found that applying it to every part of the customer experience helped them offer a vastly different consumer experience from their competitors. Whether it was figuring out how to “Be Loved” by customers based on how they price their product, or on the breadth and functionality of partnerships with other apps and services, that hyper-focus on the soup to nuts customer experience has helped Mollie gain market share year over year.
How to drive partnerships that unlock their full potential. Because of Mollie’s global footprint, the team has inked countless partnerships with companies of all sizes that also provide services to online merchants. But signing a partnership and building an integration is just the start of a successful partnership. Ken’s team also innovates on ways to create value for partners outside of monetary incentives, whether that’s joint marketing activities, or providing trend analysis for partners using Mollie’s transaction data. To successfully maintain such robust partnerships, Mollie split the traditional partner manager role into two jobs — the first for “hunters” who love finding and structuring creative new partnerships, and the second for partner success managers, who continually think about ways to create joint growth with Mollie’s partners.
How a localization strategy that prioritizes fewer markets can unlock hypergrowth. When Ken first joined the Mollie team in 2019, like most companies, Mollie had ambitions to scale to as many markets as possible. Yet they made a conscious decision to focus on markets where they knew they could see demonstrable success. One example was when Mollie pulled back on expanding into Italy, in order to focus its efforts and resources on growing in Germany, France, and the UK. Though the number of countries Mollie was available in was lower, the company’s market share has soared in each market, seeing successes in Belgium in 2020, and growing more than 1000% in Germany year over year.
Why they don’t do any bespoke development at Mollie. A hyper-focused localization strategy doesn’t mean the company doesn’t want to be able to hit the ground running when expanding into additional markets. That’s one reason why Mollie decided early on never to create bespoke development. “Bespoke development creates legacy technology, and that’s expensive to maintain and it’s also not scalable,” says Ken.
How to hire candidates for their future roles. Because of the pace that Mollie is growing, effectively doubling its headcount year over year, Ken has learned that hiring the right candidate for right now is short-sighted. Instead, they aim to hire people slightly overqualified for the initial role, knowing that Mollie is going to continue expanding, and the job with it. “That only works if you hire low ego people. People who put the customer first and the company first,” cautions Ken.
opportunity comes competition, both from within one’s category (e.g.
application area) or from adjacent categories within one’s vertical (e.g. industry).
As boards and management teams wake up to the opportunity, they realize that
the race is on to capture the full potential of their vertical.
This post is
a framework to help leaders of SaaS companies think through the strategic
choices and hopefully increase the odds of reaching their full potential.Strategy
is implemented by focused alignment of execution, talent, M&A, organizational
structure, functional excellence, and financial and governance/board frameworks.
I hope to write about these supporting pieces over time, but I wanted to start
with strategy first.
think it’s important to acknowledge that very few companies have reached “full
potential,” and this framework is
inherently aspirational. However, “most entrepreneurs aren’t building a house,
they are putting bricks in the foundation of a skyscraper” (Naval Ravikant). Aspiration is important, so
hopefully this is an articulation of what is possible.
of the SaaS strategy is well understood so I won’t spend much time on it. A
SaaS company aspires to:
build a great product (and service)
over time, build an efficient and repeatable
go-to-market model (marketing -> sales -> onboarding)
and then “add capital” and execution
to press its advantage against sluggish incumbents or poorly capitalized
This is the
playbook that Omniture and our portfolio company ExactTarget pioneered a decade ago. Despite
massive capital inflows into SaaS and deteriorating economics, this model
generally still works today.
On the product side, scale
in data + AI can create increasing differentiation. For example, when you start
to have more data than anyone else, you can flip your product from being
reactive to proactive — having the product tell users where to look and how to
optimize the system. Both Xero and Shopify have done this well.
Five other things
to think about in this early phase that don’t get enough attention:
Scalable onboarding: Onboarding friction can be unaccounted
drivers of CAC and churn. A great onboarding process builds the trust and
confidence that are the foundations of virality/word of mouth, future cross- as
well as third party channel strategies. Carefully measure funnel metrics and be
attentive to new customer NPS. Automate early as “throwing bodies at it” can
create process debt that will be difficult to unwind later.
Expansion: Expansion drives net revenue
retention and most of the strategies we are about to discuss. With all sales
processes, it’s a lot easier to learn, iterate, and optimize with fewer bodies
and less complexity.
UI and Architecture: Like onboarding, these can be long-lead
time fixes that compound as your business scales and gets more complex. A
specific call out is to plan for an API strategy. It can facilitate future
partner strategies and increase the value and stickiness of your offering.
Pricing structure/strategy: You will constantly revisit tactics,
but it’s important to have some sense of how your pricing structure might change
Foundations for global, including a work culture that can
support distributed executives and operations, and good product feedback loops that
incorporate non-home market needs.
Hyperscale Locations, Feed
A lot of ink
has been spilled on forward investing in sales and marketing, and arguably it’s
part of a/the “lead the category” strategy. But, it’s worth a call out as it’s
important you don’t take your eye off the ball too early. So much of winning and
future monetization is getting location market share. When the wind is at your
back, go get it done! Market structures have a nasty habit of shifting, future
secular tailwinds may abate, or competitors may leapfrog your product or your go-to-market
model. If your churn and sales economics are sound, keep “feeding the beast!”
particularly powerful unlock is Channel. There are verticals and
categories, where influencers in a channel are kingmakers and can help you
engage with segments that are otherwise difficult or uneconomical to
reach. Furthermore, Channel partners’
engagement and contributions can enrich your products and increase overall
customer value. A great example is in tax software, where Xero’s wooing of accountants proved to be
an effective source of customers and a formidable competitive moat (thereby
disrupting the incumbent provider). Xero went as far as offering free practice
management tools to help accountants run and grow their business on Xero.
Win the Control Points:
Own Your Vertical
where management teams are faced with a paradox of choice: “Where should we go
next? How should we spend the next incremental dollar? On increasing ARPU, acquiring
incremental locations, or expanding into new verticals, geos or segments?” At
this juncture, it is my belief that you should focus on winning the control points. In vertical SaaS, there are
typically one or two control points, “systems of record.” Usually one control
point in the front office (e.g. Point of Sale, CRM, e-commerce) – “that drives sales,
that grows the business, that serves as the cash register.” And one control
point in the back office (e.g. general ledger) – “where everything else
reconciles to.” Hopefully, you provide one of the systems of record, so go
build or acquire the other system(s) of record and secure the high ground!
a system of record is the last software package a customer will “turn off” in a
tough economic time.
I also like
to think about the concept of “gravity”:
gravity – the system that all other systems integrate to – it’swhere the most users spend the most time. Not all workflows
deliver the same value; in my experience the system of record workflow tends to
deliver the most value.
gravity – the system that creates and holds the most critical information and is the
hardest to migrate. That data can be critical to a client for a wide range of
applications, from understanding their customers (e.g. CRM) to managing risk
(e.g. compliance). Data also can be critical in two-level situations, such as
loan underwriting (e.g. a bank underwriting a merchant’s risk via POS data) or
supplier information management (e.g. a client managing risk by validating
supplier capabilities and quality). Data depth and scope also create gravity
where AI technologies can be highly productive.
the user/sponsor of the system is the highest-ranking individual in the customer
organization; it’s the system that requires the biggest financial outlay, etc.
other system of record is not easy. By definition, a system of record is hard
to displace and unless the market is greenfield pen and paper, competition can
be challenging. You may be able to do it organically with product innovation,
but M&A can be the more desirable path if “integration debt” is manageable.
If M&A is not possible, a slow winnowing of your competitor may be the only
approach available to you.
If you own
multiple systems of record in a vertical, the benefits are enormous:
Customer delight: automation from integrated
workflows and potentially unified data and data models allow efficiencies and
offerings unavailable before
Stronger account ownership
to capture incremental spend and drive more efficient growth
A new level of
durability and stickiness
A good example
is Veeva. The company started in 2007 with the launch of a CRM
and a sales automation platform for pharma sales reps (e.g. record their
activity, keep track of the doctors they meet with or drop off samples for, etc.).
After becoming the dominant player in that category, Veeva saw an opportunity
to move backward into research and
development for their life science customers (developing new drugs,
conducting clinical trials and bringing those drugs to market). In 2011 Veeva
launched Vault, a suite of applications that first centered on the core content
management needs for clinical trials, regulatory submissions, and quality
documentation. The company then expanded to include a series of core data
applications that help manage clinical trials, quality processes, safety processes, etc. Veeva is expected to
finish 2019 with $1.1B in revenue (26% YoY Growth) and 37% EBIT margins. Vault
represented 51% of total revenue and grew 38% YoY. Analysts also estimate Vault
meaningfully expanded Veeva’s addressable market.
example might be front office player Shopify’s $450M acquisition of 6 River
Systems to move into back office fulfillment and warehouse management. Some
financial analysts estimate that merchants spend up to ~10-15% of their GMV on
logistics which could potentially provide multiples of Shopify’s current take
category leadership comes high market share and potentially high saturation. Long-term
growth is driven by location growth, as there’s generally a finite share of
wallet you can access. It’s important to invest in the S-curves of geos,
segments, and adjacent verticals that can unlock new location TAM. This can
take a couple of tries before you’re successful, so start this during your growth
phase when there’s less pressure on maximizing profitability.
Extend Through the Value
of growth can be transformative. By leveraging the strengths of your core
customers, you can expand into a new market with a new set of customers. Typical
patterns include moving from front office software to extend to your customer’s
customers, or from back office software and extending to suppliers. These can
be riskier bets, but success can pay out big here:
Workflow that spans multiple parties and
creates increased customer value and vendor stickiness
Two-level network effects
seems to work best by “following the money” and leveraging purchasing power. TCV
portfolio company Ariba articulated the “golden rule”— He
with the gold rules! By using their leadership in procurement software at large
corporate buyers, Ariba extended to build a robust suppliers software business
for merchants that serviced those corporate buyers. More recently, Avetta has followed a similar path in the
supplier information space by building a strong two-level network effect. We
believe corporate clients want to be on Avetta because it has the largest
network of suppliers, and suppliers want to be on Avetta because it has the
most corporate clients. Avetta’s advantage gets stronger as it scales. Moreover,
Avetta has an opportunity to help suppliers do more than just manage compliance
information. As a result, Avetta sees growth in helping suppliers grow and
operate their business.
CCC is on the third generation of this approach. They started by
serving large auto insurance carriers and then extended into autobody repair shops
that serve the carriers. CCC is now in the process of expanding to parts
suppliers. By getting all the key constituents on its software platform, CCC is
able to leverage AI and automation to massively reduce friction and provide a
great customer experience across all steps of the auto insurance process.
opportunity is similar to the supplier opportunity in terms of “following the
money.” Companies can use integrated payroll or time & attendance offerings
to establish a relationship with the employee. Employees are also consumers who
represent significant B2C opportunities such as consumer lending, insurance,
etc. There are big dollars here, but perhaps less opportunity to build significant
consumer/demand opportunity is the white whale. We believe that SaaS companies
tend to capture ~ 50-100bps of GMV for software subscription, whereas online
demand channels can take 15-20% of GMV in categories such as hotels and
restaurants. In addition to the massive revenue opportunity, Consumer also represents a strategic
flank worth monitoring carefully. Online marketplaces have large competing
salesforces that engage with your merchant customers and have strategic
interests encroach on the software layer to try to control supply. Booking.com bought Buuteeq and Hotel Ninjas to
vertically integrate into hotel supply. Uber is rapidly expanding its driver
offering to over-draft protection, a debit card, and likely lending over time
to manage driver churn. This is another example of increasing marketplace + SaaS convergence.
derivative Consumer monetization
Consumer pay:FareHarbor approaches tour and activity
operators with a free to merchant, consumer pay model: “We’ll build your
website and booking engine for free, with no work on your part; you just pay us
for payment processing and the customer will pay us a booking fee.”
Channel management:SiteMinder offers
channel management to help hotels manage existing channels in real time. SiteMinder
has extended that value proposition to “Demand Plus,” an offering that helps
hotels easily expand into new channels to scale demand.
Existing customers: While 15-20% marketplace take rates may
be sensible for new customer acquisition/discovery, companies such as Olo are looking to move existing
customers to lower cost channels through their dispatch offering while taking a
much lower percentage of GMV.
Customer Co-opt: By seeing consumer data pass through
their systems, some SaaS vendors are building consumer profile databases that
they might monetize over time. In the recruiting market, we’ve seen players
leverage job distribution tools to build a candidate database. Shopify
similarly has built a large shopper profile database across all their
merchants. While Shopify hasn’t monetized directly, the uplift in conversion
rate is likely significant. This model is the most capital efficient but can create
conflicts with the vendor’s core merchant customers.
benefit of extending through the value chain is that it gives you a
beachhead and a right to win in a new vertical to start the “full potential”
growth cycle again. As you do this, it’s important to reconsider your end
market and focus. When Ariba transitioned from procurement software to supply
network, they started to represent a front office “system of record” for their
suppliers. In doing so, Ariba was both a large enterprise “procurement company”
and an SMB “supplier enablement company.” The question was: “Which priority
should dominate?” When extension leads to conflicts, there are no easy answers.
As such, it is important to acknowledge that this growth strategy is ever-evolving.
In winning the key control points,
for the same reason a single system of record has a lot of “gravity,”
you now have an even stronger opportunity to turn your product into a channel. This
enables entry into adjacencies with data, workflow, and account ownership
advantages for you as well as for the end customer. The most extreme example is the “platform/ecosystem”
play, where you monetize third party vendors that want access to the channel your
product has become (e.g. Salesforce, Intuit, Shopify). However, most commonly a SaaS
vendor will pursue additional monetization with in-house or white-labeled
consideration in prioritizing adjacent function/monetization is consistency
with your core go-to-market channel and proximity to key decision makers. Go-to-market
will determine the financial leverage of the cross-sell and often the overall
success. The core advantage of SMB software here is that often the
decision-making is relatively consistent and concentrated across software
vertical is different, but there are some common functionality/monetization
patterns emerging. Each of these patterns deserves its own write-up, but for the
sake of brevity here are some highlights:
“Integrated payments -> integrated banking”: The attachment of payments to SaaS has been well covered. That trend is expanding to the attachment of integrated banking. I had an opportunity to interview two of the smartest people in the business, Tim Barash and Jackie Reses. Square is out front here with broad based merchant and consumer plays. To understand the magnitude of the opportunity, Square’s Subscription & Services (most of which are financial services) are expected to reach $1.3B in 2020. This represents 23% of 2020 total GAAP revenue and 47% of 2020 Total Gross Profit (incremental gross profit is ~90%). Brex is earlier in its progression, but we’re excited to see how the company leverages its initial corporate card and expense management offerings to extend into broader financial services.
“Follow the workflow”: At times SaaS companies have
actually observed customers at work or mapped out the physical sites to
understand all the areas their workflow touches as areas of expansion.
“TAM shark”:HashiCorp CEO
David McJannet describes expansion as “TAM Shark,” constantly circling the
biggest, fastest growing (most change/opportunity) markets. He requires product
managers to report on market size and growth of all adjacent categories to make
sure they are focused on the biggest opportunities. Generally, over a 2-3 year
period companies have one, maybe two opportunities to build distinct add-on
businesses. Make sure you’re picking the biggest markets and therefore the
typical SaaS playbook is “Lead the Category” and “Hyperscale Locations,”
clearly the full potential for vertical SaaS players is dramatically larger
than conventional SaaS wisdom would suggest. We’re excited to work with — and
hopefully invest in —the frontier players as they explore the “Full Potential
If you found
this useful, let me know, and we’ll continue to publish and explore the topic. I
look forward to hearing your adds, edits, and challenges.
There’s a tension between aggregating as big a profit pool as quickly as possible vs. “winning the market.”
This framework is characterized as a sequential strategy. In reality, most companies are pursuing multiple steps concurrently, and the sequence is more a reflection of prioritization.
Time horizon: this approach is a long-term strategy to winning, which may often be at odds with short-term maximization of valuation multiple and financial performance.
This approach is informed by a U.S./western/mature approach. In emerging/more greenfield markets, less focus and value chain expansion earlier in company development may make sense.
views and opinions expressed are those of the authors and do not necessarily
reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not
verified the accuracy of any statements by the authors and disclaims any
responsibility therefor. This blog post is not an offer to sell or the
solicitation of an offer to purchase an interest in any private fund managed or
sponsored by TCV or any of the securities of any company discussed. The
TCV portfolio companies identified above are not necessarily representative of
all TCV investments, and no assumption should be made that the investments
identified were or will be profitable. For a complete list of TCV investments,
please visit www.tcv.com/all-companies/. For additional
important disclaimers regarding this document, please see “Informational
 See TCV’s SMB and Vertical SaaS investments at the end of the document.
LONDON–(BUSINESS WIRE)–Leading mobile payments company WorldRemit has entered into a definitive agreement to raise $175 million in a Series D funding round led by returning investors, TCV, Accel and Leapfrog Investments.
Founded in 2010, WorldRemit is a global leader in smartphone and online payments – providing a convenient, low-cost alternative to expensive brick-and-mortar agents.
WorldRemit handles a growing share of the $700 billion remittances sent each year by expatriates and migrant workers to their home countries. Today, the company serves almost 4 million customers transferring money from 50 “send” countries to 150 “receive” countries.
Breon Corcoran, Chief Executive Officer of WorldRemit, said:“For more than eight years our core purpose has been and continues to be to help migrants send money to their families, friends and communities. Our customers play a key role in the economies where they work and their remittances are important to their home countries.”
“Our mission is to help them transfer money as securely and speedily as possible while reducing the cost to our customers. We will grow our business through differentiation on speed, service, security and value.”
“The leadership team is grateful to our investors for their continued commitment to the business. The new money will help us to further develop the offering and we will launch a solution for small and medium-sized businesses.”
The Series D funding round comes at a pivotal stage in the company’s growth. In 2018, the USA became WorldRemit’s largest send market, following the company becoming one of the first UK financial service firms to secure licenses in all 50 states.
WorldRemit will use this new investment to further drive global growth and diversify the company’s product offering for both money transfer senders and recipients. The company is also set to launch a new money transfer solution targeting small and medium-sized business owners who trade internationally, especially in emerging markets. The transaction is subject to customary closing conditions, including FCA approval.
TCV General Partner John Doran said:“Over the past eight years, Ismail and his founding team have built a fantastic business that offers customers a compelling solution and value proposition. Since passing the reins to Breon and the new management team last year, the business has continued to build on this platform and accelerated. We believe the opportunity and proposition is larger than ever.”
“In 2018, mobile and online payments to emerging markets reached a record high of $528 billion and we expect this number to increase. As WorldRemit handles a growing share of this market, we look forward to continue working with the company to scale its digital platform and expand its service to reach many new customers across the globe.”
Accel’s Harry Nelis said: “Having first partnered with the WorldRemit team in 2014, I have seen the company grow from a London-founded startup to a global business pioneering the future of the remittance market and making international mobile payments more accessible and affordable for millions of individuals and businesses. This investment and CEO Breon Corcoran’s experience leading consumer service-oriented, global digital businesses will help fuel the next phase of global growth. We are excited to deepen our relationship with the team and help them fulfil the company’s vast potential.”
WorldRemit has disrupted an industry previously dominated by offline legacy players by taking international money transfers online – making them safer, faster and lower-cost. We currently send from 50 to 150 countries and operate in 6,500 money transfer corridors worldwide.
On the sending side WorldRemit is 100% digital (cashless), increasing convenience and enhancing security. For those receiving money, the company offers a wide range of options including bank deposit, cash collection, mobile airtime top-up and mobile money.
Backed by Accel, TCV and Leapfrog – early investors in Facebook, Netflix and Slack – WorldRemit’s headquarters are in London, UK with a global presence including offices in the United States, Canada, South Africa, Japan, Singapore, the Philippines, Australia and New Zealand.
Accel is a leading venture capital firm that partners with exceptional founders with unique insights, from inception through all phases of private company growth. Atlassian, Algolia, Avito, Celonis, Cloudera, Crowdstrike, Deliveroo, DJI, Dropbox, Etsy, Facebook, Flipkart, Funding Circle, Kayak, Kry, QlikTech, Rovio, Slack, Spotify, Supercell, UIPath and WorldRemit are among the companies the firm has backed over the past 35+ years. The firm seeks to understand entrepreneurs as individuals, appreciate their originality and play to their strengths. Because greatness doesn’t have a stereotype. For more, visit www.accel.com, www.facebook.com/accel or www.twitter.com/accel.
Founded in 1995, TCV provides capital to growth-stage private and public companies in the technology industry. Since inception, TCV has invested over $11 billion in leading technology companies and has helped guide CEOs through more than 120 IPOs and strategic acquisitions. TCV has invested over $1 billion in Europe. TCV’s investments include Airbnb, Altiris, AxiomSL, Believe, Dollar Shave Club, EmbanetCompass, EtQ, ExactTarget, Expedia, Facebook, Fandango, GoDaddy, HomeAway, LinkedIn, Netflix, OSIsoft, RELEX Solutions, Rent the Runway, Sitecore, Splunk, Sportradar, Spotify, TourRadar, Varsity Tutors, WorldRemit and Zillow. TCV is headquartered in Menlo Park, California, with offices in New York and London. For more information about TCV, including a complete list of TCV investments, visit https://www.tcv.com/.
LeapFrog invests in extraordinary businesses in Africa and Asia. We partner with their leaders to achieve leaps of growth, profitability and impact. LeapFrog companies now operate across 33 markets reaching over 167 million people with financial services and healthcare. 135.9 million are low-income consumers often accessing insurance, savings, pensions, credit and healthcare for the first time. LeapFrog companies provide jobs and livelihoods to almost 124,000 people. These companies have grown on average by 39.2 per cent per annum since LeapFrog’s investment. LeapFrog was recently named by Fortune as one of the top five companies changing the world, the first private equity firm ever to be listed. www.leapfroginvest.com@leapfroginvest
We believe that many SMB and vertical SaaS companies are starting to exhibit platform characteristics. Some of these companies are beginning to build consumer and supplier networks that are expanding the SaaS model dramatically.
We recently brought the pioneers of these new SaaS models together and were fortunate to have Jackie Reses share her thoughts on the emerging lending opportunity for SaaS. Witty, wise, and incredibly insightful, Jackie is a total superwoman. In addition to running Square Capital, Jackie serves on the board of the San Francisco Federal Reserve Bank and is a former board member of Alibaba. She also worked in private equity for 20 years.
Dave: Great to talk
to you, Jackie! Is it true you started your career on the dark side, as an
Jackie: Yes, I
worked in private equity for 20 years. I just kept going forward. I had a
mid-life crisis without the crisis, as I like to call it. I ran parts of a
large private equity firm, but I much prefer being on the operating side. I
still invest and that’s my fun side project. But I love working at Square. It’s
a really fun place to be.
Dave: Square is certainly
on a tear. Maybe we could start and just talk a little bit about that. Very few
companies reach your scale, and then accelerate. But that’s what you’ve done at
Jackie: Yeah, it’s
exciting. We have driven strong revenue growth at scale since we went public. It’s interesting to think back to when Square
was starting with payments and building on that. That really was the catalyst for
what we should build in an ecosystem in a very different way. Since then, we
have built ancillary products around payments like point of sale, loyalty,
employee engagement, lending, and payroll around an ecosystem.
Dave: You mentioned
that every one of your products is an onboarding product. You don’t think of “land
and then expand,” it’s all onboarding, it’s all “land”?
Jackie: Like lending
we consider it to be a product that will onboard into Square. We have two parts
of our lending business. One is the business lending, and that’s something we
launched with Square sellers, and we extended it outside of Square in the
And then we also have an Installments product which has been
incredible. Installments is a consumer lending product that can have a customer
pay for large purchases with installments, which provides the buyer with
That said, I think about Square Capital first. My job is to
grow Square Capital. That should stand on its own. The product itself has to be
When we launch a new Square Capital product, we launch it
because I think about all inbound customers into Square for lending and then
create a cycle throughout our ecosystem to evolve as they learn about other
Dave: You talked
about Square and the multiple product lines and high rate of self-onboarding.
How core is self-serve to Square?
Jackie: It’s the way we start on every product. They have to be self-serve, elegant and fast as a means to make them remarkable. Driving your thought process around self-serve forces you to create simplicity and ease of use.
Dave: You’ve described
several different businesses that have arguably very different DNA. SMB, point
of sale, consumer cash, credit, etc. How does that work in the same
Jackie: I think
lending is the one that everyone has the hardest time with. If anyone thinks
that payments are regulated, lending is like 10x that.
Managing risk and the dynamics of a high-growth company are very
different disciplines. I think that’s probably the hardest thing I deal with as
an executive at Square. The dynamics of credit risk can really hurt sellers,
and they can hurt us, and they can hurt our ecosystem of investors.
And so top line growth on a lending business is not the
goal. I think you have to have a very different level of responsibility and a discipline
that is almost the inverse to payments, where topline revenue growth can be the
You need to remain focused on what’s good for the end
merchant. There are some lenders out there that have a goal of maximizing loan
size. I think that’s irresponsible. We try to maximize a loan that helps sellers
grow. That’s a very different mindset. We are also very fortunate that we don’t
have channel or customer acquisition costs which helps us take a pretty responsible
Dave: Right. There is a real trade-off between growth, risk, and merchant health. How do you measure your success, what are the metrics you report on?
originations and different views of defaults. We could double our loans if we
wanted to tomorrow. Yet, you double it at the loss of small businesses who
can’t afford the debt that you’re giving up. The one limitation of credit is that
there is a natural debt capacity of what these companies can afford based on
their cash flows. And you’ve got to make sure you’re really good at how to
predict that and then manage it so you’re not putting companies at risk.
Dave: Let’s talk about the risk side. Companies in an earlier phase want to learn. They want to train their algorithms. So in some ways having defaults is actually a data point to trigger. How do you get through that initial learning period?
Jackie: We do the same thing. Although I have to say that many refer to models which really aren’t machine learning models – the data set is too small to be driven off of machine learning.
It’s hard to train models when you have a really narrow data set. Many lenders use basic heuristics to limit who they lend to. That is not a machine learning model – its addition and subtraction in a ton of excel.
Loan losses also can be instructive for
model training, so you need to be willing to invest in your weakest credits in
order to learn. If you look at the public fintech lending companies,
very few of them have actually been successful at long term customer
acquisition and default profiling. It’s a hard, capital intense business and
takes years to do. We think of lending as a platform to help our sellers
grow. The regulatory environment and the amount of capital required to do
this is just really high.
Dave: What about
Jackie: The payments data is super useful but you have the fidelity of moment to moment transactional changes. Matching risk, credit, behavioral and bank data together with payments is very powerful!
Additionally, for model training, its instructive to look at why sellers de-activate off of our system. Insights around business failure and fraud can also be a helpful part of the equation.
Dave: You mentioned
just how different being a lender is than the rest of Square and orientation
around growth, versus risk management. How did you actually set it up so that
it was able to perform this task culturally? Did you wall it off?
Jackie Reses: I
thought about it every day. To be honest I think we’re very unique and lucky at
Square because the way we are owned and run is with a long-term orientation,
which most public companies are not.
Being focused on the long term, you can set up the ethos of
what you need it to be. Because it’s the right answer for that kind of business
long term. But we talk about it every day because it’s really easy to lend
money, and it’s really hard to get it back.
And then the compliance is huge. I have everything
documented in a way that’s profoundly non-tech. And that’s in a product that’s highly
automated. We practically have a lean lending team. And then I have to have all
these policies and reviews and committees. It’s the only product at Square that
has a board committee.
We’re growing fast, but you got to be really strict about it
and stand up if you see issues.
Dave: Let’s switch
gears a little bit. I’d love to take advantage of your experience with Alibaba.
The dynamics in China seem totally different.
Dave: Do you think there’s
a future state in China where you do have to worry about some sort of disaggregation
or actually consolidation of the payment infrastructure?
dynamics in China are really different because there was an escrow system that
existed 10 years ago in China because there were no logistics, and there was no
trust. If you were going to order a package in China, you never knew whether
you were going to get it, how you were going to get it, because neither system
existed around credit and shipping. They just didn’t exist. And so the idea of
an escrow system was the genesis of how Alipay got started. It really became a
predominant payment rail. And it did so in an environment where it matched its
sister company which controls 60 percent of the eCommerce in China. So those
dynamics are really different than the dynamics that exist in the United States
today, where the proliferation of credit options is extraordinary. In the U.S.,
there is no logistics issue with the way we think about freight and the
multiple players. You can trust that if you send a package by FedEx it will
actually show up.
All these dynamics of eCommerce that we take for granted in
the United States are really the reason why there’s such a tight band of
competition in China. I think WeChat is interesting. WeChat evolved after QQ
started. Tencent built an unbelievable business and their second version of it
has just been extraordinary because it’s become like a full utility app for
everyone in China.
So now you have these two non-bank players in China competing
with one another. Neither have really been able to get into the United States. I
don’t know whether you noticed, but you’ll start to see Alipay showing up at a
register. Go ask how many transactions have actually happened at that counter. There’s
the notion of these Chinese tourists that are coming here but they use UnionPay.
That said, there’s not a lot of demand for it at this point
in the United States. I think they’ll have a better time in Southeast Asia
where they’re more connected and Japan, because they’ve got the Softbank
connectivity that still owns a huge portion of Alibaba and Alipay. I just think
it will be much harder in the United States.
David Yuan: Well
Jackie, that was incredible! Thanks so much for taking the time to share your
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