Small Business Payments

Transcription:

Daniel Wolfe (00:08):

Hey Everyone! How's the meatloaf? Good. I really liked it. So here we are, starting the afternoon sessions. Everybody on a full stomach, but very attentive. Thank you for that. I'm Daniel Wolfe, Content Director at American Banker. You've probably seen me a few times already. I hope you're not sick of me because you got a few more to go. I'm here with this wise guy. You get it. They don't get it. Introduce yourself please. Ryan.

Ryan Zagone (00:36):

Hi, I am Ryan Zagone. I am from a company called Wise. We do international transfers. I will be referred to, I guess as the wise guy on this chat. I've been in the payment space. Prior to wise I was with the American Bankers Association focused on payment policy. I spent some time in consulting and served on the steering committee for the faster payments task force. That was the industry effort that led to the roadmap for RTP and Fed Now. So Wise, I lead our growth in bank partnerships.

Daniel Wolfe (01:08):

I really thought the wise guy joke. We got a lot more left. Right.

Ryan Zagone (01:11):

We'll have to try harder.

Daniel Wolfe (01:13):

Okay. Yeah, we'll try harder. So in terms of small businesses, small businesses like any other company are facing a number of headwinds. You've got still the after effects of the pandemic, automation, staffing issues, supply chain challenges, inflation. How Ryan do each of these issues affect small businesses and then what does it mean that so many of them are hitting them at once?

Ryan Zagone (01:37):

What's interesting now that the small business payment landscape, particularly for cross-border payments was really shifted during covid. Lots of threads got waven together and pressure points hit small businesses really directly during Covid. Several of the ones you've mentioned, what we saw in the small business space, my comments there be specific to the international transverse, which I think the most changes happened. The small businesses begin to look and look for services and act like retail customers. So we're looking for things like digital instant payments, certainty in the payment status. So the ability to track a payment or guarantee the delivery amount of that payment. So their needs started to look like what we see in retail and the two sectors of retail and small business begin to collapse. And what we saw during Covid was this shift where small businesses begin to migrate from a primary financial institution as their partner to using multiple vendors, much like a typical retail customer.

(02:46):

So you saw the loss of the small business as your one primary FI to using non-bank and FinTech services like WAS using us as a supplement to their primary financial institution for doing cross-border payments. So when it came down, what we see is the emphasis was on user experience. It's like how can a small business get a payment experience that not just what they have as an individual person, particularly for small businesses that are sole proprietors are in the micro business. That's where we saw the most movement. But this shift in the landscape where small businesses and retail became one sector and they were very open to looking and using multiple vendors is really shaken up what we've seen in the small business payment space.

Daniel Wolfe (03:35):

So that's driven primarily by the covid, the shift to digital that happened there.

Ryan Zagone (03:41):

During Covid, the shift was remote workers a pressure on margins. So there's a much more openness to hiring overseas, particularly individual contractors to do contract work. There was a much more global footprint for a small business than they had a need for prior. So everything went digital, including the small businesses, products and their resources. So the need for a small business payment overseas for payroll, employee reimbursement, small dollar contractor, vendor payment, these became immediate needs. We didn't really have that prior to covid. So cross historically cross water had been kind of a barrier for small businesses because it's much more complex than doing a domestic payment. But that resistance kind of kept small businesses just primarily domestic focused. But COVID really opened the gates to this being a more global need, a global use case and the need for a better experience in that.

Daniel Wolfe (04:46):

Is it also on the customer side, the customers were less sensitive to the divisions of borders or are we talking just employees? Okay.

Ryan Zagone (04:53):

Yeah, very much where it's like who's working for you, who you're selling to for a small business. The world became global pretty quickly during covid. Okay.

Daniel Wolfe (05:02):

And since then we've had issues, inflation, that sort of thing. How did that weigh in if it wasn't in the math beforehand when they went more digital, more global?

Ryan Zagone (05:11):

Yeah, there's inflation. There's for small businesses, particularly investment in VC funds drying up. So there's a drive to drive revenue to be more focused on turning profit. So a pension in your margin and bottom line. So an emphasis on how do I get lower cost vendors, how do I find lower cost talent? And it drove a lot of business and activity overseas. So you're starting to see covid a need for a better user experience and these macro effects all pushing on the small business to look more global.

Daniel Wolfe (05:47):

And so now in this, I guess what we call post covid economy, what else is driving them to expand internationally and what barriers do they face other than the ones that we've discussed?

Ryan Zagone (06:00):

So what we saw with Covid was the shift and we saw the beginning of small businesses using multiple vendors for payments. What we've seen over the past two years, it was like 2020, 2021, the 2022, 2023 chapter was those businesses that left to use multiple vendors stayed there. They didn't go back to a primary financial institution. They didn't shift back to more domestic focus. It turned out to be a sticky customer from wiser side, I'll just say some stats from Rise, but we've seen this across the market. We have 10 million customers to date. We're onboarding a hundred thousand a week in new customers. About 400,000 of those are small businesses. Those small businesses that have come and used us have stayed with it, stayed with us. It was in a will come for one year and then shift back, which is what the market was looking. Is this going to be a temporary trend that we'll see a snapback to the way things were pre covid or is it going to be a foundational shift in the market? What it's proven to be is this proven to be thus far has been, it's a little more long term. It's a sticky customer that moved and they're staying there held onto the user experience that they get from some other firms.

Daniel Wolfe (07:16):

It's interesting to think of the things that stayed through covid and the things that snap back that we didn't expect to snap back. I still remember a number of restaurants were saying, we don't need sit down dining anymore. Everybody's happy with takeout, no contact delivery. People won't blow out their own birthday candles anymore. I think the last time I was at a kid's birthday party and saw him blow out his own candles on his cake, I almost lost my mind. I thought, we don't do that anymore. So that's not a question.

Ryan Zagone (07:43):

You look at the snapback though. What's interesting is pre covid, we didn't really have instant payments in the US. There was this shift to the covid shift we've talked about even if there was a snapback, they'd go back to a domestic focused market where the user experience is now instant with RTP and Fed now. So there's this expectation that's been set in the market for we want easy, instant payments that's become the new base and you can get that from FinTech providers. You can't easily get that from a traditional financial institution. So even if there was the snapback, I think the use case around instant payments as holding customers there with wise at least. So from WISE today we do payments to almost a hundred countries. We do about 10 billion in volume each month. 60% of that we settle instantly. We measure that as funds in the recipient's account in under 20 seconds. So it's end to end instant payment. That user experience around speed, the speed and certainty knowing the payment will get there and knowing when it will be received. That's the user experience that differentiates a platform like WISE versus a traditional international wire. It will take two to three days. It wouldn't have the same speed or certainty with it. There's been a lot of advances on traditional international wires over the last several years, but it's still the leadership of WISE on enabling instant payments to a really broad group of currencies holding customers with us.

Daniel Wolfe (09:18):

So in terms of just where the demand is and experimentation, let's say, where do you see what categories of small businesses are most interested in having instant payments or any kind of more cutting edge payments technology?

Ryan Zagone (09:33):

Yeah, so pre Covid Wise's business was primarily retail, retail customers sending remittances. We had a small business product that was fairly new and was a small fraction of our total volume. We didn't even report it in our report earnings report, which just wasn't material post covid. The small business payment volume now counts about 25% of our volume. We've gone from basically nothing to 25% in two years of an already large pie. It's about 10 billion a month in volume. So it was, we've seen a material shift in the makeup of our volume driven by small businesses coming to us. The use cases that are driving that growth, there's three that are top of mind for us. Employee payroll, if you have employees, contractors, or even a small vendor overseas, that's one or two people, you need to pay them and you need to pay them with certainty down to the cent of what they're owed.

(10:37):

A key feature of WISE is we guarantee delivery amount in the recipient currency before you initiate the payment. So you note down to the cent what gets delivered. So it fits a payroll use case quite well. Second is employee reimbursements. Same need. You need to have certainty on the payment amount and the small dollar invoices. So typically the payment volume looks like small value but high velocity. So lots of small, small payments, small value payments. It's kind of the inverse of what you'd see from a traditional international wire business where they're typically larger amounts. They're not this high velocity payment. So it's this kind of a new product, a new payment type that has emerged through covid that we excel at quite nicely.

Daniel Wolfe (11:23):

We've talked about small businesses working with multiple vendors and of course with banks. What does this mix look like these days in terms of what small businesses want from a bank, from a FinTech and how those two categories could work together?

Ryan Zagone (11:37):

Yeah, so what you said code, there was a number of companies that popped up or existed, but really rapidly grew during covid that served the small business market. It was like Brex, Ramp, Mercury, Blue Vine, and there were these FinTech platforms that provide banking and payment services, banking like and payment services to the small business sector. Those platforms grew rapidly. It was this shift that we talked about of a small business looking at multiple vendors and choosing who has the best user experience. So the shift happened where small businesses moved from a traditional bank to these platforms driven by user experience. What you typically see is these small businesses do use multiple vendors as these FinTech and online platforms, including wise, we don't do everything wise is very narrow. We just do international payments. We don't do credit or lending or a lot of things. We just stick in a very narrow lane of international. Some of the other platforms that you do see the Mercury, Brex, Ramps of the world do have other products like lots of other products. They don't do everything. They're not a bank. So you see the small businesses willing to use pick the best in class vendor and use multiple vendor integrations as opposed to before where we would do everything through one financial institution, we would just pick for simplicity.

Daniel Wolfe (13:00):

So then What Role do banks have? Should banks be looking to partner? Should they be looking to defend their turf? How does this dynamic change the role of banks?

Ryan Zagone (13:10):

Yeah, the big shift that's happened in this last year at the conference last year, we talked about these similar themes. There's a shift that's happening, small businesses have collapse with retail. So we saw the market move and that's kind of where our conversation ended. What's happened since then is the market and solutions for financial institutions have changed. They've now responded. One key example of that is WISE has we announced a relationship and integration with Swift where you can have the wise payment experience is now directly integrated into Swift. We brought our rails for instant payments and the guaranteed delivery amount are available via Swift. So if you are a Swift member today, you can send your existing Swift message or MT or your MX message instead of sending it to your correspondent. You can send that to wise. We're essentially a correspondent on Swift now we'll take that swift message and convert it to an instant payout for the currencies that we have, instant currencies, instant payments available in.

(14:15):

So if you're bring the wise experience of instant payments and guaranteed delivery amount to the infrastructure that banks use today, instead of forcing a bank to say I need to move off of SWIFT or integrate some new type of platform that we don't really know. Our view it was was just take our experience to the infrastructure banks already use. So we spent about a year in development with that product with Swift and we announced it at Sybos last year. So it's bringing this experience of instant and guaranteed amount, guaranteed delivery amount to traditional financial institutions in a way that we see compliments what they do already. So it's like you have existing swift rails that run high value payments very easily and well through what we are enabling through this partnership is this ability to do the low value and high velocity payments at scale and at ease through the existing infrastructure you do today. To me that was a big shift in the market to see Swift leaning in to say how do we enable, we see their market has changed, how do we help our members and our participants in the SWIFT network respond to that in an easy way. So we've seen, to me that's a huge shift for Swift to be, not a shift but evolution in progression in Swift's products case so that they can work and drive innovation with their bank members.

Daniel Wolfe (15:43):

And I'm imagining what we have here is a fairly American audience or you live in America now and you were talking about your audience being international, your use case being those international remittances. What are some of the things that a small business with an international vendors or employees or customers, what are they seeing in other countries that they're not seeing here in the US that maybe a lot of the people in the room haven't had firsthand experience with and how do you serve those needs? What needs do those bring up?

Ryan Zagone (16:20):

What you see other countries is they have instant payments at the domestic level that's already ubiquitous. We're quickly coming to that in the US, two years ago we looked very different as a market where we didn't have instant and there wasn't this market expectation for instant same day ACH was live and being used. So there was this early cycle of the market expecting faster and what you've seen in the past couple years is that expectation of faster has now increased to instant. So we start to look like other markets now where you have instant payments at the domestic level. So you have seen a leveling out of we need speed and we need certainty. And I'll say a few more words on certainty more than just guaranteed delivery amount. It's like expectation of when the payment will arrive. So a forecast of when the funds will be delivered and available real-time tracking through the lifecycle of that payment.

(17:18):

So if there is an operational issue, you are able to pinpoint exactly where in the chain something went wrong. You can quickly revise that or fix that. All of these things give you certainty in the payment. For the small businesses we see certainty is the primary benefit they're looking for over speed from a retail customer speed is number one. So the retail and small businesses do differ here a little bit. The small business is saying we want it there fast, but what's more important to me is I know when, so it's like I know exactly for a payroll date, I know when that funds will be arrived and the person receiving this payroll gets paid on time. You can do that instantly, but certainty is a little bit more important for them. So you see the instant and the certainty are the two core use cases coming up and you're seeing that a little more global now where the US starts to reflect some other countries.

Daniel Wolfe (18:17):

What about things we might be seeing advancing more in other countries like central bank digital currencies? Where does that play into the demands and needs of small businesses?

Ryan Zagone (18:27):

So there's lots of experimentation and evolution happening in payments right now to meet these changing consumer demands. I mentioned the wise and Swift relationship, that's one that's very near term and live now, so it's very practical and you can use it now. There's also experimentation in central bank digital currencies, which I put is further out experiments still. I guess the relevant news of the week is SWIFT did announce they will launching a central bank digital currency platform in the next two years. From my view at wise the CBDC, the Central Bank Digital Currencies are a way to enable instant payments in markets that may not have it today. It's not the only way RTP and Fed now don't use that tech. They work fine. There's many countries around the world that do have instant payments dating back like 10 years now. If you look at spay and Mexico live for over 10 years with instant payments, not using the digital currency technology.

(19:36):

So ways to get instant payments without using CBDC and there seems to be a need or a potential need in other markets to get to instant payments with that technology. It's not a silver bullet, it's like one tool in your toolbox. I think to me it's experimentation and we'll see where it goes. There are some that are live and they're typically markets that their domestic infrastructure needed to evolve. So several in the Caribbean and in some smaller APAC countries but not what you're seeing. It's not like a major G 10 countries leading CBDC as their new market infrastructure.

Daniel Wolfe (20:15):

Alright, so we still have a bit to go but I wanted to turn this over to the audience for a few minutes before we get to our next questions. Do any of you have any questions that you would like to raise about small business payments and the international.

(20:31):

Right up front and I see a microphone on its way to that hand.

Audience Member Rashan (20:42):

Hey, how are you? Thank you guys so much. This has been very informational Rashan with Capita Head of Partnerships there. The past two years has been an incredible amount of growth for you at Wise. Can you just talk about how you've navigated that growth while also still making sure your clients have a good customer service experience because that type of growth you can't possibly make sure everyone has the same experience when you have that many people onboarding at the same time. So I'm just curious how you manage that with your product team and what that looks like because I'm going through that right now. So I'd love to hear how you navigated that over the past two years.

Ryan Zagone (21:21):

Yeah, excellent. So a question around why is this seen pretty rapid growth and how we've managed that as we've scaled correct, particularly in a way to ensure as you scale, you want to ensure you have the same user experience to all the customers from onboarding through completed payments, through resolution if you do need one. So we've grown rapidly and that volume has shifted where it used to be very retail focused. I mentioned now it's like 25% business payments. The challenge is scaling that. It's scaling all of your functions simultaneously. So we've been in growth mode particularly here in the US. So in the US about 50% of our revenue comes from the US. We grew revenue last year, 51% year over year for a 12-year-old company. We're not a startup, we're publicly traded, 6,000 employees. So already scaled and then hitting this new growth curve and that growth curve being driven by the user experience we built.

(22:28):

We're very lucky to be blessed with. We built the user experience the market was looking for at the time when Covid hit. So it's accelerated our growth pretty rapidly. There's two regions where we're seeing the growth being driven from it's North M, it's primarily United States and apac, Australia and Singapore. Those two markets account for about 60% of our growth. So the shift that's happening in particularly small business payments in the US, it's not just a US shift but it's a US shift that is much greater than what we're seeing happening in other countries. To me that comes down to the products that are available today in the market, particularly from a traditional financial institution wasn't meeting that instant payment and guaranteed delivery amount that the user experience needs. So it really amplified the growth that we had in the US how you build a company and sustain that. To your question, we've invested a lot in US growth. So we opened, we've moved our headquarters for the US to Austin, Texas, about 400 people there now, mostly new hires. So it's like regionalizing the growth of the company.

(23:45):

The philosophy at WISE is that payments are cultural, payments are very local, so like how people conduct payments differs really broadly from different countries. It's not like a single solution can solve that. So we to make that more concrete, we were TransferWise for about nine years and then we rebranded a couple of years ago to WISE and in that rebrand, aside from shortening the name and changing some color schemes, the product was rebuilt to be regional. So we rebuilt it at a regional level. So what you see in the US from graphics, from font, from the language is US specific owned by a US based team. We have 80 different product teams in different markets. Each of those markets regionalize the product for that country. So what you see in Malaysia looks different from the imaging, from the font, from the type of marketing that we do looks different than what you'd see in Singapore or Mexico or Brazil.

(24:49):

So it's like we took one single product and we flattened the organization to be 80 different regional teams and they each own the product. So that's allowed us to take the product to be very specific to the market and then as you hit different scaling pain points, you can address it at the local market. So if it's a KYC pain point in the US you have a regional team that owns that product, they can fix that. If you have a fraud problem in Brazil, you have a regional team that knows that market, they can fix that. So we took apart the organization from a central team in London to 80 different regional teams around the world and that was the key to us being able to scale quickly, rapidly identify a problem and fix it at the local level.

Audience Member Rashan (25:37):

Fantastic answer, thank you.

Daniel Wolfe (25:40):

Can I just follow on that, do you also have that distinction between consumer and small business for your Product?

Ryan Zagone (25:47):

We do. It primarily happens. The distinction really primarily happens in the onboarding. The onboarding from a consumer versus small business differs the most. Once you get into money movement, we need to move funds from here to there. That looks pretty similar regardless of who you're, if it's a small business or retail customer. So the distinction on the small business and the retail customers usually happens in the onboarding and there's one product feature around scheduled payments that small businesses typically want. Retail customers typically have that less a high priority. They want everything to be instant. They have an instant that can do it right now. Yeah, so there's one product feature that we do see around scheduled payments that does differ between the two.

Daniel Wolfe (26:32):

Okay. Do we have any more questions from the audience? All right. Oh I do see a hand coming back in front of the lights. I know the audience can't tell how bright these lights are, but it really is intense from up here. They're very bright.

Audience Member 2 (26:52):

Hey, great talk. Thank you so much for this. Quick questions. You mentioned 60% of your payments are instant measured by within 20 seconds. Could you break down the other 40% and why that's not instance, what are the blockers and where do you see that in the future?

Ryan Zagone (27:07):

Yeah, let me put it back as an echo to make sure I hear you today we have 60%, our payments are instant. What about the other 40%?

Audience Member 2 (27:16):

About the other 40%? Why are they not instant? What's the split between it and where do you see that in the future?

Ryan Zagone (27:23):

Yeah, great. So for the way wise has built a payment network. We've integrated the domestic payment rails of 70 countries and we've woven the domestic payment rails into a platform where a country has an instant payment rail. We'll integrate that rail, we'll weave that into our platform. So for countries that have an instant payment rail, we'll pay over that instant rail. There's some countries that don't have instant rails kind of like US four or five years ago. So for that we're just reliant on the speed of the local rail. So there's some payments that we do but don't have an instant payment rail in that country. So there's no way we can really get it there. Instant, we're kind of at the mercy of the speed of the local rail. So this global trend to build more instant payment rails has benefited us, given us more threads we can weave into the platform.

(28:15):

So our instant rails are like Brazil, Mexico, Singapore, Australia, UK, US. A key thing we would love to see if there's any Fed Now folks or TCH folks here is the ability to pay out international payments over Fed now and RTP right now you can't do that by the network rules. We think that would be huge for us and I think for other banks doing inward payments to the US to be able to pay out instant payments over their as rails. So giving us another thread we can weave in today, it's 61% of the volume settles instantly, 80% settles within one hour and the rest of that like 10 to 20% follows over to next day.

Daniel Wolfe (29:03):

So we're just about out of time. I know we had a few questions that we were brainstorming we didn't get to pick your favorite answer it.

Ryan Zagone (29:11):

It's top of mind for me right now is the CFPB release yesterday on junk fees and transparency. So a core piece of wise is showing customers the total cost of the transfer, including the FX margin before they make the payment. So they see both a fixed fee upfront, say $2 plus the FX margin. For most financial institutions in most markets the FX margin is hidden or it's only disclosed after the payment. So the customer doesn't actually know what they're paying in fees until the payment's settled. Some of those fees that get hidden in the FX margins are a large and egregious in some cases four and 5% they'll take, a bank will take out of the payment it. We have long been advocates for full transparency of fees before the payment's made. So the total cost is disclosed to the customer upfront. That's now a regulatory requirement in many countries.

(30:13):

We were thrilled to see the CFPB come out this week and say we need to move to transparency in the US What they're particularly interested in is products that advertise themselves as free, but actually charge a hidden fee in the F X-ray, which we think is particularly bad, which are really misleading the customer. So there's a movement to be for more price transparency in the US which not only good for consumers, but also is going to reshape the market, whereas all the vendors start to have to show their total cost. Customers can make a better decision of who choose cheapest. And we wise, look, we're very well placed to win on the low cost market. We're a low cost provider. Our average fee is about 60 basis points. Typical bank fee is around three to 4%, so five to eight times more expensive. So I think for Wise's growth, we're very interested to see this take off and I think there'll be a lot more reshaping around how to be competitive in this market, both fintech's and banks. Once price transparency does become now as it is becoming a requirement in the market.

Daniel Wolfe (31:29):

Alright, and that's time. Thank you very much. Thank you. And thank you for the audience for your questions and your interest.