Why PayFac? Maybe You Shouldn't

Ashley Isenberg: 00:00:00

At the end of the day, I don't think the

Ashley Isenberg: 00:00:02

merchant or the card holder care

Ashley Isenberg: 00:00:04

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): they only care about one thing.

Ashley Isenberg: 00:00:06

All they care about is that it's an easy user experience,

Ashley Isenberg: 00:00:09

they're not spending hours at the end of every month reconciling that

Ashley Isenberg: 00:00:12

they're not losing money because of outages, that it's easy to consume.

Ashley Isenberg: 00:00:18

And I think it's just come down to what's the customer experience.

Ashley Isenberg: 00:00:21

Tedd Huff- Host, Fintech Confidential-1: Hey, Ted Huff here.

Ashley Isenberg: 00:00:22

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Ashley Isenberg: 00:00:25

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Ashley Isenberg: 00:00:26

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Ashley Isenberg: 00:00:28

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Ashley Isenberg: 00:00:43

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Ashley Isenberg: 00:00:49

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Ashley Isenberg: 00:00:53

Tedd Huff - Fintech Confidential, Host: Welcome to Fintech Confidential, bringing

Ashley Isenberg: 00:00:55

you the people, tech, and companies that change how you pay and get paid.

Ashley Isenberg: 00:01:02

Tedd Huff- Host, Fintech Confidential (Detached audio): Welcome to another episode of

Ashley Isenberg: 00:01:04

FinTech Confidentials Uncut.

Ashley Isenberg: 00:01:07

This is where we go deep into it, exposing all of our opinions and all

Ashley Isenberg: 00:01:11

of the things that we think about without cutting a single word out.

Ashley Isenberg: 00:01:15

Today we're gonna be talking about payment facilitation, what it means, who should

Ashley Isenberg: 00:01:19

do it, who shouldn't do it, why does it even exist in a lot of cases, and

Ashley Isenberg: 00:01:24

I.

Ashley Isenberg: 00:01:25

Being joined by two fabulous ladies.

Ashley Isenberg: 00:01:28

We have Ashley Eisenberg and Elena Smith joining us.

Ashley Isenberg: 00:01:31

Ashley is, oh see, and now this is the part that sucks about uncut

Ashley Isenberg: 00:01:37

is . Is from fractional FinTech.

Ashley Isenberg: 00:01:41

I wanted to throw like a title in there and I just stuck.

Ashley Isenberg: 00:01:45

Um, Ashley talk told me earlier as we were getting started, Hey, don't, don't throw

Ashley Isenberg: 00:01:50

the CEO founder, all that stuff in there.

Ashley Isenberg: 00:01:53

Um, so I got stuck.

Ashley Isenberg: 00:01:55

But we also have Elena Smith on, and she is the CFO at Secure Card.

Ashley Isenberg: 00:02:01

And so we are going to be talking about.

Ashley Isenberg: 00:02:05

All the different things around payment facilitation.

Ashley Isenberg: 00:02:09

Um, you know, for me it means a lot of different things and I've been

Ashley Isenberg: 00:02:13

very vocal about it over the years.

Ashley Isenberg: 00:02:15

But Ashley, I'd like to start with you.

Ashley Isenberg: 00:02:16

Just kind of give a little bit of background.

Ashley Isenberg: 00:02:19

Don't go too deep, uh, but also give your perspective on what payment

Ashley Isenberg: 00:02:24

facilitation is in the first place.

Ashley Isenberg: 00:02:26

Yeah, so, uh, we'll call, we'll call me an advisor in this space.

Ashley Isenberg: 00:02:29

We'll use that title for now.

Ashley Isenberg: 00:02:31

Um, so I've been supporting a few folks as kind of their fractional

Ashley Isenberg: 00:02:34

chief revenue officer, Fractional chief payments officer and kind of

Ashley Isenberg: 00:02:38

helping them navigate through payments.

Ashley Isenberg: 00:02:40

But, um, just a little background, I have spent, uh, probably the

Ashley Isenberg: 00:02:44

last seven years of my career specifically in payment facilitation.

Ashley Isenberg: 00:02:48

Prior to that was a, a wholesale iso myself.

Ashley Isenberg: 00:02:51

Um, so little bit experience.

Ashley Isenberg: 00:02:54

I think when you think about what a PayFac is, it's really what

Ashley Isenberg: 00:02:57

is the user experience, right?

Ashley Isenberg: 00:02:59

For the merchant and the cardholder and in most cases the merchant.

Ashley Isenberg: 00:03:03

And so when I think about PayFac, I think about embedded, right?

Ashley Isenberg: 00:03:06

I think about seamless onboarding, seamless user experience

Ashley Isenberg: 00:03:10

within a software product.

Ashley Isenberg: 00:03:12

So that's where I think about it.

Ashley Isenberg: 00:03:15

And I know part of this conversation got started on onboarding, right?

Ashley Isenberg: 00:03:18

Onboarding

Ashley Isenberg: 00:03:19

is not the big thing of PayFac, right?

Ashley Isenberg: 00:03:22

Yes.

Ashley Isenberg: 00:03:22

It offers an embedded experience.

Ashley Isenberg: 00:03:25

It removes the, we'll call it pinging pong of the customer,

Ashley Isenberg: 00:03:29

you know, user experience.

Ashley Isenberg: 00:03:31

But pay is much bigger, right?

Ashley Isenberg: 00:03:33

Pay is the ability for a company to take on all of the risk and ownership of an

Ashley Isenberg: 00:03:39

agreement, which while that sounds great because maybe you can monetize more, it is

Ashley Isenberg: 00:03:43

also very scary, um, and a lot to take on.

Ashley Isenberg: 00:03:46

So.

Ashley Isenberg: 00:03:48

Tedd Huff- Host, Fintech Confidential (Detached audio): And, and Ashley, you bring up

Ashley Isenberg: 00:03:49

a really, really good point.

Ashley Isenberg: 00:03:50

Is this all started.

Ashley Isenberg: 00:03:53

Elena made an amazing post on LinkedIn, which just drew me in

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to feel like I had to answer it.

Ashley Isenberg: 00:04:01

I couldn't go without answering it, and really just turned into a

Ashley Isenberg: 00:04:04

conversation between us and a handful of other experts in the industry.

Ashley Isenberg: 00:04:08

So, Elena, I, I would love to get your perspective on . What PayFacck is and,

Ashley Isenberg: 00:04:13

and why you, you actually made that post

Elaina Smith: 00:04:17

I will start with why I made the post, I think, uh,

Elaina Smith: 00:04:19

makes the most sense, so, What I'm seeing from, we have a wholesale ISO

Elaina Smith: 00:04:24

and we do it a little differently.

Elaina Smith: 00:04:25

I'll, I'll get into that a little later.

Elaina Smith: 00:04:27

But, um, what I'm seeing is this flocking to the pay fac model and

Elaina Smith: 00:04:33

acting like it's this panacea and the cure-all for everything when

Elaina Smith: 00:04:37

it's not necessarily the best model.

Elaina Smith: 00:04:40

I think that what happened was the ISO model was very broken and

Elaina Smith: 00:04:44

instead of trying to fix that.

Elaina Smith: 00:04:47

We are heading in this other direction.

Elaina Smith: 00:04:49

All of a sudden it became the cure all for everything.

Elaina Smith: 00:04:51

So when I think about pay fac, I think about someone who wants to take

Elaina Smith: 00:04:55

ownership of the payment relationship.

Elaina Smith: 00:04:57

I think about someone who wants to control the payment experience for

Elaina Smith: 00:05:01

the merchant and its customers.

Elaina Smith: 00:05:02

So if the, or the software vendor and its customers, uh, a lot of the things that

Elaina Smith: 00:05:07

Ashley said, controlling that overall customer experience are so important.

Elaina Smith: 00:05:11

But I do think a lot of that is possible with an ISO model.

Elaina Smith: 00:05:16

Um, if you go about the ISO model differently, I think the thing with

Elaina Smith: 00:05:20

the, with the ISO model is that so many of them are just stacked

Elaina Smith: 00:05:23

on top of legacy processors and using all the legacy processor

Elaina Smith: 00:05:27

services and they haven't done anything to innovate.

Elaina Smith: 00:05:30

So they're stuck within that box.

Elaina Smith: 00:05:32

Uh, and so my experience with, we have a wholesale ISO secure bank card.

Elaina Smith: 00:05:37

We've tried to break the ISO model and build it from the ground up.

Elaina Smith: 00:05:41

Built our own platform to be able to do our own billing, uh, merchant

Elaina Smith: 00:05:44

funding, those kind of things so we can control more of that

Elaina Smith: 00:05:47

merchant and customer experience.

Elaina Smith: 00:05:50

Tedd Huff- Host, Fintech Confidential (Detached audio): Uh, and, and you, you, you hit

Elaina Smith: 00:05:52

the, you both hit on the two things that for me, really, really.

Elaina Smith: 00:05:57

Are the key pieces.

Elaina Smith: 00:05:59

One is the onboarding and how seamless and

Elaina Smith: 00:06:05

easy to use.

Elaina Smith: 00:06:08

You can make it.

Elaina Smith: 00:06:08

How good can you make that user experience, that customer

Elaina Smith: 00:06:11

experience really draw in?

Elaina Smith: 00:06:14

And then on the other side of it, how can you best manage the funds?

Elaina Smith: 00:06:18

And Elena, you'd mentioned that legacy providers have a lot of restrictions

Elaina Smith: 00:06:24

on, on how to manage the funds and so.

Elaina Smith: 00:06:27

PayFacs seem to be and, and still today, I, I, I still lean a little bit

Elaina Smith: 00:06:32

towards PayFacs, still being a good way to go to control a lot of that.

Elaina Smith: 00:06:38

But my main concern is, is the idea of having so many.

Elaina Smith: 00:06:46

Retail style payment facilitators.

Elaina Smith: 00:06:49

And let me kind of break down from my perspective.

Elaina Smith: 00:06:51

I've got three little, little pieces as, as I've, as I've built out a

Elaina Smith: 00:06:56

handful of these PayFac programs is that you've got the retail side,

Elaina Smith: 00:06:59

which everything is done for them.

Elaina Smith: 00:07:02

All they do is focus in on making sure that it's embedded properly.

Elaina Smith: 00:07:08

So think like Stripe.

Elaina Smith: 00:07:11

Or Square, uh, I shouldn't say square, but Stripe is a good one, right?

Elaina Smith: 00:07:14

So Stripe allows you to, to embed it relatively quickly and gives

Elaina Smith: 00:07:19

you that whole experience upfront.

Elaina Smith: 00:07:20

That's really that retail side of the model where you don't take any

Elaina Smith: 00:07:23

of the risk, you don't do any of the ui, you just get the benefit

Elaina Smith: 00:07:28

from the fact that it was a fast onboarding and you get the movement.

Elaina Smith: 00:07:32

And then I move into the wholesale side of the house, which is .Where

Elaina Smith: 00:07:36

you take on everything, right?

Elaina Smith: 00:07:38

So the bookend is the other.

Elaina Smith: 00:07:39

You take on everything.

Elaina Smith: 00:07:39

So you're basically acting like an iso.

Elaina Smith: 00:07:43

But the main difference really comes into the funding side of the house is slightly

Elaina Smith: 00:07:49

different than what you would use with a traditional processor or platform.

Elaina Smith: 00:07:53

And then of course, we always have these fun things that are in the middle

Elaina Smith: 00:07:56

because obviously we gotta have the banks approve all of this fun stuff.

Elaina Smith: 00:08:00

And you guys know how much fun.

Elaina Smith: 00:08:03

You're back.

Elaina Smith: 00:08:04

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): I apologize.

Elaina Smith: 00:08:05

Look, so this, so this is gonna be fun technology not working with me.

Elaina Smith: 00:08:09

So, um, we'll, we'll go ahead and, and pick up where, where I left off.

Elaina Smith: 00:08:14

And I guess

Elaina Smith: 00:08:14

where I was going at is, is the, the financial institutions have the final say.

Elaina Smith: 00:08:18

I.

Elaina Smith: 00:08:19

Really on, at least in the us, on who can and cannot be a payment facilitator.

Elaina Smith: 00:08:24

And so the rules change based upon the risk profiles.

Elaina Smith: 00:08:28

And that brings me to the other pieces that risk profiles mean

Elaina Smith: 00:08:31

a bunch of different things.

Elaina Smith: 00:08:33

And I, I guess I would like for you guys to just kind of play off or, or what do

Elaina Smith: 00:08:39

you think about how I po position that?

Ashley Isenberg: 00:08:42

About the banks having control and there being

Ashley Isenberg: 00:08:46

different types of risk profiles.

Ashley Isenberg: 00:08:48

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): I think, I think it's more of the,

Ashley Isenberg: 00:08:51

starting with the different types.

Ashley Isenberg: 00:08:55

Do, do you agree with the three different types that I, that I talked about?

Ashley Isenberg: 00:09:01

If not, how not,

Ashley Isenberg: 00:09:02

If so, why?

Elaina Smith: 00:09:03

with the three different types.

Elaina Smith: 00:09:05

So can you start there with where you went over the three different types?

Elaina Smith: 00:09:09

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Yeah.

Elaina Smith: 00:09:10

So.

Elaina Smith: 00:09:12

I don't know where I cut, where I dropped off.

Elaina Smith: 00:09:15

Um,

Elaina Smith: 00:09:15

were launching right into that, you were, you were about to

Elaina Smith: 00:09:17

tell us the three different, you had some three different, you had three

Elaina Smith: 00:09:20

different types that you were going to

Elaina Smith: 00:09:21

share.

Elaina Smith: 00:09:21

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Alright.

Elaina Smith: 00:09:22

Well, hey, I don't know how much of that.

Elaina Smith: 00:09:25

Okay.

Elaina Smith: 00:09:26

Well, so I guess where I was going is the three different types is the retail

Elaina Smith: 00:09:29

side, which is very Stripe esque.

Elaina Smith: 00:09:32

Um, it could be something like a tilled or a pay rick that really

Elaina Smith: 00:09:37

falls into the retail side of the house, which means that it's

Elaina Smith: 00:09:42

They bring the tech, they bring the risk, they bring the

Elaina Smith: 00:09:45

underwriting, they bring everything.

Elaina Smith: 00:09:48

And you as the software service provider, you get the benefit of

Elaina Smith: 00:09:54

all of that without any of the risk.

Elaina Smith: 00:09:57

Then I go to the complete other side of the house, which is the

Elaina Smith: 00:10:00

wholesale, which is number two.

Elaina Smith: 00:10:02

I go bookends first.

Elaina Smith: 00:10:03

Number two is, is the one where they do everything.

Elaina Smith: 00:10:07

They do the underwriting, they do the onboarding, they, they

Elaina Smith: 00:10:11

have the authorization, they have the capture, they have the

Elaina Smith: 00:10:14

settlement, they have the funding.

Elaina Smith: 00:10:16

They have all of the things that if you didn't know any

Elaina Smith: 00:10:20

better, would be a wholesale iso.

Elaina Smith: 00:10:24

And then you have the ones in the middle where the bank says, Hey, I

Elaina Smith: 00:10:27

feel kind of comfortable with you doing these things, but I want you

Elaina Smith: 00:10:30

to have this company do these things.

Elaina Smith: 00:10:33

And typically that's around risk monitoring or A-M-L-K-Y-C.

Elaina Smith: 00:10:38

If you're not well versed in, in the risk and underwriting piece of it, they may

Elaina Smith: 00:10:43

ask you to outsource that to a company.

Elaina Smith: 00:10:47

A lot of times it ends up being an iso.

Elaina Smith: 00:10:49

Um, I mean, I've,

Elaina Smith: 00:10:50

I've launched a couple of those programs to to really take that on and, and

Elaina Smith: 00:10:54

I think Incept just launched another program recently that that dives directly

Elaina Smith: 00:10:58

into the retail side of it as well.

Elaina Smith: 00:11:00

So those are the three pieces that I see happening in the marketplace.

Elaina Smith: 00:11:04

Did I leave anything out that I missed?

Elaina Smith: 00:11:06

Is there something you don't agree with?

Elaina Smith: 00:11:08

I'm really curious.

Ashley Isenberg: 00:11:10

Yeah, I, I'll say this, I think I look at the, the

Ashley Isenberg: 00:11:14

industry through a different lens.

Ashley Isenberg: 00:11:16

Um, and so I kind of look at, we have legacy processors, right?

Ashley Isenberg: 00:11:21

So I'm gonna take PayFac outta the scenario for a moment.

Ashley Isenberg: 00:11:23

We have kind of our legacy processors, right?

Ashley Isenberg: 00:11:26

The staples the world pays.

Ashley Isenberg: 00:11:27

The Pfizers originally for datas ubs, right?

Ashley Isenberg: 00:11:30

That have been in the space for many years.

Ashley Isenberg: 00:11:32

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Mm-Hmm.

Ashley Isenberg: 00:11:32

Um, and then we have kind of the.

Ashley Isenberg: 00:11:36

Processor 2.0.

Ashley Isenberg: 00:11:38

Right.

Ashley Isenberg: 00:11:38

And the Processor 2.0 owes the stripes and the Atian, right?

Ashley Isenberg: 00:11:42

They were purpose-built.

Ashley Isenberg: 00:11:43

They started as payment facilitators, maybe the squares, um, and really gave

Ashley Isenberg: 00:11:48

tech a more financial services to folks.

Ashley Isenberg: 00:11:50

And that model, right, made sense.

Ashley Isenberg: 00:11:52

It opened some people's eyes to a different way to handle payments

Ashley Isenberg: 00:11:57

and really embed that experience.

Ashley Isenberg: 00:11:59

And then I think we have the kind of 2.0 of the stripe in the ion, right?

Ashley Isenberg: 00:12:02

The pay Ricks and the Phoenixes of the world that came out and helped

Ashley Isenberg: 00:12:06

with everything you just talked about on the wholesale model, right?

Ashley Isenberg: 00:12:09

How can we, from an infrastructure perspective, support you

Ashley Isenberg: 00:12:11

as a payment facilitator?

Ashley Isenberg: 00:12:13

But then how can we also give you kind of that managed PayFac experience where

Ashley Isenberg: 00:12:17

you can take on some of the risks, you can take on some of the portability,

Ashley Isenberg: 00:12:20

ownership you can get almost there, right?

Ashley Isenberg: 00:12:24

But we can give you right, everything you need from a modular

Ashley Isenberg: 00:12:28

perspective to support that.

Ashley Isenberg: 00:12:29

Now I think we're seeing 3.0.

Ashley Isenberg: 00:12:32

3.0 is the payables and pay engines and rainforest and folks coming out

Ashley Isenberg: 00:12:38

with what I'm seeing more verticalized

Ashley Isenberg: 00:12:42

Tedd Huff- Host, Fintech Confidential-1: Mm-Hmm.

Ashley Isenberg: 00:12:43

PayFac as a service solutions.

Ashley Isenberg: 00:12:45

Right.

Ashley Isenberg: 00:12:45

And when you think about the complexity we're seeing in kind of the 2.0 and

Ashley Isenberg: 00:12:50

you know the, the 1.0 version of embedded payments, you can't build

Ashley Isenberg: 00:12:55

everything for every use case.

Ashley Isenberg: 00:12:58

And when you're supporting a vertical use case, you either have to allow

Ashley Isenberg: 00:13:02

people to build that functionality.

Ashley Isenberg: 00:13:05

If they're working with a legacy processor, and a lot of the

Ashley Isenberg: 00:13:07

times, even if they build it, it doesn't mean that they can do it.

Ashley Isenberg: 00:13:10

Right?

Ashley Isenberg: 00:13:11

You can build split funding, doesn't mean the legacy processor's

Ashley Isenberg: 00:13:13

going to allow you to split funds.

Ashley Isenberg: 00:13:16

And so I think we're seeing folks go deep into these verticals and build the feature

Ashley Isenberg: 00:13:20

sets on payments and more importantly, financial services that a lot of the

Ashley Isenberg: 00:13:25

software companies that are bringing payments in house are going to need.

Ashley Isenberg: 00:13:27

Right.

Ashley Isenberg: 00:13:28

And those software companies, the ISVs, the SaaS companies are primed, right?

Ashley Isenberg: 00:13:32

They are primed in market right now to bring a diverse set of financial

Ashley Isenberg: 00:13:37

services to merchants, but they also have to have those two point

Ashley Isenberg: 00:13:41

ohss and those three point ohs.

Ashley Isenberg: 00:13:43

They're developing the tech in the verticals that they serve that benefit

Ashley Isenberg: 00:13:48

their customers and their card holders.

Ashley Isenberg: 00:13:50

Right?

Ashley Isenberg: 00:13:50

And I think

Ashley Isenberg: 00:13:52

I'll see even vertical enough to say there's B two, B2B and B2B two C, but then

Ashley Isenberg: 00:13:56

there's card, present, card net present.

Ashley Isenberg: 00:13:59

Then there's actually specific.

Ashley Isenberg: 00:14:01

Must pay industries, right?

Ashley Isenberg: 00:14:03

The must pay industries like insurance and healthcare need much different

Ashley Isenberg: 00:14:07

services than a typical e-comm provider.

Ashley Isenberg: 00:14:11

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Yeah, and I think it's interesting

Ashley Isenberg: 00:14:12

as you, you break it down into the verticals, um, I, I've always

Ashley Isenberg: 00:14:16

looked at it from functionality,

Ashley Isenberg: 00:14:18

um, and that's my product brain kicking in, right?

Ashley Isenberg: 00:14:20

So those are personas of a particular need and I.

Ashley Isenberg: 00:14:25

Really the, the verticalization really from my perspective, has more to do

Ashley Isenberg: 00:14:31

with the labels and the process flow versus the actual functionality.

Ashley Isenberg: 00:14:37

But Elena, I'd love to get your perspective.

Ashley Isenberg: 00:14:39

Uh, I know that we, we, we kind of pushed back and forth a little bit on it.

Ashley Isenberg: 00:14:43

I know that you guys, uh, over a secure bank card have have done some really cool

Ashley Isenberg: 00:14:47

stuff on the back end, but how, how are you seeing it from your perspective on

Ashley Isenberg: 00:14:55

Why people are using payment facilitators or using the payment facilitation

Ashley Isenberg: 00:14:59

model is a better way to word it.

Elaina Smith: 00:15:01

I think that they're wanting to have more control over

Elaina Smith: 00:15:04

the experience, but what they don't understand is that more control

Elaina Smith: 00:15:09

comes with more responsibility.

Elaina Smith: 00:15:11

But I like what Ashley said about these different levels of, you know, these,

Elaina Smith: 00:15:15

these hybrid models where you can, you can hand over some of that responsibility.

Elaina Smith: 00:15:20

If you don't, if you can't manage the risk and the underwriting on your own, then

Elaina Smith: 00:15:24

you can have this kind of hybrid model.

Elaina Smith: 00:15:26

And that I can see working, um, a little bit better.

Elaina Smith: 00:15:29

But I, I just, you see so many players want to get into and monetize payments

Elaina Smith: 00:15:34

and then they get in and it's too late and they've, you know, lost the farm because

Elaina Smith: 00:15:40

, there's so much that they don't know.

Elaina Smith: 00:15:41

And they don't know what they don't know.

Elaina Smith: 00:15:43

So

Elaina Smith: 00:15:45

. They have to have a basic understanding or at least hire those roles in so that

Elaina Smith: 00:15:49

somebody can manage those pieces for them.

Elaina Smith: 00:15:52

And I think also to Ashley's point, she's, we're seeing this 3.0 version.

Elaina Smith: 00:15:57

I think in that 3.0 version, my perception at least, because we don't

Elaina Smith: 00:16:00

do a lot in the pay space, but I think in that 3.0 version, there's a complete

Elaina Smith: 00:16:05

ownership of end-to-end payments.

Elaina Smith: 00:16:08

Whereas before we were maybe, you know, outsourcing the gateway, but,

Elaina Smith: 00:16:13

you know, managing the funding and the billing and that kind of thing.

Elaina Smith: 00:16:17

Um, so in the 3.0 version, it seems like people are building the gateway.

Elaina Smith: 00:16:21

They might be piggybacking on a processor, but they're, you know,

Elaina Smith: 00:16:24

doing all the other things in-house.

Elaina Smith: 00:16:26

So they're taking more control of the overall process so that they

Elaina Smith: 00:16:30

can deliver a better experience in a seamless transaction from end to

Elaina Smith: 00:16:34

end to their customers as a result.

Ashley Isenberg: 00:16:37

Yeah.

Ashley Isenberg: 00:16:37

I mean you're even seeing, right, the the one point ohs and the two

Ashley Isenberg: 00:16:40

point OHS all went direct, right?

Ashley Isenberg: 00:16:41

I mean if you look at pays and FinTech, stripe add, and they're

Ashley Isenberg: 00:16:44

all processors add, and I think at this point is a bank, right?

Ashley Isenberg: 00:16:47

And so they've all gone to that

Ashley Isenberg: 00:16:49

point, right?

Ashley Isenberg: 00:16:50

They're, yeah.

Ashley Isenberg: 00:16:51

Correct, correct.

Ashley Isenberg: 00:16:52

Right.

Ashley Isenberg: 00:16:52

So they've all come in and said, you know, we're gonna

Ashley Isenberg: 00:16:54

take ownership over this, right?

Ashley Isenberg: 00:16:56

We've built the tech.

Ashley Isenberg: 00:16:58

Why are we gonna rely on somebody else when we can just

Ashley Isenberg: 00:17:01

go straight to the networks?

Ashley Isenberg: 00:17:02

Right?

Ashley Isenberg: 00:17:02

And you're seeing things like, uh, VPC, right?

Ashley Isenberg: 00:17:06

I think it's been called VPP in the past, now VPC, but you're even seeing

Ashley Isenberg: 00:17:10

the networks Visa and specific be more

Ashley Isenberg: 00:17:12

open.

Ashley Isenberg: 00:17:13

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): are you, are you talking about Visa?

Ashley Isenberg: 00:17:14

Visa payment Connect.

Ashley Isenberg: 00:17:17

yes.

Ashley Isenberg: 00:17:17

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Okay.

Ashley Isenberg: 00:17:18

All right.

Ashley Isenberg: 00:17:18

Well, I still, I still remember way back in the day when it first

Ashley Isenberg: 00:17:22

launched, where it was visa.

Ashley Isenberg: 00:17:25

Visa Visa Connect, fast Connect, I think is what it was like Visa, fast Connect.

Ashley Isenberg: 00:17:31

It was pretty crazy.

Ashley Isenberg: 00:17:32

But sorry, I didn't mean, I, I

Ashley Isenberg: 00:17:33

I just wanna make sure that we were talking about,

Ashley Isenberg: 00:17:35

we, we already have enough

Ashley Isenberg: 00:17:37

Are we right?

Ashley Isenberg: 00:17:37

Don't we

Ashley Isenberg: 00:17:39

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): so

Ashley Isenberg: 00:17:39

just gonna say,

Ashley Isenberg: 00:17:40

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): let's at least break

Ashley Isenberg: 00:17:41

some of this stuff up.

Ashley Isenberg: 00:17:42

So continue.

Ashley Isenberg: 00:17:43

Um, you know, I,

Ashley Isenberg: 00:17:44

I agree that people are, are looking to figure out how can they be more

Ashley Isenberg: 00:17:48

direct and how many pieces of the supply chain can they cut out.

Ashley Isenberg: 00:17:54

Do you think it is more in the areas of I want to control my own

Ashley Isenberg: 00:18:00

destiny, or is it more of, I don't know, any other way to do it?

Ashley Isenberg: 00:18:05

And I'll start with you, Ashley, on that one.

Ashley Isenberg: 00:18:08

Well, I, I mean, I, I think, you know, Elena kind

Ashley Isenberg: 00:18:10

of alluded to in the beginning of the conversation, right?

Ashley Isenberg: 00:18:13

There wasn't another way to do it because the ISO model was broken.

Ashley Isenberg: 00:18:17

Right.

Ashley Isenberg: 00:18:17

There hadn't been a lot of development in the ISO model and so I, I think

Ashley Isenberg: 00:18:22

pay fac became synonymous with tech.

Ashley Isenberg: 00:18:25

Right?

Ashley Isenberg: 00:18:25

And the two terms kind of got put together.

Ashley Isenberg: 00:18:28

So folks struggle 'cause they didn't know another model.

Ashley Isenberg: 00:18:30

Right.

Ashley Isenberg: 00:18:31

And I think if we were to go through the pay list today, we'd probably see a good

Ashley Isenberg: 00:18:35

10 to 20%, this is just my guess, right?

Ashley Isenberg: 00:18:38

Not data-driven that are now removing away from the PayFac model and

Ashley Isenberg: 00:18:43

going under a managed solution.

Ashley Isenberg: 00:18:44

Right?

Ashley Isenberg: 00:18:45

So I think tech started to come to the forefront.

Ashley Isenberg: 00:18:48

Folks wanted a way to do what Toast and Uber and others had done.

Ashley Isenberg: 00:18:53

And Sofac was the only way to do it.

Ashley Isenberg: 00:18:55

Folks got in way over their skis, right?

Ashley Isenberg: 00:18:57

They didn't have the people, as Elena mentioned, that were there

Ashley Isenberg: 00:19:00

to actually understand payments.

Ashley Isenberg: 00:19:03

And so.

Ashley Isenberg: 00:19:04

You saw these kind of managed solutions come out as a re resolution to that.

Ashley Isenberg: 00:19:08

And so I would 100% say there wasn't another way to do it.

Ashley Isenberg: 00:19:12

And I think we're seeing a lot, right?

Ashley Isenberg: 00:19:14

We're seeing the new wave of processors come to the market.

Ashley Isenberg: 00:19:16

We see those three point ohs who I think are gonna leverage

Ashley Isenberg: 00:19:19

those processors in some cases.

Ashley Isenberg: 00:19:21

And so I think there's easier ways to do it.

Ashley Isenberg: 00:19:23

And I

Ashley Isenberg: 00:19:26

manage PayFac or sell ISO or retail iso, right?

Ashley Isenberg: 00:19:30

They're all the same thing.

Ashley Isenberg: 00:19:32

They're just different user experiences, right?

Ashley Isenberg: 00:19:34

Both on how you accept the payment and how you settle the payment.

Ashley Isenberg: 00:19:38

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Alina,

Ashley Isenberg: 00:19:39

how, how do you feel about that comment?

Ashley Isenberg: 00:19:41

Because

Ashley Isenberg: 00:19:41

that, I think this is one of the things that sparked the whole post

Ashley Isenberg: 00:19:44

was, was this specific

Elaina Smith: 00:19:46

Hey, we, I, tell me what an ISO is.

Elaina Smith: 00:19:49

You know, everybody calls themselves an iso.

Elaina Smith: 00:19:51

It means so many different things to so many different people.

Elaina Smith: 00:19:55

Um, so you're right.

Elaina Smith: 00:19:56

I mean, you can use some of these terms.

Elaina Smith: 00:19:59

Interchangeably because they're acting in the same way.

Elaina Smith: 00:20:02

I think the big difference for us is we just never operate as that

Elaina Smith: 00:20:06

master merchant with the Ts under it, like a PFAC would operate.

Elaina Smith: 00:20:10

Everyone has a unique MID and there's pros and cons to that in doing it that way.

Elaina Smith: 00:20:14

But to your earlier point, I would just say that, um, I think that these

Elaina Smith: 00:20:20

companies in going this direction, do need, they wanted to have more

Elaina Smith: 00:20:23

control over the experience because when I think about our scenario, I'm

Elaina Smith: 00:20:28

only as strong as my weakest link.

Elaina Smith: 00:20:30

I can do all the things right.

Elaina Smith: 00:20:32

I can have everything in place that I need to, but if the

Elaina Smith: 00:20:35

processor drops a transaction on the floor and doesn't clear it.

Elaina Smith: 00:20:39

That ends up reflecting poorly on me.

Elaina Smith: 00:20:41

Or if the gateway goes down, that ends up reflecting poorly on me.

Elaina Smith: 00:20:45

So I think that's why we're seeing this movement towards people wanting

Elaina Smith: 00:20:48

to build the entire chain, um, of services so that they can take ownership.

Elaina Smith: 00:20:54

I would rather, I would love to build a gateway.

Elaina Smith: 00:20:56

Do I, you know, wanna put the funds toward building a gateway?

Elaina Smith: 00:21:00

No, that's a huge spend.

Elaina Smith: 00:21:01

But I would love to build and own a gateway, because then I can

Elaina Smith: 00:21:04

control that and I can build it the way that I wanna build it.

Elaina Smith: 00:21:08

I can integrate it fully with my product.

Elaina Smith: 00:21:10

It's seamless to the end user.

Elaina Smith: 00:21:12

It all ties together.

Elaina Smith: 00:21:13

But you ha, at the end of the day, I don't wanna raise any outside funds.

Elaina Smith: 00:21:17

I want to use our own funds, and that's just not a viable option right now.

Elaina Smith: 00:21:21

So instead we do the best we can with what we've got.

Elaina Smith: 00:21:25

I think we're just trying to eliminate as many of those

Elaina Smith: 00:21:27

weak links as we possibly can.

Elaina Smith: 00:21:31

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Well, Elaine, based upon what you

Elaina Smith: 00:21:32

just said, it takes me back and I can't remember, maybe it's been a

Elaina Smith: 00:21:35

couple weeks ago, um, the CEO of Rainforest made a post and really

Elaina Smith: 00:21:41

talked about, Hey, our stuff went down.

Elaina Smith: 00:21:44

But we let everybody know that it went down, not only to let 'em know that it

Elaina Smith: 00:21:47

went down, we had all hands on deck and it was solved within, I think it was

Elaina Smith: 00:21:52

minutes, maybe an hour versus Hunting down to find out who was the real

Elaina Smith: 00:21:58

cause, where did it really come from?

Elaina Smith: 00:22:00

And they were able to communicate to the client that they're able, they were, they

Elaina Smith: 00:22:04

were fixing and they were on the solution, which gave a a little bit of air coverage

Elaina Smith: 00:22:10

for them for that particular issue.

Elaina Smith: 00:22:14

And I think that is a big piece that we're starting to see in these folks

Elaina Smith: 00:22:18

that decide to go the full value chain.

Elaina Smith: 00:22:21

But what that brings me into the next is

Elaina Smith: 00:22:23

Why a pfac?

Elaina Smith: 00:22:25

Right?

Elaina Smith: 00:22:25

So we, we talked about what it is.

Elaina Smith: 00:22:26

We've talked about all the different ways it's laid out.

Elaina Smith: 00:22:28

We've talked about a bunch of the different parts in

Elaina Smith: 00:22:30

a couple different areas.

Elaina Smith: 00:22:34

why would you want to go, why, why should someone go PFAC versus

Elaina Smith: 00:22:42

just doing a traditional merchant services that they could have?

Elaina Smith: 00:22:47

Branding and full control over.

Elaina Smith: 00:22:48

And Ashley, I'll start with you again on this one.

Elaina Smith: 00:22:50

Sorry, Elena.

Elaina Smith: 00:22:51

I just, I wanna get her perspective 'cause I,

Elaina Smith: 00:22:53

No, she's the one to answer that question.

Elaina Smith: 00:22:55

She's going to know the PayFacs side.

Ashley Isenberg: 00:22:57

Yeah, I think it's, it's interesting though, just

Ashley Isenberg: 00:22:59

going back to what we were just saying about user experience, right?

Ashley Isenberg: 00:23:02

I think That's the biggest shift that's happening right now with, call

Ashley Isenberg: 00:23:06

it a managed PayFac or a full payment facilitator, is folks aren't recognizing

Ashley Isenberg: 00:23:11

you may, you may hire a whole team of people, right, who understand how to

Ashley Isenberg: 00:23:16

build a solution for healthcare, right?

Ashley Isenberg: 00:23:19

And they know exactly what the customer is looking for, whether that be the card

Ashley Isenberg: 00:23:23

holder, the patient, or the actual medical facility that's serving those patients.

Ashley Isenberg: 00:23:28

They know what those customers are looking for.

Ashley Isenberg: 00:23:31

What they don't know, what their experience is, is with

Ashley Isenberg: 00:23:33

their current payment processor.

Ashley Isenberg: 00:23:34

Right?

Ashley Isenberg: 00:23:35

And it may be very disjointed, but when you take that on, you have to

Ashley Isenberg: 00:23:39

also understand how to be upfront and answer those questions, right?

Ashley Isenberg: 00:23:42

Outages happen.

Ashley Isenberg: 00:23:43

The biggest guys have 'em, the smallest guys have 'em while

Ashley Isenberg: 00:23:46

you're in development, right?

Ashley Isenberg: 00:23:48

Being open and honest about it, but helping your customers understand

Ashley Isenberg: 00:23:51

how to actually service that is where I see the biggest breakdown.

Ashley Isenberg: 00:23:55

Everybody gets into this space, but then they're not actually helping.

Ashley Isenberg: 00:23:59

Those companies who are embedding payments serve their customers.

Ashley Isenberg: 00:24:02

And it's the biggest thing that I'm doing right now is helping folks who

Ashley Isenberg: 00:24:05

are saying, we made the decision.

Ashley Isenberg: 00:24:07

We picked a partner.

Ashley Isenberg: 00:24:08

We're fairly early stage.

Ashley Isenberg: 00:24:10

Who do we actually hire on right now to help us understand

Ashley Isenberg: 00:24:13

how to serve our customers?

Ashley Isenberg: 00:24:14

Right?

Ashley Isenberg: 00:24:15

How to actually communicate outages or something with billing was incorrect, or

Ashley Isenberg: 00:24:19

a transaction failed or a refund got lost.

Ashley Isenberg: 00:24:22

How do we answer those questions?

Ashley Isenberg: 00:24:24

That's two different products, right?

Ashley Isenberg: 00:24:26

It's two completely different products than what they may have initially

Ashley Isenberg: 00:24:29

built for with a SaaS product.

Ashley Isenberg: 00:24:31

Um, so I think just helping with that terminology and how to support that has

Ashley Isenberg: 00:24:35

been an interesting transition, right?

Ashley Isenberg: 00:24:37

A lot of resources for how to get payments in.

Ashley Isenberg: 00:24:39

Not a lot of payment resources out there for how to scale it and grow it.

Ashley Isenberg: 00:24:43

But back to your original question.

Ashley Isenberg: 00:24:45

Sorry, I went off on a little tangent there.

Ashley Isenberg: 00:24:47

Um,

Ashley Isenberg: 00:24:47

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): It's okay.

Ashley Isenberg: 00:24:48

It's okay.

Ashley Isenberg: 00:24:49

I are, when you say PayFac, right?

Ashley Isenberg: 00:24:51

I just wanna make sure we're speaking the same language back to my prior point.

Ashley Isenberg: 00:24:55

Do you mean full stack?

Ashley Isenberg: 00:24:58

Whole risk.

Ashley Isenberg: 00:24:59

Well, we'll use the ISO model.

Ashley Isenberg: 00:25:01

I am the registered payment facilitator.

Ashley Isenberg: 00:25:03

Or do you mean a MA?

Ashley Isenberg: 00:25:04

Managed PayFac experience.

Ashley Isenberg: 00:25:06

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): so that's a good point.

Ashley Isenberg: 00:25:07

The way I look at it is that.

Ashley Isenberg: 00:25:10

If I am not doing a one-to-one ratio for, for merchant ID to the card

Ashley Isenberg: 00:25:16

brands, like one merchant gets one id, the card brand gets that one id.

Ashley Isenberg: 00:25:22

If you're not doing

Ashley Isenberg: 00:25:23

Tedd Huff- Host, Fintech Confidential-1: that, it's PayFac.

Ashley Isenberg: 00:25:24

The other

Ashley Isenberg: 00:25:24

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): side of the house is it, it is

Ashley Isenberg: 00:25:26

traditional processing to be one mid, one person registered with a card brand.

Ashley Isenberg: 00:25:32

That's what I mean by pay fact.

Ashley Isenberg: 00:25:33

It could be registered, it could be Uh, it could be like the, the managed, it

Ashley Isenberg: 00:25:38

could be the, the wholesale unmanaged.

Ashley Isenberg: 00:25:41

It could be somewhere in the middle.

Ashley Isenberg: 00:25:43

But really it's, it's really like looking at, because there are people and there

Ashley Isenberg: 00:25:48

are companies, and there are softwares that have absolutely no business, and

Ashley Isenberg: 00:25:53

there've been many that I've told just.

Ashley Isenberg: 00:25:55

Go the traditional route, find a good partner that has a great

Ashley Isenberg: 00:25:58

onboarding process that has the support because give an example.

Ashley Isenberg: 00:26:04

They do 10 accounts a year that are extremely large volume, but

Ashley Isenberg: 00:26:10

they're broken up into different

Ashley Isenberg: 00:26:14

locations, is the best way to describe it.

Ashley Isenberg: 00:26:17

They're doing underwriting one time and then they're just

Ashley Isenberg: 00:26:20

adding additional locations.

Ashley Isenberg: 00:26:22

It really doesn't make sense for them

Ashley Isenberg: 00:26:24

Tedd Huff- Host, Fintech Confidential-1: to go the PayFac route.

Ashley Isenberg: 00:26:25

But

Ashley Isenberg: 00:26:25

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): their main concern had nothing to do with

Ashley Isenberg: 00:26:28

really being a pay fac, but they were told by a provider, a legacy provider

Ashley Isenberg: 00:26:33

that offers a managed service pay fac that that was their best route to go.

Ashley Isenberg: 00:26:39

So now trying to undo all of the craziness that that provider

Ashley Isenberg: 00:26:43

has put bestowed upon them.

Ashley Isenberg: 00:26:47

Um, now making sure that they don't hire the people in the risk and the support

Ashley Isenberg: 00:26:53

and all these other different things and making like there's so much stuff.

Ashley Isenberg: 00:26:57

And that's kinda of when I look at who doesn't make sense

Ashley Isenberg: 00:27:00

to be a payment facilitator.

Ashley Isenberg: 00:27:03

Yeah, so I'll say this.

Ashley Isenberg: 00:27:04

I'll start registered payment facilitator very often.

Ashley Isenberg: 00:27:08

I don't think it makes sense, right?

Ashley Isenberg: 00:27:10

Where I see, hey, I'm gonna go be a registered payment facilitator, is maybe

Ashley Isenberg: 00:27:15

the three point OHS that are building I.

Ashley Isenberg: 00:27:18

A much more robust solution, right?

Ashley Isenberg: 00:27:20

Everything from the gateway and they're selling into an entire

Ashley Isenberg: 00:27:24

industry, or two or three.

Ashley Isenberg: 00:27:26

Um, someone who's processing well over a billion to 2 billion, right?

Ashley Isenberg: 00:27:32

But also has strong m and a plans, right?

Ashley Isenberg: 00:27:35

So they might be acquiring folks that are whole risk, whole risk ISOs.

Ashley Isenberg: 00:27:38

They might be acquiring payment facilitators, right?

Ashley Isenberg: 00:27:41

Taking those clients in, merging that business is going to be much easier when

Ashley Isenberg: 00:27:45

they're a registered payment facilitator.

Ashley Isenberg: 00:27:48

Occasionally you see some folks that depending on their investors,

Ashley Isenberg: 00:27:52

right, their financial model requires them to take that ownership and for

Ashley Isenberg: 00:27:57

some reason, simple portability in the contract's not getting it done.

Ashley Isenberg: 00:28:01

So most cases, I don't think it makes sense to become a registered

Ashley Isenberg: 00:28:04

payment facilitator, um, when it comes to, to embedding payments, right?

Ashley Isenberg: 00:28:11

A managed PayFac solution.

Ashley Isenberg: 00:28:16

It depends.

Ashley Isenberg: 00:28:16

Every company's so different, right?

Ashley Isenberg: 00:28:18

And so I don't wanna go into the like startup later stage, Right.

Ashley Isenberg: 00:28:22

I think it makes sense at any point is as long as you have a product, right, that

Ashley Isenberg: 00:28:30

naturally receives or pays out, right?

Ashley Isenberg: 00:28:34

So if you think about how you move money, if there's any complexity to

Ashley Isenberg: 00:28:41

how that money moves, maybe there's a trust account involved or there's

Ashley Isenberg: 00:28:44

two or three vendors involved, you see it a lot in legal or insurance.

Ashley Isenberg: 00:28:48

I think that's absolutely when it makes sense to become a

Ashley Isenberg: 00:28:50

payment facilitator, right?

Ashley Isenberg: 00:28:51

When you're having to control the way or split the way that those funds settle.

Ashley Isenberg: 00:28:58

I think anytime that you're vertically focused, it makes

Ashley Isenberg: 00:29:02

sense to bring payments in house.

Ashley Isenberg: 00:29:04

Where I don't see it making sense is folks that are super horizontal,

Ashley Isenberg: 00:29:09

they do B two B2C, they do B2B two B, they serve, um, just small

Ashley Isenberg: 00:29:14

merchants in general in most cases.

Ashley Isenberg: 00:29:16

I don't see it making sense, right?

Ashley Isenberg: 00:29:18

Because you're not building a repeatable underwriting and risk model, and

Ashley Isenberg: 00:29:23

that's the biggest thing that you're taking in-house, right, is how do we

Ashley Isenberg: 00:29:25

pick up the consistencies and even friendly fraud and prevent friendly

Ashley Isenberg: 00:29:29

fraud, but also on the backend.

Ashley Isenberg: 00:29:32

So when you start to get very horizontal, I don't think the payment facilitator

Ashley Isenberg: 00:29:36

model makes sense because you don't understand the risk you're taking on.

Ashley Isenberg: 00:29:38

So if you're not evaluating every merchant and setting up rules for those

Ashley Isenberg: 00:29:42

merchants on their own, oftentimes you're probably walking into some

Ashley Isenberg: 00:29:45

pretty mucky waters and you may not have the team or the resources for that.

Ashley Isenberg: 00:29:50

So why not leverage somebody else?

Ashley Isenberg: 00:29:52

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Ashley Isenberg: 00:29:54

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Tedd Huff- Host, Fintech Confidential-1 (Detached audio): So the other place, um, that I, that I

Ashley Isenberg: 00:30:56

see, and I, and I gave you an example of one, it's a high dollar, very, not

Ashley Isenberg: 00:31:01

complex, but unique use case, right?

Ashley Isenberg: 00:31:05

The other place where I start to see it is where the

Ashley Isenberg: 00:31:10

Documentation, whether it be regulatory documentation, whether it be something

Ashley Isenberg: 00:31:15

that requires a more hands-on approach that may take a day or two

Ashley Isenberg: 00:31:22

to really dive into it, and the, the.

Ashley Isenberg: 00:31:27

Financial institution that is being the sponsor, the bin sponsor for that

Ashley Isenberg: 00:31:32

doesn't feel comfortable with doing a exposure based underwriting process.

Ashley Isenberg: 00:31:38

So really it comes into that piece of it where if the bank isn't comfortable

Ashley Isenberg: 00:31:44

saying, go ahead and sign them up, finish the due diligence, and then

Ashley Isenberg: 00:31:48

complete the process, then that's another one that doesn't fit very well.

Ashley Isenberg: 00:31:54

But one of the things that you hit on was the money in, money out

Ashley Isenberg: 00:31:58

and controlling that, and I think that is more of a side effect.

Ashley Isenberg: 00:32:04

Of the lack of flexibility from the traditional processors, because

Ashley Isenberg: 00:32:09

I know a lot of folks have taken on that backend piece of it, that

Ashley Isenberg: 00:32:13

clearing, that settlement, that money split, that money movement.

Ashley Isenberg: 00:32:18

And you know, that has been a nice way to get the control they're

Ashley Isenberg: 00:32:24

looking for without having to go and choose a fully managed solution.

Ashley Isenberg: 00:32:31

Um, Elena, I, I.

Ashley Isenberg: 00:32:33

I know you spent a lot of time on reconciliation.

Ashley Isenberg: 00:32:35

I think that was our entire conversation the last time you and I sat down.

Ashley Isenberg: 00:32:39

Help us understand, like from your perspective, a secure bank card.

Ashley Isenberg: 00:32:45

Like what are some of the ways of reconciling and managing that you're

Ashley Isenberg: 00:32:53

seeing within your organization as a traditional ISO model?

Ashley Isenberg: 00:33:01

That sounds like it could be a good fit.

Ashley Isenberg: 00:33:03

When we start to talk about the the payment facilitator edge cases.

Elaina Smith: 00:33:08

So, Ashley alluded to this with merchant funding and being able to

Elaina Smith: 00:33:12

do creative things with merchant funding,

Elaina Smith: 00:33:15

and that is exactly why we built what we built, is to be

Elaina Smith: 00:33:19

able to have that flexibility.

Elaina Smith: 00:33:20

So just to give you a little background on.

Elaina Smith: 00:33:22

On the way that we operate, we only have the processors

Elaina Smith: 00:33:26

authorized and clear for us.

Elaina Smith: 00:33:28

We do everything after that point.

Elaina Smith: 00:33:30

So we receive all these transactions in.

Elaina Smith: 00:33:32

So the point of card acceptance to the point that we fund it out to the

Elaina Smith: 00:33:36

merchant, we do everything in between.

Elaina Smith: 00:33:37

So we built our own platforms so that we can handle all the

Elaina Smith: 00:33:40

merchant billing, we handle all the merchant risk on that platform.

Elaina Smith: 00:33:43

We handle all the merchant funding.

Elaina Smith: 00:33:45

So if someone says, Hey, we wanna split, you know, 90% over it here, 10% over

Elaina Smith: 00:33:50

here, whatever kind of funding arrangement that they have, we can accommodate that

Elaina Smith: 00:33:54

because we're not relying on the processors funding and

Elaina Smith: 00:33:58

outsourcing that from them.

Elaina Smith: 00:34:00

We control that ourselves.

Elaina Smith: 00:34:02

Um, and you also mentioned reconciliation.

Elaina Smith: 00:34:04

There's this whole, you know, now that we're managing the funding,

Elaina Smith: 00:34:08

we're getting all the funds in from the card associations and

Elaina Smith: 00:34:11

having to balance and manage that

Elaina Smith: 00:34:13

. And we're in control of, you know, if there's an outage and we

Elaina Smith: 00:34:16

don't get all of the funding and it, it doesn't all get cleared.

Elaina Smith: 00:34:20

Then we're on the hook for that.

Elaina Smith: 00:34:22

So again, it's a lot more responsibility, but we're also very much in control.

Elaina Smith: 00:34:26

If we have any kind of issue, we're the one going back to

Elaina Smith: 00:34:29

the processor and saying,

Elaina Smith: 00:34:29

Hey, you didn't gimme all my transactions.

Elaina Smith: 00:34:31

You sent this much to Visa.

Elaina Smith: 00:34:32

You only sent this much to me.

Elaina Smith: 00:34:34

And they still don't understand how we can, how we know that as quickly

Elaina Smith: 00:34:38

as we do because the, the platform is doing all the reconciliation for that.

Elaina Smith: 00:34:42

But that's kind of, we talk about customer experience, that's

Elaina Smith: 00:34:45

how you stay ahead of issues.

Elaina Smith: 00:34:47

I know that there's an issue before the card holder or the merchant is any of the

Elaina Smith: 00:34:52

wiser, and I'm chasing down that issue to fix it before it ever gets to that point.

Elaina Smith: 00:34:56

So we talk about, you know, breaking the ISO model and rebuilding it.

Elaina Smith: 00:35:01

That's what we've tried to do.

Elaina Smith: 00:35:02

I wanna take ownership as much as I can over that process, but again, it

Elaina Smith: 00:35:07

comes with a lot of responsibility.

Elaina Smith: 00:35:09

So if we miss a new assessment that comes out.

Elaina Smith: 00:35:13

That's on us.

Elaina Smith: 00:35:14

We end up eating that.

Elaina Smith: 00:35:15

Um, so it's the control you get, but the trade off is the responsibility and you

Elaina Smith: 00:35:21

might be on the bad side of that where

Elaina Smith: 00:35:22

you, you know, do something wrong and you mess up.

Ashley Isenberg: 00:35:25

I, I think we're all hitting on something interesting here.

Ashley Isenberg: 00:35:28

At the end of the day, I don't think the merchant or the card holder

Ashley Isenberg: 00:35:32

care if we're PayFacs processors, ISOs, they don't care, right?

Ashley Isenberg: 00:35:40

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): They only care

Ashley Isenberg: 00:35:41

about one thing.

Ashley Isenberg: 00:35:41

All they care about is that it's an easy user experience,

Ashley Isenberg: 00:35:45

that they're not spending hours at the end of every month reconciling that

Ashley Isenberg: 00:35:49

they're not losing money because of outages, that it's easy to consume.

Ashley Isenberg: 00:35:55

And it's not the traditional legacy relationship it used to be, right?

Ashley Isenberg: 00:36:00

I think I got into payments in 2010, 2011.

Ashley Isenberg: 00:36:03

And you know, the perception of what I did for work is that I sold credit card

Ashley Isenberg: 00:36:07

machines to C-store and stole a bunch of money from 'em, essentially, right?

Ashley Isenberg: 00:36:11

I mean, we were everybody's least favorite person.

Ashley Isenberg: 00:36:15

And I think it's just come down to what's the customer experience.

Ashley Isenberg: 00:36:18

I mean,

Ashley Isenberg: 00:36:19

a lot of where I'm spending my time right now is with the customer.

Ashley Isenberg: 00:36:22

'cause I felt like I sat on the other side of this world for so long.

Ashley Isenberg: 00:36:26

We're all out here trying to solve problems for these customers,

Ashley Isenberg: 00:36:29

whether it be the merchant or the cardholder experience.

Ashley Isenberg: 00:36:33

None of us are sitting in the customer's seat, right?

Ashley Isenberg: 00:36:35

We don't actually know what they need.

Ashley Isenberg: 00:36:38

That they don't care, right?

Ashley Isenberg: 00:36:39

They don't care who we are, how we did it.

Ashley Isenberg: 00:36:40

They just wanna know that it's an easy consumable process and that

Ashley Isenberg: 00:36:43

reconciliation's gonna be accurate.

Ashley Isenberg: 00:36:45

Funds are gonna hit on time, they're not gonna have outages, right?

Ashley Isenberg: 00:36:48

So I think no matter whether you're a processor, a wholesale,

Ashley Isenberg: 00:36:51

ISO, or afac is the tech good.

Ashley Isenberg: 00:36:54

Does it serve the, the feature functionality that that vertical needs?

Ashley Isenberg: 00:36:59

At the end of the day, I think that's really what matters, and that's why I

Ashley Isenberg: 00:37:01

think we'll start to see some, some, hopefully some verticalization in this

Ashley Isenberg: 00:37:05

industry where certain verticals are going to go to certain providers to

Ashley Isenberg: 00:37:10

solve the needs of of their customers.

Ashley Isenberg: 00:37:13

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): So what that brings me to

Ashley Isenberg: 00:37:14

really think about is going so vertical specific, is that.

Ashley Isenberg: 00:37:21

Can it support that?

Ashley Isenberg: 00:37:22

Because these are very, in a lot of cases, to maintain compliance, to continue with

Ashley Isenberg: 00:37:28

roadmaps, to keep up with the changes.

Ashley Isenberg: 00:37:31

And in the ever-changing needs and desires of, of your customer,

Ashley Isenberg: 00:37:36

in this case, whether it's a a

Ashley Isenberg: 00:37:39

merchant or a technology provider, you really start to get into

Ashley Isenberg: 00:37:46

All of these different pieces.

Ashley Isenberg: 00:37:47

Like an example would be are a number of folks that will offer

Ashley Isenberg: 00:37:54

a prepaid debit card as part of the program and then, or they'll do a

Ashley Isenberg: 00:37:59

credit card as part of the program.

Ashley Isenberg: 00:38:01

And then you've got, you've got digital wallets to be able to, to

Ashley Isenberg: 00:38:07

transfer funds internally between other folks that are on the same platform.

Ashley Isenberg: 00:38:10

And you've got all of these things that are going on out on the periphery.

Ashley Isenberg: 00:38:16

Not to mention when we start to get into cryptocurrencies and other digital

Ashley Isenberg: 00:38:21

assets that start to happen and it just starts to fragment to a point.

Ashley Isenberg: 00:38:25

But ev, most of the, I shouldn't say most, I almost said every, but there

Ashley Isenberg: 00:38:31

are a lot of very curious people

Ashley Isenberg: 00:38:36

trying to understand how to stay ahead of the curve.

Ashley Isenberg: 00:38:40

A lot of them don't even go into the granularity of where their

Ashley Isenberg: 00:38:46

customers are spending their money and they're just throwing things at it.

Ashley Isenberg: 00:38:49

So I don't know really where I was going with that other than the fact I said

Ashley Isenberg: 00:38:53

It can, can, you build a product roadmap right?

Ashley Isenberg: 00:38:56

Is it scalable?

Ashley Isenberg: 00:38:56

Right?

Ashley Isenberg: 00:38:57

To build a product roadmap for, for one vertical, I think is what you're asking.

Ashley Isenberg: 00:39:00

Is there enough?

Ashley Isenberg: 00:39:01

Is there enough to monetize there for the business?

Ashley Isenberg: 00:39:04

Does it actually stand on its own two feet?

Ashley Isenberg: 00:39:07

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Are there enough, like getting an

Ashley Isenberg: 00:39:08

example, like are there enough local law firms to use a law firm product, or are

Ashley Isenberg: 00:39:17

you looking at a professional services product that covers a whole bunch?

Ashley Isenberg: 00:39:23

Of of different verticals that have similar needs.

Ashley Isenberg: 00:39:26

Maybe not exactly to the label level, but across the board.

Ashley Isenberg: 00:39:30

Their workflow's the same, their

Elaina Smith: 00:39:32

I think it's best to focus on a niche and really serve that niche

Elaina Smith: 00:39:37

and then you figure out how do I go rinse and repeat this niche to some other,

Elaina Smith: 00:39:41

get that right because like Ashley said, it's all about the customer experience.

Elaina Smith: 00:39:45

And I love how she said, you know, pay fac equals tech and tech people

Elaina Smith: 00:39:50

software development especially understands the user experience better

Elaina Smith: 00:39:55

than payments people ever have or will.

Elaina Smith: 00:39:58

I hate to say that, but they're all about that and that's why they're flocking in

Elaina Smith: 00:40:03

this direction because it's all about the user experience as it should be.

Elaina Smith: 00:40:07

And we've kind of neglected that on the ISO side, and we have to

Elaina Smith: 00:40:10

make up for it and figure it out or else we're gonna be dinosaurs.

Ashley Isenberg: 00:40:14

Right?

Ashley Isenberg: 00:40:14

And we have all these models, right?

Ashley Isenberg: 00:40:16

Because payments is a compliance and regulatory industry, and we have to

Ashley Isenberg: 00:40:19

figure out how to help these companies

Ashley Isenberg: 00:40:21

move the money in a way that they're obviously not walking

Ashley Isenberg: 00:40:24

into money transmission or other, um, regulatory issues.

Ashley Isenberg: 00:40:29

But I, I completely agree with, you know, verticalization.

Ashley Isenberg: 00:40:36

I don't know how you build a product roadmap, right?

Ashley Isenberg: 00:40:38

For horizontal.

Ashley Isenberg: 00:40:40

If you wanna start to think beyond just payments.

Ashley Isenberg: 00:40:43

If everybody just wanted payments, right?

Ashley Isenberg: 00:40:45

This conversation's pretty short.

Ashley Isenberg: 00:40:47

I don't know how much time we'd fill up, right?

Ashley Isenberg: 00:40:48

But if you're actually thinking about

Ashley Isenberg: 00:40:51

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Yeah.

Ashley Isenberg: 00:40:51

what the merchants are looking for today, they're

Ashley Isenberg: 00:40:54

looking for faster funding, right?

Ashley Isenberg: 00:40:56

So now you're getting into disbursements products.

Ashley Isenberg: 00:40:59

They're looking in maybe a must pay industry, right?

Ashley Isenberg: 00:41:02

To accept multiple different types of modalities, right?

Ashley Isenberg: 00:41:06

We, if we don't think about just the 10 or the 20% of uh, users, especially

Ashley Isenberg: 00:41:10

in the us, there's a whole lot of users out there that are underbanked,

Ashley Isenberg: 00:41:15

unbankable, or in rural areas where they don't have access to certain things.

Ashley Isenberg: 00:41:19

And they need multiple ways to make payments, especially right

Ashley Isenberg: 00:41:22

in the must pay industries.

Ashley Isenberg: 00:41:24

They need multiple ways to fund those, right?

Ashley Isenberg: 00:41:26

Whether it's to a card or to support issuing or lending in

Ashley Isenberg: 00:41:29

some cases for small businesses.

Ashley Isenberg: 00:41:32

And so

Ashley Isenberg: 00:41:33

if you can't offer those other feature functionalities is

Ashley Isenberg: 00:41:36

payments on its own two fee.

Ashley Isenberg: 00:41:40

Big enough business right now if you're vertically focused, and I think the

Ashley Isenberg: 00:41:46

answer is no, but if you are looking at a vertical focus and you're expanding

Ashley Isenberg: 00:41:51

out into other financial services that may have higher or equal margins,

Ashley Isenberg: 00:41:55

that starts to become an affordable, scalable business

Ashley Isenberg: 00:41:58

that stands on its own two feet.

Ashley Isenberg: 00:42:02

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): I think where I was

Ashley Isenberg: 00:42:03

was headed with that is

Ashley Isenberg: 00:42:07

make sure that when you choose the vertical that you're going into, that it

Ashley Isenberg: 00:42:12

has enough Of a critical mass to be able to support the ongoing business case.

Ashley Isenberg: 00:42:20

Uh, because I've seen way too many times where there's a software

Ashley Isenberg: 00:42:26

provider that says, I want to be the, the provider for dry cleaners.

Ashley Isenberg: 00:42:34

I'll just throw one out.

Ashley Isenberg: 00:42:35

Right.

Ashley Isenberg: 00:42:36

So dry cleaners.

Ashley Isenberg: 00:42:38

They, they look at it and they're like, well, there's not enough

Ashley Isenberg: 00:42:41

margin in the dry cleaner.

Ashley Isenberg: 00:42:42

And on top of that, there's some additional risk around charging for things

Ashley Isenberg: 00:42:48

if it's a subscription based and like they go on all these different things

Ashley Isenberg: 00:42:51

and then you realize that even to do

Ashley Isenberg: 00:42:54

Tedd Huff- Host, Fintech Confidential-1: a managed PayFac, it doesn't

Ashley Isenberg: 00:42:56

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): make sense for them to do it

Ashley Isenberg: 00:42:58

because there's just not enough revenue in it to be able to

Ashley Isenberg: 00:43:01

support all the different pieces.

Ashley Isenberg: 00:43:03

And so then they fall back on the traditional.

Ashley Isenberg: 00:43:07

ISO route, and then in a lot of cases they're stuck with

Ashley Isenberg: 00:43:11

really, really bad experiences.

Ashley Isenberg: 00:43:13

And I guess it's kind of where I was going with that is

Ashley Isenberg: 00:43:16

it has to be a market of a certain size in order to be specialized and verticalized

Ashley Isenberg: 00:43:23

into it well enough to turn a profit.

Elaina Smith: 00:43:28

And how are you going to sell into that market?

Elaina Smith: 00:43:31

Are you as a software going to be the one selling into that market?

Elaina Smith: 00:43:34

Are you gonna rely on someone else to sell into that market?

Elaina Smith: 00:43:37

Um, you see some interesting hybrid kind of things going on in the ISO

Elaina Smith: 00:43:41

market where they rely on the ISOs and agents to sell into these opportunities

Elaina Smith: 00:43:46

and say it's, oh, it's agnostic.

Elaina Smith: 00:43:47

It's, and then once it gets to critical mass.

Elaina Smith: 00:43:49

They take it all back and they, you know, charge a, an

Elaina Smith: 00:43:52

extra fee to take the processing and all that.

Elaina Smith: 00:43:55

So that's an interesting thing that we see on our side too.

Elaina Smith: 00:43:57

I'm also curious from your perspective, when we're talking about verticalizing

Elaina Smith: 00:44:02

for pay fax, what happens when one goes bad and it affects the whole chain?

Elaina Smith: 00:44:10

Have you seen that?

Elaina Smith: 00:44:11

Uh, because we hear the stories from the other side of, you know, , they wanna get

Elaina Smith: 00:44:16

away from the pay fac for that reason.

Elaina Smith: 00:44:19

Um, I'm just curious if you have experience with that, um, where

Elaina Smith: 00:44:23

there's one bad egg in the bunch and it spoils the whole basket kind of thing.

Ashley Isenberg: 00:44:28

I think my question, are you talking Well, I wanna make sure

Ashley Isenberg: 00:44:31

we're talking about the same people or, you know, use cases here more importantly.

Ashley Isenberg: 00:44:35

So are you thinking A, you know, SaaS company who has now brought payments

Ashley Isenberg: 00:44:40

through a managed payment facilitator or a provider out there that is

Ashley Isenberg: 00:44:45

offering A

Elaina Smith: 00:44:46

A SaaS company who has TDS under them, basically,

Elaina Smith: 00:44:49

that are all customers of theirs, and they have one customer that's

Elaina Smith: 00:44:53

boarded that says, you know, Hey, I'm a gym just like everybody else.

Elaina Smith: 00:44:56

But really they're accepting payments for, I don't know, C, b, D or something that

Elaina Smith: 00:45:00

they shouldn't be accepting payments for.

Elaina Smith: 00:45:02

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): It's a good old crate.

Elaina Smith: 00:45:04

Yes.

Elaina Smith: 00:45:04

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): No

Ashley Isenberg: 00:45:06

Well, I mean, listen, fraud is fraud, right?

Ashley Isenberg: 00:45:09

And this is the whole point on do you actually become a payment facilitator?

Ashley Isenberg: 00:45:13

And most of the time, I'm gonna tell you no, right?

Ashley Isenberg: 00:45:16

The hopes is that if you're working with a managed provider, they not only

Ashley Isenberg: 00:45:20

have a risk team that is evaluating and looking for these trends in setting

Ashley Isenberg: 00:45:25

up product and people to do that,

Ashley Isenberg: 00:45:28

um, but that you also have functionality, right?

Ashley Isenberg: 00:45:31

To then set up another tier of risk rules, right?

Ashley Isenberg: 00:45:35

So.

Ashley Isenberg: 00:45:36

If we could catch all fraud, right.

Ashley Isenberg: 00:45:38

Fraud, I think in June of this year was already at 40 billion in 2023

Ashley Isenberg: 00:45:43

in fraud in the industry, and that was doubled from the year before.

Ashley Isenberg: 00:45:46

So if we could prevent all

Ashley Isenberg: 00:45:49

fraud,

Ashley Isenberg: 00:45:49

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): double again in 2024.

Ashley Isenberg: 00:45:50

By the way.

Ashley Isenberg: 00:45:51

I, I'm, I would assume it will, right?

Ashley Isenberg: 00:45:54

I mean, I agree with you.

Ashley Isenberg: 00:45:56

So like you can't prevent all fraud.

Ashley Isenberg: 00:45:58

Right.

Ashley Isenberg: 00:45:59

I think the hopes here though, is

Ashley Isenberg: 00:46:03

a compliance team within your provider should be able to

Ashley Isenberg: 00:46:06

help you define rules, right?

Ashley Isenberg: 00:46:08

Should understand your merchants and know what things to look like.

Ashley Isenberg: 00:46:11

And then because you serve a certain segmentation of customers,

Ashley Isenberg: 00:46:14

you should also know things

Ashley Isenberg: 00:46:16

that don't look right and have those tools and controls to set up

Ashley Isenberg: 00:46:19

another layer of prevention there.

Ashley Isenberg: 00:46:22

Right?

Ashley Isenberg: 00:46:23

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Right.

Ashley Isenberg: 00:46:24

And even to go in, I'll, I'll use an example, right, so Caleb over it till

Ashley Isenberg: 00:46:31

You know, I know him real really well.

Ashley Isenberg: 00:46:32

We've worked on a couple different things, but the, he

Ashley Isenberg: 00:46:36

just recently post on LinkedIn.

Ashley Isenberg: 00:46:38

Yes, I probably spend way too much time on LinkedIn, but he recently

Ashley Isenberg: 00:46:41

post, he goes, am I that a-hole?

Ashley Isenberg: 00:46:45

Because he had a merchant reach out that, said, Hey, you held my money.

Ashley Isenberg: 00:46:51

You have no right to hold my money, blah, blah, blah, blah.

Ashley Isenberg: 00:46:54

And come to find out the merchant.

Ashley Isenberg: 00:46:58

Wasn't truthful.

Ashley Isenberg: 00:46:59

they they didn't do what they said they were going to do.

Ashley Isenberg: 00:47:02

Now there's some nuances in there that, that are in there, but when you

Ashley Isenberg: 00:47:07

start to look at a pay fact model,

Ashley Isenberg: 00:47:11

does that one spoil the entire Basket the egg.

Ashley Isenberg: 00:47:16

That one egg.

Ashley Isenberg: 00:47:16

You spoil the whole basket.

Ashley Isenberg: 00:47:17

No, because a lot of times when you have a crew like Caleb does on his risk

Ashley Isenberg: 00:47:23

team, they're watching for that stuff.

Ashley Isenberg: 00:47:25

So as soon as something happens.

Ashley Isenberg: 00:47:28

If they're paying attention, they're going to take action.

Ashley Isenberg: 00:47:31

The same action, Elena, that you would take as being a traditional iso.

Ashley Isenberg: 00:47:36

And so it really comes down to you can't be hands off.

Ashley Isenberg: 00:47:40

And if you are hands off or you're turning a blind eye to it, that's

Ashley Isenberg: 00:47:44

when everything goes upside down.

Ashley Isenberg: 00:47:48

And I have seen it where they're like, oh, you know, one person

Ashley Isenberg: 00:47:51

in here isn't gonna be that big of a deal because this is there.

Ashley Isenberg: 00:47:55

Well, that one person is never one person.

Elaina Smith: 00:47:57

Right.

Elaina Smith: 00:47:58

Yeah.

Elaina Smith: 00:47:58

If they're using,

Elaina Smith: 00:47:59

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): you let one

Elaina Smith: 00:48:00

to hide things, then that's not a good model,

Elaina Smith: 00:48:04

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Right.

Elaina Smith: 00:48:04

And, and there are a number, actually, there's, there's three

Elaina Smith: 00:48:07

that, that came to me asking for help because they were put on match

Elaina Smith: 00:48:14

and they were put on match because they were doing things

Elaina Smith: 00:48:18

that were too gray area without.

Elaina Smith: 00:48:22

Asking or asking for clarity or working through it now, what they

Elaina Smith: 00:48:27

were, what they were doing, was it outside of the brand regulations?

Elaina Smith: 00:48:32

No, it wasn't,

Elaina Smith: 00:48:33

but it was close enough that the processing entity felt that it was

Elaina Smith: 00:48:40

so they made the judgment call.

Elaina Smith: 00:48:42

that's, that's what happens.

Ashley Isenberg: 00:48:44

That's exactly what happens.

Ashley Isenberg: 00:48:45

I think there's two, two different things I think about as we talk

Ashley Isenberg: 00:48:47

about this one in Caleb's situation.

Ashley Isenberg: 00:48:49

There's always going to be a merchant that's upset.

Ashley Isenberg: 00:48:52

Like I don't, there's always going to be somebody in any industry,

Ashley Isenberg: 00:48:56

in anything that you do, right?

Ashley Isenberg: 00:48:57

You're going to have people who get frustrated and you can do your best

Ashley Isenberg: 00:48:59

and say, Hey, Caleb was obviously operating within the bounds of a contract

Ashley Isenberg: 00:49:04

within the bounds of, you know, visa, MasterCard rules and fin send rules.

Ashley Isenberg: 00:49:07

And he's saying, I'm doing everything I need to do to protect the business and not

Ashley Isenberg: 00:49:11

just my business, but my clients using it.

Ashley Isenberg: 00:49:14

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Yep.

Ashley Isenberg: 00:49:14

I think where we don't see enough in our industry

Ashley Isenberg: 00:49:17

is communication to that merchant.

Ashley Isenberg: 00:49:20

Here's how long the funds are gonna be held for.

Ashley Isenberg: 00:49:22

Here's the process.

Ashley Isenberg: 00:49:24

I don't know if that's the case with Caleb, right?

Ashley Isenberg: 00:49:25

I didn't read through the whole post, but I think that's

Ashley Isenberg: 00:49:29

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Anything go into details on that piece of

Ashley Isenberg: 00:49:30

it

Ashley Isenberg: 00:49:31

but I think that's where things break down.

Ashley Isenberg: 00:49:32

It's like, were you in, were you, were you using your contract?

Ashley Isenberg: 00:49:35

Were you in bounds of your contract?

Ashley Isenberg: 00:49:37

How do you explain that to the customer though?

Ashley Isenberg: 00:49:38

And was it in terms that they could actually consume.

Ashley Isenberg: 00:49:43

I think we see this whole other side of, of this fraud conversation we're

Ashley Isenberg: 00:49:46

having where I think there's some folks who have gotten too big too quick, who

Ashley Isenberg: 00:49:52

have taken a very horizontal approach,

Ashley Isenberg: 00:49:55

maybe didn't build the fraud tools or automate the things

Ashley Isenberg: 00:49:58

that they needed to do.

Ashley Isenberg: 00:49:59

Took too much of a people approach and have seen some pretty significant losses.

Ashley Isenberg: 00:50:04

And my question is, are they ruining it for new members or new entry points

Ashley Isenberg: 00:50:10

from the bank perspective, right?

Ashley Isenberg: 00:50:13

Are the banks going to continue to and are Visa and MasterCard and these

Ashley Isenberg: 00:50:17

networks gonna continue to allow folks to go direct if there is folks out

Ashley Isenberg: 00:50:22

there who aren't building the right tools, you can put your procedures

Ashley Isenberg: 00:50:25

down on any piece of paper you want,

Ashley Isenberg: 00:50:28

but if you don't have the automation and you're not using the right set of tools

Ashley Isenberg: 00:50:33

and and mix between product and people, you're gonna see big losses and that's

Ashley Isenberg: 00:50:37

gonna screw it up for everybody else.

Ashley Isenberg: 00:50:40

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Well, you know, with you bringing

Ashley Isenberg: 00:50:41

that up and two stories from the past.

Ashley Isenberg: 00:50:45

That come to mind.

Ashley Isenberg: 00:50:46

One is, do you remember back, God, it's been probably 10 years in the annual

Ashley Isenberg: 00:50:53

report for Square, they had an enormous loss that was front and center on

Ashley Isenberg: 00:51:00

their, on their, on their annual report.

Ashley Isenberg: 00:51:03

And it was because they had approved a woman to be a and and should a

Ashley Isenberg: 00:51:09

person, it doesn't matter, it was a woman, but approved a person.

Ashley Isenberg: 00:51:13

To sell services for wedding planning.

Ashley Isenberg: 00:51:18

So wedding planning services, she was able to do that

Ashley Isenberg: 00:51:22

well.

Ashley Isenberg: 00:51:22

She wasn't getting as much revenue she wanted.

Ashley Isenberg: 00:51:24

She looked for all these different ways.

Ashley Isenberg: 00:51:26

So she started selling travel vouchers as part of her wedding planning.

Ashley Isenberg: 00:51:32

Come to find out that the wedding vouchers she was selling weren't actually real, so.

Ashley Isenberg: 00:51:37

Boom, but Square knew nothing of her selling wedding

Ashley Isenberg: 00:51:40

voucher or travel vouchers.

Ashley Isenberg: 00:51:43

And so they took the entire loss out of all of that.

Ashley Isenberg: 00:51:47

So that is a place where you know, when you have the risk, you're gonna get hit,

Ashley Isenberg: 00:51:53

especially if you're not checking in and looking at things and

Ashley Isenberg: 00:51:57

taking that proactive approach.

Ashley Isenberg: 00:51:59

And there are plenty of softwares.

Ashley Isenberg: 00:52:01

I mean that's, that's one of the things I spend a lot of time doing is

Ashley Isenberg: 00:52:05

I look at situations, problems that people have and instead of having

Ashley Isenberg: 00:52:09

to build it, 'cause you don't always have to build it, actually most

Ashley Isenberg: 00:52:11

of the time you shouldn't build it because it's not your core competency.

Ashley Isenberg: 00:52:15

But looking at the products in the marketplace that you can bring in,

Ashley Isenberg: 00:52:18

you can plug in that give you enough visibility or enough information

Ashley Isenberg: 00:52:23

to be able to move forward.

Ashley Isenberg: 00:52:24

And then the other one that comes to mind, as you were talking about

Ashley Isenberg: 00:52:27

now, on the other side of the house, you gotta have systems that

Ashley Isenberg: 00:52:32

when the alerts get thrown up.

Ashley Isenberg: 00:52:34

You're not looking at hundreds of thousands of alerts because it is little

Ashley Isenberg: 00:52:38

bits and pieces because Coinbase, why did they lose a bunch of money in their

Ashley Isenberg: 00:52:42

annual report two years ago is because they had a hundred thousand, I believe

Ashley Isenberg: 00:52:46

it was a hundred thousand alerts a day,

Ashley Isenberg: 00:52:48

and all their risk people were doing were going in and just all they had

Ashley Isenberg: 00:52:52

time to do was just clear 'em out.

Ashley Isenberg: 00:52:54

They didn't even have time to actually look at them.

Ashley Isenberg: 00:52:57

Now they fixed it since then, but that's a big issue now.

Ashley Isenberg: 00:53:03

What's really cool is that I've started to, to work with a handful of companies

Ashley Isenberg: 00:53:07

that are leveraging, um, generative AI and a handful of other things to really look

Ashley Isenberg: 00:53:13

at this stuff, to bring the items that are

Ashley Isenberg: 00:53:17

most important or the most egregious, or the most likely to

Ashley Isenberg: 00:53:21

become a loss to the forefront.

Ashley Isenberg: 00:53:24

But those are the two pieces that, as you're talking about it, like these are

Ashley Isenberg: 00:53:28

things that happen that a lot of people

Ashley Isenberg: 00:53:31

if they're not from payments.

Ashley Isenberg: 00:53:33

Don't really think about

Elaina Smith: 00:53:34

There's only one way to learn that lesson with

Elaina Smith: 00:53:37

risk, and that is to get burned, you have to take the big loss

Ashley Isenberg: 00:53:44

Right to figure it out.

Ashley Isenberg: 00:53:45

We've all had 'em,

Ashley Isenberg: 00:53:46

right?

Ashley Isenberg: 00:53:46

I definitely had 'em as, as a, as a owner in the payment space myself.

Ashley Isenberg: 00:53:50

Like they happen, right?

Ashley Isenberg: 00:53:52

And it's never the way you think it's going to, but what I think about is

Ashley Isenberg: 00:53:55

as we have this PFAC conversation, if that woman was processing right with

Ashley Isenberg: 00:54:02

a SaaS provider, I think there's like perfect venue in triple C, right?

Ashley Isenberg: 00:54:06

In that space.

Ashley Isenberg: 00:54:08

Who specifically serve that industry?

Ashley Isenberg: 00:54:13

If they had the right fraud tools in the right partner, right processing partner,

Ashley Isenberg: 00:54:17

we'll use processing partner broadly.

Ashley Isenberg: 00:54:19

Take ISO PayFac, whatever it may be, right?

Ashley Isenberg: 00:54:22

If they

Ashley Isenberg: 00:54:23

have the right

Ashley Isenberg: 00:54:23

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Oh, I can accept

Ashley Isenberg: 00:54:24

that.

Ashley Isenberg: 00:54:25

and they have the right tools, would they have

Ashley Isenberg: 00:54:28

maybe looked at those alerts differently than somebody sitting in

Ashley Isenberg: 00:54:32

a horizontal team looking at fraud?

Ashley Isenberg: 00:54:35

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Oh, I I fully agree with that.

Ashley Isenberg: 00:54:37

Yeah.

Ashley Isenberg: 00:54:37

I, I think totally, and that's, that's the big piece that

Ashley Isenberg: 00:54:41

some of the technologies that

Ashley Isenberg: 00:54:43

I'm working with really help in the Review allow companies that have been

Ashley Isenberg: 00:54:51

very vertically focused to start to go horizontal, because you can have one that

Ashley Isenberg: 00:54:56

looks very very similar, but there are a couple outliers, but you're not quite

Ashley Isenberg: 00:55:00

sure what they are until they happen.

Ashley Isenberg: 00:55:02

So, but we, using that Generat AI technology, they're able to see

Ashley Isenberg: 00:55:07

that those patterns, they're able to see the behaviors, they're able

Ashley Isenberg: 00:55:11

to look into these, um, .You know, one early, early adopter that

Ashley Isenberg: 00:55:17

is, is still one of my favorites.

Ashley Isenberg: 00:55:19

Um, and I'm gonna, it's gonna be hard for me, but you know, the David

Ashley Isenberg: 00:55:23

and the team over at Feature Space,

Ashley Isenberg: 00:55:26

like they are, they were one of the first people to really look at the

Ashley Isenberg: 00:55:29

behavioral side of the house, and they've been doing it for over 10

Ashley Isenberg: 00:55:33

years, but now the level of data that we have access to and the processing

Ashley Isenberg: 00:55:38

power and all these different things.

Ashley Isenberg: 00:55:41

Now, or lending itself to other ways of using it versus

Ashley Isenberg: 00:55:45

just transaction monitoring.

Ashley Isenberg: 00:55:47

So I could geek out about this all day long.

Ashley Isenberg: 00:55:50

I mean, generative AI and machine learning, that's,

Ashley Isenberg: 00:55:52

that's a place that I, I'm a,

Ashley Isenberg: 00:55:54

I'm a data geek that happens to like pretty stuff.

Ashley Isenberg: 00:55:57

Um, A-K-A-U-I, uh, so.

Elaina Smith: 00:56:00

I am with you though,

Elaina Smith: 00:56:01

Ted, as far as the ai.

Elaina Smith: 00:56:03

You know, everybody loves to throw out that buzz.

Elaina Smith: 00:56:05

Word or term.

Elaina Smith: 00:56:07

And I think ai, when you pair it with risk, is the most exciting to me.

Elaina Smith: 00:56:13

Um, there's so much opportunity there to help us understand the trends and

Elaina Smith: 00:56:19

have it do the work that we're doing.

Elaina Smith: 00:56:21

Um, I just think there's a ton of opportunity there, so I get

Elaina Smith: 00:56:24

as excited as you do about that particular use case with ai.

Ashley Isenberg: 00:56:28

I think the other use case I get excited

Ashley Isenberg: 00:56:30

about is support, right?

Ashley Isenberg: 00:56:32

I think there is going to be a lot of progress in support and I probably

Ashley Isenberg: 00:56:37

beat on the customer experience too much, but I hate to see,

Ashley Isenberg: 00:56:41

I hate when you see a phenomenal SaaS company or ISV come to market and their

Ashley Isenberg: 00:56:44

payments partner screws it up for 'em.

Ashley Isenberg: 00:56:47

Like

Ashley Isenberg: 00:56:48

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): yeah.

Ashley Isenberg: 00:56:48

That's the hardest thing to watch

Ashley Isenberg: 00:56:50

It's heartbreaking, right?

Ashley Isenberg: 00:56:51

It's like this whole all everything we're trying to do is

Ashley Isenberg: 00:56:53

kind of step back in those moments and I think we're gonna see a lot of

Ashley Isenberg: 00:56:57

progress in how Support can be integrated into, you know, AI and machine learning

Ashley Isenberg: 00:57:06

and, and responding to things quicker and helping customers in the moment

Ashley Isenberg: 00:57:10

when sometimes it's hard to put a person in that situation all the time.

Ashley Isenberg: 00:57:13

24 7.

Ashley Isenberg: 00:57:15

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Well, and I think one of the, and I,

Ashley Isenberg: 00:57:16

last night I was, I was with Integra Bank here in, in Phoenix, and we,

Ashley Isenberg: 00:57:21

we had a long discussion about ai.

Ashley Isenberg: 00:57:24

So it was, it was a group of people we got together really talking about how is

Ashley Isenberg: 00:57:27

AI affecting not only small businesses, but financial technologies in general.

Ashley Isenberg: 00:57:33

And, and looking at it, the piece that seemed to be a theme

Ashley Isenberg: 00:57:39

was that the AI that's being used today, let's just use chat.

Ashley Isenberg: 00:57:43

GPT, the, the the downside to that is it, it's able to, to give you an answer.

Ashley Isenberg: 00:57:49

But is it the right answer?

Ashley Isenberg: 00:57:51

Is it the right answer at the right time?

Ashley Isenberg: 00:57:53

Is it formatted right?

Ashley Isenberg: 00:57:55

And I think where

Ashley Isenberg: 00:57:56

the customer service or the customer experience is really gonna come

Ashley Isenberg: 00:58:01

in, I, I don't think it's ready yet, but I think it's on its way.

Ashley Isenberg: 00:58:04

But being able to

Ashley Isenberg: 00:58:06

create the message in the way that that particular customer is expecting it to be.

Ashley Isenberg: 00:58:12

And not only that is the timing that goes along with it.

Ashley Isenberg: 00:58:15

Because if, if I'm a business that works from nine to five, Monday through Friday

Ashley Isenberg: 00:58:22

the East coast, if there's an outage on Saturday at 9:00 PM do I really

Ashley Isenberg: 00:58:27

need to be no notified about it?

Ashley Isenberg: 00:58:29

And right now it's just blanket, blanket piece that says, any merchants

Ashley Isenberg: 00:58:34

tell them all, Hey, these all we,

Ashley Isenberg: 00:58:37

there might be a transaction that was affected by an outage.

Elaina Smith: 00:58:41

And that's a bad

Elaina Smith: 00:58:42

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): This is.

Elaina Smith: 00:58:43

Yeah.

Elaina Smith: 00:58:43

and

Elaina Smith: 00:58:44

don't wanna deliver that

Elaina Smith: 00:58:45

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): could really dive into.

Elaina Smith: 00:58:46

Nobody wants to deliver the message, but you could

Elaina Smith: 00:58:49

but it come, you do.

Elaina Smith: 00:58:50

I guess we were talking about communication earlier, and

Elaina Smith: 00:58:52

I would always rather be on the right side of over communicating, but like you said,

Elaina Smith: 00:58:58

if they're, if it doesn't affect them, then it does, it's just a bad look because

Elaina Smith: 00:59:03

how many of those are you sending out?

Elaina Smith: 00:59:05

I don't wanna have to send out these things that I have

Elaina Smith: 00:59:06

problems over and over again.

Elaina Smith: 00:59:08

And maybe it doesn't affect you every single time, but it's just not a

Elaina Smith: 00:59:11

good

Elaina Smith: 00:59:11

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): the perception.

Elaina Smith: 00:59:12

of your quality, the perception of everything just dramatically drops.

Elaina Smith: 00:59:18

And now with, with the expectation of realtime, realtime everything,

Elaina Smith: 00:59:23

it doesn't even have to just, everything has to be realtime.

Elaina Smith: 00:59:26

That isn't always good.

Elaina Smith: 00:59:28

And I think when you start to look at the payment facilitation perspective,

Elaina Smith: 00:59:32

that that was one of the first things that everybody was trying to get to.

Elaina Smith: 00:59:36

How do I, how do I control the message?

Elaina Smith: 00:59:39

How do I do it in real time?

Elaina Smith: 00:59:41

How do I make sure that they know what's going on?

Elaina Smith: 00:59:44

I, I I agree with you, Ashley, is that I'm telling more people

Elaina Smith: 00:59:49

more often now to not, not do

Elaina Smith: 00:59:54

Tedd Huff- Host, Fintech Confidential-1: any sort of PayFac.

Elaina Smith: 00:59:55

Just take

Elaina Smith: 00:59:57

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): your time, find the right partner.

Elaina Smith: 01:00:00

Don't rush into it.

Elaina Smith: 01:00:02

Make sure that everything's in place because.

Elaina Smith: 01:00:07

It's really hard to unwind something once you've got it in place.

Elaina Smith: 01:00:11

Maybe that isn't how you're looking at it, but that's how, how I

Elaina Smith: 01:00:14

interpreted your, your, your, your

Ashley Isenberg: 01:00:16

we'll agree on part of that and disagree on,

Ashley Isenberg: 01:00:19

so sometimes I think it's better to start right if that's

Ashley Isenberg: 01:00:23

the end game for the product.

Ashley Isenberg: 01:00:24

Sometimes I think it's better to start early.

Ashley Isenberg: 01:00:27

Um, I, I guess for a lack of better way to say it, there's some forgiveness

Ashley Isenberg: 01:00:31

when you're an early product, right?

Ashley Isenberg: 01:00:32

And people know if you're communicating where you are in your growth

Ashley Isenberg: 01:00:36

stage, people know they're working with an earlier stage product.

Ashley Isenberg: 01:00:39

And I would rather solve the problem for two merchants than solve the

Ashley Isenberg: 01:00:44

problem for a thousand merchants.

Ashley Isenberg: 01:00:46

And so I do think there's something to starting early or scaling into it,

Ashley Isenberg: 01:00:54

whatever model you pick that works for you, it's how you implement it

Ashley Isenberg: 01:00:57

and how you roll it out that matters.

Ashley Isenberg: 01:00:59

So anything solvable if you don't just switch it over one day and fundamentally

Ashley Isenberg: 01:01:05

change the entire model of your business.

Ashley Isenberg: 01:01:07

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Cross your fingers.

Ashley Isenberg: 01:01:07

Hope that it works.

Ashley Isenberg: 01:01:08

Hey, let's do this.

Ashley Isenberg: 01:01:09

We're payments company now, right?

Ashley Isenberg: 01:01:11

Uh, we were a SaaS company yesterday.

Ashley Isenberg: 01:01:12

We're a payments company today.

Ashley Isenberg: 01:01:13

That has to happen over time.

Ashley Isenberg: 01:01:16

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Yeah.

Ashley Isenberg: 01:01:17

Well, ladies, we've covered a lot of stuff today.

Ashley Isenberg: 01:01:21

Is there anything that, that comes to mind that maybe we haven't

Ashley Isenberg: 01:01:24

hit on, or just something that's burning in the back of your mind

Ashley Isenberg: 01:01:28

that, that you wanted to, to share?

Ashley Isenberg: 01:01:31

Um, on today's episode,

Elaina Smith: 01:01:34

I have a question for the two of you actually.

Elaina Smith: 01:01:36

Um, I'm curious, I'm curious, we seem to be seeing everything

Elaina Smith: 01:01:42

as a service, and it's the same way with PayFac as a service.

Elaina Smith: 01:01:47

It seems like everyone is calling themselves that.

Elaina Smith: 01:01:50

Now.

Elaina Smith: 01:01:52

they justified in calling themselves that are, is it just the new buzz

Elaina Smith: 01:01:56

term that they're calling it, that are, you know, are there people in the

Elaina Smith: 01:01:59

space that shouldn't be in that space?

Elaina Smith: 01:02:01

I'm just curious your thoughts on that side of it.

Elaina Smith: 01:02:06

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): I think it's some great marketing.

Elaina Smith: 01:02:07

Um, it's a really good way to say we, we bill you for

Elaina Smith: 01:02:11

everything at small increments.

Elaina Smith: 01:02:15

Um, and I'm, I'm being a bit facetious in that, but I think I.

Elaina Smith: 01:02:22

We saw software as a service, meaning things were delivered as

Elaina Smith: 01:02:25

they were used at increments that were billed as they were used.

Elaina Smith: 01:02:28

So the old adage of pay by the drink, that's really where the

Elaina Smith: 01:02:33

software as a service and or as a service model really was, was put at.

Elaina Smith: 01:02:38

But it's a nice and easy way for these companies to say you're just renting it.

Ashley Isenberg: 01:02:45

Yeah,

Ashley Isenberg: 01:02:45

I think it's consumable.

Elaina Smith: 01:02:46

it.

Ashley Isenberg: 01:02:47

Yep.

Ashley Isenberg: 01:02:48

I, I, I think it's consumable, right?

Ashley Isenberg: 01:02:49

When we're speaking to folks across many different industries that aren't

Ashley Isenberg: 01:02:53

payments experts, it's a way to alleviate all of the, the complexity.

Ashley Isenberg: 01:02:59

It's payments as a service or it's issuing as a service.

Ashley Isenberg: 01:03:01

And so I agree.

Ashley Isenberg: 01:03:02

It's great marketing.

Ashley Isenberg: 01:03:04

Do I think there's some folks out there that are using that term that shouldn't?

Ashley Isenberg: 01:03:07

Yes, but that's through my lens, again, as a payments nerd and not through the

Ashley Isenberg: 01:03:11

lens of the actual person using it.

Ashley Isenberg: 01:03:13

Don't think they care.

Ashley Isenberg: 01:03:15

As long as they know what that term means is embedded, that's

Ashley Isenberg: 01:03:18

that's all they care about.

Ashley Isenberg: 01:03:21

Tedd Huff- Host, Fintech Confidential-1 (Detached audio): Well, fantastic.

Ashley Isenberg: 01:03:22

Well, I am so happy that we finally got everybody on.

Ashley Isenberg: 01:03:26

Um, I don't think we answered the question of should we, shouldn't we?

Ashley Isenberg: 01:03:30

Who should, who shouldn't.

Ashley Isenberg: 01:03:33

But I think the main reason behind why we weren't able to really pull that out

Ashley Isenberg: 01:03:39

isn't because there's not an answer.

Ashley Isenberg: 01:03:41

It means it's because.

Ashley Isenberg: 01:03:42

The answer is different for every individual company, for

Ashley Isenberg: 01:03:46

every individual use case.

Ashley Isenberg: 01:03:48

If you're thinking about it, you need to take the time to really assess why

Ashley Isenberg: 01:03:53

you're doing it and whether or not you're solving the issue that you're

Ashley Isenberg: 01:03:57

trying to solve by becoming that.

Ashley Isenberg: 01:03:59

And is it really worth holding all of the risk and being the only one that's

Ashley Isenberg: 01:04:05

responsible for protecting that bag?

Ashley Isenberg: 01:04:08

So.

Ashley Isenberg: 01:04:10

Thank you so much for hopping on, and I look forward to many more

Ashley Isenberg: 01:04:16

conversations over time to really dive into some more of these things.

Ashley Isenberg: 01:04:20

But thanks again for hopping on.

Elaina Smith: 01:04:22

Thank you, Ted.

Elaina Smith: 01:04:23

It's been a lot of fun.

Ashley Isenberg: 01:04:24

It's been a lot of fun.

Ashley Isenberg: 01:04:25

Thank you guys.

Ashley Isenberg: 01:04:27

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Ashley Isenberg: 01:04:31

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Ashley Isenberg: 01:04:34

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Ashley Isenberg: 01:05:05

with all rights reserved.

Ashley Isenberg: 01:05:07

This is provided for informational purposes only.

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It is not offered or intended to be used as legal, tax, investment,

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Cryptocurrencies are highly volatile financial assets, so research and

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