Making recurring payments seamless: An interview with Pranav Sood of GoCardless
For this edition of the Fintech Explorer, I had the pleasure of interviewing my good friend Pranav Sood, VP of Small Business at GoCardless. We had a great discussion on Pranav’s background and career journey, GoCardless’ business, mission, and differentiation, the company’s recent fundraise, Open Banking and how GoCardless plans to take advantage of it, and the pandemic economy in the UK. I’ve bolded some of the highlights, but would strongly recommend reading through the entire informative interview. I would love to hear any thoughts you might have, and thanks to Pranav for taking the time to speak!
Ravi:
Can you tell us a little bit about your background and how you ended up at GoCardless? What do you do there?
Pranav:
I'm the Vice President of Small Business at GoCardless and so am responsible for the small business segment globally. We serve around 60,000 small businesses a month around the world today, processing hundreds of millions of dollars of payments on their behalf. My team is responsible for helping these businesses to grow and for acquiring more of them.
I've been at GoCardless for about three and a half years now. Previously, I was the VP of International Expansion and was in charge of growing our business from the UK into Europe, Australia, New Zealand and into the US. I also led Business Operations and Strategy, which involved fundraising, strategic projects, three year plans, all the fun stuff!
Prior to that, I was a consultant - I spent the first few few years of my career at Bain and Company, working across a range of different disciplines and continents. I was based in the UK, India, and Melbourne, Australia, and I did the whole spectrum of work spanning from strategy to transformational and sometimes organizational design work as well. Like many consultants, I spent four or five years doing it and realize that I was yearning to have a slightly more direct relationship with the outputs of the work that I was doing, rather than just giving people recommendations. And so I took the decision initially to go and work in a PE-backed vegetarian ingredients business. We were selling falafel and hummus, and all sorts of things like that. And then eventually, I decided that I wanted to kind of work in a more dynamic field. And so moved into FinTech and into payments, which is where I've been ever since.
Ravi:
Great, thanks for that! Tell us what GoCardless does.
Pranav:
Yeah, of course. We’re a payments company and our vision is to be the best way to collect recurring payments. Our fundamental belief is that the market for recurring payments is massive, growing and underserved. It’s powered by the growth of the subscription economy and adoption of cloud services. But it's not well served either by credit cards, which typically are expensive and unreliable, or by credit transfers, which can be cheap to process but come with a huge amount of cost from a reconciliation, and administration and also, frankly, cash flow perspective.
Our solution is to use bank-to-bank payment rails, which are cheap, reliable and preferred by payers across many markets. The problem is that these rails have historically been very localised, difficult to access and not well suited to the cloud. So, we’ve built a global network that links up local rails like ACH in the US and many others, abstracting away the idiosyncrasies of each. On top of that, we've built a layer of tech that allows businesses to access our product either via our API, our Dashboard or else through a suite of integrations with partner software products, like Intuit Quickbooks. Finally, we're now layering the intelligence and the differentiation that comes with processing lots and lots of payments. So whether it's smart retries, whether it's FX, whether it's increasingly helping businesses to balance the tradeoff between risk and conversion, there are lots of things which only become possible for you once you reach a certain level of scale.
Ravi:
Awesome. Can you give us an example, for readers who are less familiar, of a few types of customers and how they would use GoCardless?
Pranav:
So GoCardless primarily serves three use cases. The first one is subscriptions, which you know, either in the physical form like a newspaper or a gym, or else in the digital form. So for a SaaS product, for example, if you're paying for DocuSign or something like that, you might pay on a monthly or a quarterly basis. The second use case is invoicing. So people often think about invoices as one-off payments, but in reality, generally businesses are invoicing the same customers time and again. And so it's a recurring relationship, and we enable businesses to collect invoices for varying amounts at varying frequencies using our payment rails. The third use cases are installments which are basically obligated repayments. And that could be insurance or could be buy now pay later. It could be other forms of lending. But the key there is that it's a finite term and it's got an obligation to it.
Ravi:
Got it. And just to be clear, as the company’s name would suggest, in these use cases, instead of using a corporate card, this just the money is being pulled straight from a bank account?
Pranav:
Exactly. We have built our product on what's known as bank debit. So in the US, as I said, it's ACH debit. In the UK it’s called BACS and in the Eurozone it’s SEPA. All of these are bank-to-bank schemes, which allow merchants to debit their customers’ accounts. Obviously, there needs to be an authorisation and customers have to be notified, but the idea is that it’s a pull-based payment mechanism, where the merchant has the ability to control when and how much they debit their payers’ bank accounts.
Ravi:
Okay, that makes sense. So, you know, payments is obviously a very hot space right now, there's so many payment processors out there. How does GoCardless aim to build something differentiated versus the other processors out there?
Pranav:
As you say, it's an extremely interesting space. And there are lots of people doing different things to try and capture market share. I think the first comment I would make before talking about GoCardless, specifically is that, despite the success the payments companies have had, so whether you look at the publicly traded ones, like Adyen or Square, or the private ones, like Stripe or GoCardless, despite the success and the traction in the valuations, the majority of the payments market is still controlled by what I would call legacy players, whether that's the bank or the legacy payment processors.
What makes GoCardless different is the level and depth of focus we’ve put on solving a single set of problems, related to recurring payments, through just bank-to-bank payment rails. That’s quite different to the approach that someone like Stripe is taking, where what they’re trying to do is drive conversion by offering as many different payment methods as they can. There’s clearly a case for that and the success of Stripe is self evident. But we also think that in a world where technology is increasingly allowing people to add best-of-breed very straightforwardly, and with a limited amount of friction, there's also a case to be made for being a specialist and going really deep on a single set of rails or a single set of payment mechanisms and creating something which is truly differentiated and defensible.
Number two, as a consequence of that focus, we're able to add a huge amount of value on top of the rails. And so you know, when when we talk about things like the FX product, nobody else in the world is able to use the pull-based payment mechanism that we do to allow businesses to collect from a different market and settle in their home currency with the same benefits of the reliability and speed that comes with using a pull-based payment mechanism.
When you talk about the smart retries product that we launched last year, that's also not something that Stripe or someone else has, because they don't see the same amount of data for this particular type of rail. And so they may well have a smart retries product for cards, but they can't do the same thing here.
And then increasingly, as we think and look ahead to the future, we see the opportunities that things like Open Banking offer. And for us the ability to really focus in on that use case and the payment mechanism second, and then bring the best of the innovation into those two questions, allows us to create something which we think is going to be really differentiated and defensible.
A very long winded answer to what was a very short question. But I think the key things I would say are number one, we're just at the beginning of seeing the transformation to payments. And number two GoCardless is differentiation stems primarily from its focus, both on the use case of recurring payments, but also on the set of rails that we look at. And number three, that focus allows us to go deep in our product in a way that other payment companies who don't have that same level of emphasis on bank debit, simply cannot or do not want to because it's hard, and therefore don't do.
Ravi:
The point you made about the US versus other markets was interesting, because I know in the US card usage is so habitual and instinctual. And I'm curious if you’ve done any research on why America has such different B2B spending habits than other countries?
Pranav:
Yeah, it's actually really interesting. And I think the first reason it's interesting, you mentioned B2B, because the first thing that a lot of people don't think of is that B2B and B2C are actually two quite different spaces. On B2C, it's very clear in the US that credit cards are the dominant payment mechanism. Primarily that seems to be because of people's preference for rewards. But when you look at the B2B side of things, it's actually not as clear. Corporate cards are clearly an important way of paying, but the majority of B2B payment volume in the US is done through checks or credit transfers. 50-60% of B2B volumes in the US are still done by check, which blows my mind every time I see the number!
Nobody uses checks in the UK or in Europe anymore. Interestingly, around the world, credit cards are really not that preferred. I mean, there are so many alternatives to credit card that are customers’ first or second preference. And so when you think about things like IDEAL and Sofort in Europe, when you look at some of the wallets that have taken a lot of share in places like China, and there are so many others as well.
Ravi:
Yeah, it's an interesting contrast. So tell us a little about the recent Series F fundraise. Congratulations! What was the impetus for the fundraise? And what are the plans for the use of funds?
Pranav:
Thank you! First of all, it's great to get the external validation of the value that the team is creating. And I think the impetus behind the fundraise was really the strength of our performance through the pandemic. And we're really lucky, we're a very well-capitalized business. You know, we weren't actively looking for additional funds at that particular moment. But there was a lot of demand from investors because of the resilience of the business through the last nine or 10 months and the disruption that we've seen. And the reason for that resilience is two things.
One is that we are ourselves a recurring business. So, as you'd imagine, we mostly serve or in fact, we almost exclusively serve recurring payment models. And so therefore, our revenue as a payments company is recurring in nature, which generally shields it from some of the worst, macroeconomic contractions.
And the second thing is that, you know, as the pandemic is accelerated some of the structural drivers that we were seeing already: adoption of online payments, movement towards more flexible payment terms, and paying by installment or paying by breaking up large invoices into multiple smaller ones. And the growth story is also becoming more compelling as well.
And so we've had the combination of resilient performance, but also a stronger growth case as well. And so we raised the money because we saw an opportunity to accelerate further and go faster and harder in important areas, whether that's on the market side or on the product side, in a way that we think just is justified by the performance that we've had over the last few months.
And when we think about the use of funds, I think the main thing that we're going to be looking to spend money on, which is different or different in emphasis from what we've done before, is Open Banking. And we think Open Banking has the potential to be an extremely compelling addition to the suite of products that we have in the market right now. And we think that as a payments company, we are somewhat uniquely positioned to take advantage of the opportunities that Open Banking creates, and particularly given that we're headquartered in the UK, which is the market which is further along in the Open Banking journey. And we think that that gives us a great opportunity to take advantage of our positioning in the market and structural trends, and really invest quite heavily in creating what I hope is going to be a super compelling product for our customers.
Ravi:
So for our US-based readers, can you tell us a little bit about, at a very high level, what Open Banking is? And how GoCardless would take advantage of it?
Pranav:
The impetus behind Open Banking is to try and create a more level playing field in financial services, which benefits ultimately, consumers and businesses who are procuring financial products. And in order to achieve that outcome, what was mandated was that incumbent banks have to make it possible for non-bank institutions to access financial data via APIs, which allows them to build financial products or enhance existing products with financial information.
And, effectively, then what that means is that Open Banking has and will create an environment in which you can, as a non-financial institution access financial data through an API layer, which gives you the ability to benefit from the information and the data that banks have hoarded over for decades and generations, and you know, has has been a big part of their defensive moat when it comes to innovation in financial services.
Open Banking allows us to do a couple of quite interesting things. One is called Account Information Services. And the second one is called Payment Initiation services. Account Information Services allows you to gather information about financial information about consumers and about businesses. You can use that data for lots of things, whether personal financial management, authentication or decisioning for credit products. Also, the other side of Open Banking is the Payment Initiation Services side. That bit is about allowing people to trigger one-off payments, which are made through online banking.
For us, we're really excited about Open Banking, because we think that it has a number of practical use cases which would significantly enhance our ability to serve our core use case, which is recurring payments. On the AIS side where I think there's a lot of value that's going to be had through effective authentication and trying to improve the way that you verify and validate people when they're creating accounts or creating payments. On the PIS side, there's a lot of value to be had in combining what we have today, which is a recurring pull-based payment mechanism with a more instant and triggered payment mechanism that a merchant is able to make. And we think that those POS type payments, which are pushed payments that the consumer or the business is going to be making are really well-suited for high value payments or for riskier payments, for first payments and subscriptions. All sorts of things where either credit cards aren't well-suited, or where, frankly, the bank debit rails are not that well-suited either. And so we see a great opportunity to combine what we have today with this new innovation to create a more compelling and rounded suite of products for businesses and consumers ultimately.
Ravi:
Okay, last topic, as a payments company, I'm sure GoCardless gets to see a decent swath of the UK and broader economy. And I'm curious if you guys have seen any interesting pandemic trends or something that surprised you about the pandemic economy through seeing merchants on your platform?
Pranav:
Yeah, I mean, honestly, the thing that's been the best surprise for me has just been how resilient our payment volumes have been through the pandemic period. And that's not to say that there haven't been some verticals where we've seen contractions. So for example, in gyms or fitness, where places have had to be shut down, or they've limited their activity, we've seen, obviously, lots of decreasing activity in those areas. But I think for us, the most exciting thing has been the robustness, particularly of invoicing volumes, where I was a bit surprised, honestly, because I didn't know what would happen. We haven't had this kind of a situation since the business has been founded. And the invoicing volumes have been super robust, which is obviously brilliant. And I think in terms of the broader economy, we're a little bit sheltered from some of the more vulnerable bits. So because a lot of our book is not what I would call discretionary spending, we don't necessarily see the volatility that you would experience if you were serving lots of ecommerce or things where, you know, suddenly, shocks to consumer sentiment could have a knock on impact on your product. But I think like everyone else, you know, what's been really clear is that the initial phase of the pandemic was for businesses all about making sure that they could stay alive. And then once they realized that they could or they secured the government funding or whatever to keep going. It was then about how can I make sure that I positioned myself as well as possible for the next phase in my company's journey. And so cloud adoption, you know, changing business processes, changing payments, stack, all of those things started coming back up the priority list, because people realize that it's not that often when you get a government-sponsored opportunity to entirely review how you do business.