Ernest chats with Dan Geraty, Founder and Chairman at Clearent about fundamental changes in the merchant acquiring space, the benefit of integrating software into payments, turning your investors into advisors and how differentiation starts with the technology platform. Also, Dan shares how he earned Clearent a spot on Inc 5000's list of fastest growing companies eight years in a row and his advice for entrepreneurs in the fintech space.
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Episode Transcript
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Ernest Rolfson (00:03):
Hey, this is Ernest Rolfson, the CEO and
Founder of Finexio. Welcome toB2B Cash Flow Conversations, the
podcast dedicated to sharinginsights and innovations in
business to business payments,working capital and cash flow
management, and FinTechentrepreneurship. In each
episode, my guest tonight tacklequestions in the ever evolving
world of FinTech and paymentsindustry that's rapidly evolving
(00:26):
and of great interest toinvestors and businesses alike.
Looking forward to having thisconversation. So today, we're
meeting with Dan Geraty, theFounder and Chairman of
Clearent, a full servicepayments processor and merchant
services provider. Dan has over30 years experience in the
payments and softwareindustries, and was named
Entrepreneur of the Year in 2017by Ernst and Young. He's been
(00:48):
credited with Clearent'sunprecedented growth since its
launch in 2005. Good to be withyou, man.
Dan Geraty (00:55):
Thanks for having me on, Ernest. It's good to be
here.
Ernest Rolfson (00:57):
How you doing?
Dan Geraty (00:59):
Oh, great. I'm great. Spring is in the air.
Vaccines are in the air.
Ernest Rolfson (01:04):
I was gonna say there's still virus in the air
as well. The vaccine in the airis countering the virus in the
air. Where do our friends andlisteners find you today?
Dan Geraty (01:19):
I live in St. Louis.
So that's where I am today. Youknow, I look forward to spending
more time traveling aroundagain, as we're as we're
starting to come out of it.
Ernest Rolfson (01:30):
Yes. St. Louis isn't necessarily known as a
payments hub. Is that correct?
Or do I think that's a fairstatement? I
Dan Geraty (01:43):
MasterCard does have a big facility here. It's mostly
a big data center. But therethey have I don't know, maybe
maybe a few 100 people or moreout here. But no, you're right.
It's not really a payment hub.
Except that you know, Squarecame out of St. Louis. Also Jack
Dorsey's a St. Louis native,we've you know, so we've got
(02:06):
some we've got some payments inour DNA.
Ernest Rolfson (02:10):
Absolutely. So how did the idea for Clearent
come about? And were you wereyou in St. Louis at the time and
decided to build the companythere?
Dan Geraty (02:24):
I wasn't really actually. I had been working in
a telecom software company inNew Jersey, of all places. But
I'm from St. Louis. And we hadsold the company, the telco
company to Cisco Systems. And soI had some, some time to think
about what to do next. And I wasnetworking in different places
around the country. But I grewup in St. Louis, I still have
(02:49):
five siblings that live here, abunch of nieces and nephews. So
you know, it's definitely homefor us. And I was fortunate to
meet a group of people who hadbeen in the payment space, I
really didn't know anythingabout payments. You know, I just
thought Visa, MasterCard dideverything. I didn't know how
large the ecosystem was. And soI've met folks like a gentleman
(03:10):
named Norm Tice, who was on ourboard. It was an industry, he
had been on the MasterCard boardfor 17 years. And, you know, he
introduced me to payments andthe payments ecosystem. And we
met some technology folks whohad built one of the first
payments gateways, and they wereout of St. Louis. And so just
through networking, got to knowpeople in the payment space and
(03:32):
got to know more and more aboutthe payment space. And I found
it really, really interesting.
And as you know, back in 2005,when we started there really
wasn't much innovation inpayments, especially on the
merchant side. It was it wasreally considered a cash cow. A
lot of the processors were bankowned, and there wasn't really
there wasn't really much newinvestment going on. And that's
really why we saw an opportunityto jump in and build a new and
(03:55):
and much better platform thanwhat was out there for folks at
the time.
Ernest Rolfson (04:04):
Got it. That sounds the more we talked the
more it sounds like St. Louis isa payments town. We were we got
it wrong that we got it wrong.
Yeah.
Dan Geraty (04:14):
Yeah. Like it's your brother. I mean, there are a lot
of payments folks here right onmy board. I had a St. Louis and
who was the CFO of payment tech.
I mentioned Norm. And then weattracted other folks from
outside of St. Louis to theboard as well.
Ernest Rolfson (04:29):
Got it. Got it.
Taking a step back. I mean, howwould you describe Clearent as a
business? or How would youdescribe it today? Maybe for
folks that aren't necessarilyfamiliar?
Dan Geraty (04:41):
Yeah, sure. I mean, we're the merchant acquirer or
so we stand between merchants orcard acceptors on the one side,
and Visa MasterCard on the otherside, and we move around all the
Got it. It was there. When whenyou were getting into this, as
data and the money associatedwith credit and debit card
transactions. So when you go inand you swipe your card at a at
(05:02):
a restaurant, you get thisauthorization that that
there a specific problem thatyou were solving? Or was it more
transmits our network goes toVisa MasterCard, to determine
whether the card is good. Andthen you get this authorization,
your transaction goes throughthe end of the night, all those
transactions are batched. Up,they come to us. And basically,
through a settlement process, wemake sure that the merchant, the
(05:23):
restaurant gets their money, butthen everybody along the chain
as well gets their slice of thattransaction. So that all comes
down to to Clearent to do thatas was there. So we do that now
or about 60,000 customers.
(05:46):
like, there's a lot of whitespace here?
Yeah, I mean, it's just as youknow, payments, especially, you
know, as they continue to becomeelectronified. I mean, it's just
kind of amazing that this isstill going on after, you know,
Visa and MasterCard have been inthe market for 50 plus years.
And there are still plenty ofcash transactions, plenty of
(06:08):
check transactions that can beturned into an electronic
transaction for the benefit ofalmost everybody involved in
the, in the in the ecosystem. Soit is a giant market. But again,
what we saw was just a lack ofinnovation. I mean, it was,
again, the the folks who do whatwe do were almost all bank
owned, or, you know, bigcompanies that were not
(06:30):
investing in their platforms.
And the customer experience as aresult was generally terrible. I
mean, you wouldn't find anybodythat said they love their
merchant acquirer as a partner.
So that's why we really thoughtthere was an opportunity to to
build a better platform, bothfor the benefit of our own
salespeople, our channelpartners, and of course, for the
(06:51):
for the merchants that we workwith.
Ernest Rolfson (06:53):
Got it? Got it, I want to ask how things are
kind of different now than whenyou started. But if you kind of
just touched on something, itwas like, yeah, I wasn't around
these days. But when merchantacquiring or credit card
processing first came out, itwas actually seen in some
respects is kind of helping thethe merchant, right helping
(07:15):
accelerate receivables helpingincrease ticket size. And now
over the years, maybe that thelight of the customer has
dwindled. And it's now seen as acommodity in some respects. And,
and it's about well, how cheapcan you give it to me and seen
as okay, I don't want to pay afee for taking the card. And now
(07:35):
discounting heavily all of thoseother benefits, you touched on
around eliminating the paper andthe waste and inefficiency. So I
guess around that, like how isselling credit card processing?
Your Merchant Services merchantacquiring? How is it different
now back from back when youstarted? Because I think there
(07:57):
are some pretty fundamentalchanges.
Dan Geraty (08:00):
Yeah, for sure, there are I mean, a lot of what
was happening. And when westarted back in the, you know,
early 2000s, was simply it wasall terminal base, you know,
even in a restaurant, there wasa terminal in the back that
somebody was swiping the card.
And you know, now it's much moreabout integrations with
software, it's about, you know,I think it was actually Jack
Dorsey who said it, but if youdidn't, he shouldn't have that,
(08:22):
you know, really payments shoulddisappear into the background,
the transaction shouldn't beabout the payment, the payment
should just happen withoutpeople thinking about it. So
while that sounds easy, there'sa ton of sort of changes in
mindset changes in technology toenable that. It is, as you say,
that, you know, if you're justout there trying to sell a
terminal, or somebody alreadyhas a terminal, it's really it
(08:43):
is a commodity, and it's hard towin. You know, we try to win
based on service and a betterplatform, etc. But it's really
this, you know, accelerationtowards payments, disappearing
into the background, that, thatthat's, that's really driving a
lot of the innovation and makingit easier on the merchant so
that the fact that they have topay for card acceptance, you
(09:04):
know, you get they see morevalue out of it as a result.
Ernest Rolfson (09:11):
What you know, we say, Here, in terms of paying
with car, when we get asked thatquestion, why would people take
the card is like, well, they're,they're willing to pay for it,
if they see value in it. If it'ssolving a problem for them,
they're gonna they're gonna pay,right. I mean, it's like, what
is free in life?
Dan Geraty (09:30):
There's an expectation on, there's an
expectation on the part of theircustomers that they're going to
be able to pay with card. Andso, you know, if you're in the
business of delighting yourcustomers, you're not going to
end that experience when they goto pay and say, Well, you know,
what, we only take cash or checkand that's just not what your
customers want to do. Andparticularly even now in the
(09:51):
pandemic, you see thisacceleration towards electronic
payments. Even less cash hasbeen used over the last year and
a half. Yeah, yeah, you have toconsider, you know, both sides
of the transaction. When youthink about whether or not you
know, there's a valueproposition in payments. It's
not just that the merchant seesvalue and allowing people to pay
(10:13):
with the card. It's what you andI see when we when we use our
cards, right. So some people areall about the points. And like
chargeback protection doesn'treally exist if you pay with
cash, right. So there's, there'svalue on both sides of the
equation. And you know, cardsare here for a long time to
(10:36):
come.
Ernest Rolfson (10:37):
I think it's moving as the industry is
investing, much mentioned on thesoftware integrations, so much
more emphasis is now beingcreated on that experiencial
factor. And it's the wow factor,whether it's the Goldman Apple
card, which is this beautifulvirtual card dynamic thing. Or
even you know, I bought a pairof slippers, I've got a hole in
(10:59):
my slippers. Oh, so I bought anew I've got these Italian wool
slippers. I've they're theseluxury wool slippers. I bought
them from Facebook ads, and allecommerce, right? And now I've
worn them. You know, these areexpensive slippers. I'm wearing
them till they're literallyfalling apart. You know, I want
to get my last dollar of valueout of these slippers. So I had
(11:22):
to give in today. And it's allGoogle pay. Plugged right in and
it's like it's two clicks. It'sbeautiful. You don't even have
to do anything appears and it'slike it's awesome. Shoes you're
wearing. I'm wearing I amwearing slippers. That's I'm
wearing Italian wool slippershandmade in Portugal with a hole
(11:45):
by the pinky toe. And I've got abunch of just put some duct tape
that have been yeah. And there'sa bunch of mulch in them because
my dog went crazy. So I got abunch of mulch in my slippers.
So that's, that is I'm wearingmy next co branded t shirt. I
don't know if you can see thathere. And very fancy slippers. I
(12:07):
am wearing shorts as well. justround it out. Yeah. Great.
Great. So what we can kind ofthink from here, because you
mentioned the software, youmentioned the integration,
you've been, you know, buying orinvesting in different
businesses there. Were thereany, are there any software
(12:27):
specific? You know, the strategyaround this had implications
around an integrated softwareapproach around selling and
delivering payment services towhether it's a business or
consumer?
Dan Geraty (12:48):
So you mean it at Clearent? Are the acquisitions.
So yeah, yeah, yeah. I mean, we,we were eager to partner with
software developers, you know,to enable payments as part of
their value prop, which is, youknow, great for them, because
they get this additional revenuestream in payments, also good
for their customers, becausethe, the experience of payments
(13:11):
is much more seamless. And sowe've been partnering with
software companies for a longtime, to, again, enable payments
for them. And back in 2017, youknow, we came across or met a
company called Spot have in allthings dry cleaning store
management software, right,super sexy. But the idea was
(13:34):
that almost everybody pays fortheir dry cleaning with a credit
card. And we like the space andwe like these guys, because they
were the dominant player intheir space, the the founders
were ready to retire. And, youknow, this intersection of
payments and software we thoughtwas, we still believe it is, is
a tremendous opportunity,because software makes payments
(13:55):
stickier because software is sosticky, right? So so we acquired
Spot, and we move theircustomers to Clearent for
payments, which was a muchbetter solution for their
customers, by the way. And so wewere able, we were able to pick
up you know, revenue synergiesassociated with payments as part
of the revenue stream. But wewere also able to really improve
(14:18):
their business and improve theexperience for their customers.
And that transaction went, youknow, so well, that we, we
realize that, you know, as we aswe go out to partner with
software companies, from time totime, there'll be verticals that
we really like, where we want toacquire a company as a platform.
And so we we've done that inother vertical markets as well.
(14:41):
And now, I don't know if you didyou see the announcement of the
merger with TSG and the creationof Explorer, which is, which is
which I think when theannouncement went out a month
ago.
Ernest Rolfson (14:54):
No, no.
Dan Geraty (14:57):
So TSG was also an ad that bet company out of the
UK, Australia, New Zealand. Andthey follow a similar strategy
to clear that they are owned anumber of software companies and
verticals like child care andhealth and fitness. And so the
two companies are comingtogether. And the new name is
(15:18):
Xplor. And so we're gonnacontinue that strategy, we now
have, you know, a globalplatform to continue that
strategy of acquiring softwarecompanies in verticals that we
really like, in addition topartnering with software
companies, you know, that wedon't know. But that we can
improve their paymentexperience.
Ernest Rolfson (15:39):
I you know, I did see this, but it looks like
there's now a whole detailedstrategy out there and in a
release, so so there's somespecific verticals that you you
guys really like? It turns out.
Is that because verticals arereliant on some specific
software to help run theirbusinesses that you think
payments fits nicely into?
Dan Geraty (16:00):
Yeah, we like to buy platform companies where the
software is mission critical. Soyou know, the first one I
mentioned spot, I mean, you runyour entire dry clean,
Ernest Rolfson (16:08):
you can't use you can't run the dry cleaning,
if you don't have the software.
And if you run the dry cleaningoperation, you need payments,
payments comes with thesoftware, you turns out you
bought payment software, youdidn't even know it.
Dan Geraty (16:21):
Yeah, there you go.
And then, you know, we likeother verticals. So we've, we've
acquired a couple of companiesin the field services space,
right. So think about companiesthat have you know, 10 to 50
trucks on the road servicingHVAC, customers, we really like
that one, because you know, it'sa, there's a lot of whitespace
for the software. A lot of thosefolks use Excel and Google
(16:44):
spreadsheets and things likethat to do their scheduling, or
additions. Yeah, big opportunityfor software, further
penetration into the market. Andthe other thing that was
happening at the same time isthe whitespace, around payments,
it used to be all those guyswould bill you, you know, 30
days after they came to fix yourHVAC. Now they have a tablet,
and after they finish, they wantyou to give them a credit card
(17:05):
right at your door, right at thepoint of service. And so a big
whitespace around payments,that's that's expanding really
quickly, as more and more of theField Services folks expect to
be paid by card and expect to bepaid when they do the service.
Ernest Rolfson (17:22):
Got it got it so that they're actually that these
folks are walking up, they'vegot a tablet of some sort with
their scheduling software andbilling software. Now they're
able to just turn around andgive it to the consumer, right
and just swipe their card in thetablet. Is that the kind of
experience we're talking abouthere?
Dan Geraty (17:38):
Yeah. And the software is much more rich than
sort of a point of sale. I mean,it does, you know, truck
routing, and scheduling matchingtechnicians with jobs, etc, etc.
So it's, again, it's missioncritical to the field service
solution provider.
Ernest Rolfson (17:54):
I mean, is this, is this the biggest change in
the landscape? You would say,since you've started? I mean, is
this did you see this kind oftrend coming? I don't know if
you saw it, that you'd be in abusiness of buying and owning
vertical specific softwarebusinesses and the like.
Dan Geraty (18:12):
I wish I could tell you I had that much for you back
in 2005. But no, no, we didn't.
We didn't anticipate this. Butyou could see it starting to
happen right back with. Youknow, openedge was one of the
first companies if you rememberthem that the global bought,
where they were doing a lot ofintegrations with software
companies and growing like aweed as a result. And you can't
(18:33):
help but take notice, as youknow, you know, in the merchant
acquiring space, attrition isjust a challenge, right? Yeah.
Unless you're, you got a realhook. And the software is the
hook. And the software is evenmore of a hook when you own it.
Ernest Rolfson (18:52):
Right, right.
Just for listeners too that maybe familiar with a company like
a Stripe or something like that.
Like how is maybe what you'redoing different than that. It
seems like it's in the generaltrend area of right, having
credit card processing availableto developers, you can embed
into the software.
Dan Geraty (19:14):
I mean, Stripes, Stripes, a terrific company,
they've done a great job ofmaking it really simple for
people to integrate paymentsinto their software solution.
What we find is that, you know,Stripe does, it's a little bit
more of a one size fits all kindof a solution. And while
software developers when they'resmaller, you know, Stripe is
(19:36):
like kind of the go to whenyou're just getting started. As
this software company matures,as the business matures, we find
a lot of them are looking for adifferent solution with more
support, more support for theircustomers, different pricing
solutions or different pricingoptions. So you know, they're a
terrific company and they seemlike they're taking over the
(19:56):
world with their valuation, butyou know, it's a little bit like
Square where it's not a one sizefits all. Not everybody can be a
Square merchant when complexitystarts to enter the equation.
Ernest Rolfson (20:07):
Right? Okay. So it's everyone has its has its
place or its specific focus,essential
Dan Geraty (20:16):
It's just gigantic.
Right? The global paymentsmarket, is huge.
Ernest Rolfson (20:22):
It's stupidly large. Absolutely, absolutely.
I'm excited for. Now, Stripe hasso much money now they can just
start buying islands. They haveall the islands around Richard
Branson is gonna be like, Hey,we're all these people that own
these islands here. Yeah, maybethat Red Bull Island?
(20:42):
Unbelievable. Yeah, well, Ilook, I see the same, the same
trends, you're not to talk aboutmy book too much here. But it
seems like you know, theparallels that we're seeing and
credit card processing, and howthe shift to getting the
processing into the software.
That's, that's actually what I'mbetting my entire company on is
that, you know, CFOs are notgoing to be buying paint
(21:06):
outbound payment processinganymore, out sourced check
printing anymore, or havingtheir back office staff be
making payments over the phonewith a credit card anymore.
They're buying procurementsoftware, or AP software to run
their business. And theexpectation is they're pressing
one button that says buy thisgood or service. And it's not
only writing to the accountingsoftware, but it's also making
(21:29):
the payments for the minutes anembedded part. And payments is
pretty confusing andcomplicated. And pricing can be
opaque. You know that you'veseen these interchange tables
that grow with complexity everyyear. So I think it's easier to
not engage with it. And if youcan delight a customer or solve
(21:51):
a business problem, it'sactually very elegant to get the
payments in there. And onceyou're in, it's very hard to get
pulled out, especially if you'vegot some kind of vertical
integration or vertical focusare some series of vertical
partnerships. Like your examplewith the laundromats were very
heavy in the hospitality andhigher education. verticals, for
(22:15):
instance.
Dan Geraty (22:19):
Yeah, it seems like in b2b, it's what we, you know,
have seen happen in on themerchant acquiring side over the
last 15 plus years, is, again,this idea that you have to make
it seamless, basically makepayments disappear, because
people don't want to deal withpayments. Like he said, they
don't want to engage withpayments, they just want it to
work like a utility. And it'snot easy to just make it work,
(22:42):
right.
Ernest Rolfson (22:42):
It's actually the complete opposite.
Dan Geraty (22:46):
Right, right. It's totally right. So, you know,
again, people talk aboutpayments and commoditization of
payments. Well, again, if you'reswapping out one clunky terminal
for another clunky terminal,yeah, that's, that's pretty much
of a commodity sale. But if youcan really delight your
customers by making it so supersimple for them and for their
customers. That's real value.
Ernest Rolfson (23:08):
Yep, yep. The grass seems to be always greener
on the other side, doesn't it?
Especially when you're swappingout one clunky, you know, not to
disclose any kind ofconfidential info, but and then
going a bit off? off topic? Imean, around that point, I mean,
when you think about you'veactually did become yourself a
merchant acquirer, right, notjust an ISO o or a super ISO,
(23:28):
you actually develop their noone, develop the infrastructure.
So maybe it'd be interesting foryou to mention about, like, when
and how did you decide to makethat investment? And it always
seems to be like that feels likeit could be a commodity piece
for like, oh, I'll just changemerchant acquirers are all just
(23:49):
change processors. And I'd loveto hear from you why you think
that's not necessarily so easyor smart. And if you've got a
partner in place, you know,that's a pretty big undertaking,
making the switch and the riskand complexity and customer
service. So I just threw a lotat you. But I, it's interesting,
because you did make that jump.
(24:13):
And that's not a common. That'snot a common move, I would say,
considering the years many, many1000s of credit card processing
and ISOs in this country, andgrowing only so many very big
ones of which your company isone of the few very meaningful
ones globally.
Dan Geraty (24:32):
Yeah, so it's interesting you would ask that.
Part of it is a little bit thatwe were not coming from the
payment space. And, you know,like a lot of entrepreneurs were
like, well, we could build thisback end settlement system in
six months might cost us about$5 million. And I thought I was
being really savvy when I said,Well, we better just double that
(24:54):
estimate. Because becauseeverything's harder than you
think it is. So let's say it'sgonna take us a year.
Ernest Rolfson (24:59):
that was probably pretty astute, though.
But you were probably still offby double that. Right?
Dan Geraty (25:03):
I was still off.
Yeah, I needed like club,quadruple it. Because it's like
you said it's complicated.
They're like 450 Interchangerates, you know, so yeah. But
our strategy right from thebeginning was to build the full
stack, you know, paymentsprocessor, because what we
wanted was control. And we wantto control, you know, partly for
(25:25):
our own business, because wewanted to control our costs,
right. But we also knew that ifwe didn't control the, you know,
user experience, we didn'tcontrol the roadmap, we didn't
control features. And we weresubject to using, you know, one
of the big, you know, megaplatforms that's out there,
right, right, then it'd beimpossible to differentiate,
(25:45):
right? You're just basicallyeverybody's selling the same
loaf of white bread, because thebackbone of what they're using
is the same across all right,different ISOs. And so, so we,
we build that processingplatform, right from the
beginning, it's funny how manytimes I would go to like to an
ETA and describe the people whatwe were doing, and they would
(26:05):
just like shake their head,like, that's just, that's just
not a good idea. It's acommodity, why would you want to
do that it's not a good idea.
But we really felt like, youknow, if you're going to
differentiate yourself, thedifferentiation starts from the
technology platform. So that'swhy we made that investment.
Ernest Rolfson (26:20):
And I think this is a good lesson for the
investors too. And you must havehad great investors on board to
see that vision because it takesa massive investment, and so
much time to build something ofreal meaningful, like
infrastructure type value inthis space. And most investors
don't have the time horizon, tobe able to withstand that,
(26:43):
because now years later, yourcompany, I don't know that it's
partly on public, your yourcompany may be worth billions of
dollars at this point. But ittook a long time for you to get
there and building that that wasa, you know, you probably had to
go back to your investorsmultiple times and say, taking
longer and more money than wethought is Yeah, I'm not putting
words in your mouth, sounds likethat's what happened.
Dan Geraty (27:05):
Yeah, we did for sure. And we went back five
different times, although wewere pretty capital efficient. I
mean, we only raised like $25million, only, you know, yeah,
before we had institutionalinvestment. Yeah. But almost
100% of that money came from,you know, individuals and family
offices. So it wasn't until2015, when FTV joined the cap
(27:31):
table as a minority investor,that we actually had real
institutional money at thetable. And there were pros and
cons to that, as you mightimagine, like, you have a lot of
individual investors, which, ifyou treat them right, is a great
network for you. And, and that'show we felt, I mean, we had
almost 100 people on our captable. But But I liked that
(27:53):
process. Even though it soundsunwieldy to have 100 people on
your cap,
Ernest Rolfson (27:56):
I think we're about half that. Now. And I've
been certainly gotten somecriticism for doing it. But
that's the way that you did it.
And But to your point, youfoster some of those
relationships, you work withpeople, as advisors, you ask
them for advice. And thestrategy for me has been to try
to find people like yourselfthat have done it before, that
can not only give the councilbut can also help it I think
(28:20):
it's the ultimate smart money,right? people that walk the same
path in the same kind of shoes,versus that institution, where
the love you until they don'tnow FTV or, you know, blue chip
that their top class, that's howme and you got to know each
other through those guys, butthey're the, you know, probably
(28:43):
the best investors you could getfor your company.
Dan Geraty (28:49):
They were for sure at that phase, because they're,
you know, the they know allabout payments and their growth
investors. And still, you know,that was, you know, we were very
much looking for a growth equitypartner at the time. But yeah,
it's, I did have a really greatgroup of investors. And as a
result, we were able to have a,you know, I thought was really
(29:10):
important to have a real board,you know, real governance and
have people on the board thatunderstood the business. And so,
effectively, we ended up withseven independent directors
whose interests were all aroundthe company, not that it was
divorced from their investment,but that were mostly about
trying to solve the problems forthe company. And so that worked
(29:31):
out well for the for thebeginning phases of Clearent.
Ernest Rolfson (29:35):
The these were these were these truly out some
of them, were outsiders, trulyor were they on your cap table,
but they wouldn't be willing torun our cap table. And had
payments experience. Yeah, no,that's great. I've done similar.
It's kind of cool that we shareeven some of the same investors
(29:56):
like David that got involvedwith them early on, and involved
with us early on to so?
Dan Geraty (30:03):
Well, there's a lot of investors who've done very
well in payments and are alwayslooking for another. Another
good opportunity.
Ernest Rolfson (30:11):
So why don't we, since we're stumbled onto that
track? I mean, you are aninvestor, at Finexio and an
advisor. I mean, what did yousee here that you liked? And
what thoughts do you have on b2bpayments, specifically, that you
might want to share?
Dan Geraty (30:32):
Well, let's start with that with b2b which is just
that it's a gigantic market, youknow, it's just huge. And it's
just the early innings of, youknow, becoming like, or moving
to electronic payments. So lovethe size of the market, you
know, as we said, whitespace, Imean, we love the idea of
whitespace. And the opportunityto grow and that there can be
(30:52):
multiple winners in the space,it's by no means a winner take
all kind of a market. Yeah, asyou said, I've known you for for
quite some time, I don't know,we went to an FTD conference
together, maybe seven or eightyears ago, right. And I spent,
Ernest Rolfson (31:08):
I was in I sent out into Napa, they tried to
close off the valley, but theycould not get me out. So I told
my way did the straight you'renot a portfolio company, and
you're not a limited, but theyjust let me let me and they they
liked me enough to let me in. Ihad a few interesting things to
say, yeah.
Dan Geraty (31:25):
Well, and I think that that's part of it, right,
you have been living andbreathing the b2b payment space
for a good part of your career,and you've been championing the
next CEO for I don't know howlong it's been five years, the
last five years have beenbuilding the company, right. As
a result, you have a company anda platform that's, you know,
five years mature, which is, youknow, I like when to invest in
(31:49):
that stage when there's aplatform that's out there that
has differentiation. And also,to return to another theme that
we've talked about earlier isjust this, this idea of making
payments simple. And the flexiosolution, I believe is super
simple, right? You know, all ofthe AP people have to do is, is
create that AP file and thengive it to you and like what
(32:10):
could be simpler for them thanthat. So love that the company
is helping to speed the processof making b2b payments, simple,
seamless, and customer focused.
Ernest Rolfson (32:25):
We started what you know what one of the ideas
was, let's let's just get thedata in like an Excel file like
an a CSV, it's like we're likeevery company can do that, from
the shoe manufacturer to thereal estate company to law firm.
And, you know, no it No problem,right? It's like, Hey, can you
(32:47):
get your back office worker ifyou had to generate an some
Excel file. And, and this iskind of when Dropbox or Box or
Google Drive is kind of comingout. And we're like, you know,
file transfer is great. And wehad this vision for integrating
into procurement and APsoftware. But we said to start,
we have to make something wereto just take advantage of this,
(33:09):
because we saw the barriers withbanks having this arduous crazy
implementation process and threemonth cycle form on cycle of
getting somebody live and up andrunning or like, just be able to
get the staff to move a CSV intoa web page, and start making
payments as a way to start andso that we still have not seen
(33:30):
that really replicated yet. Andb2b payments, the technology
exists. So just that idea of howdo you make it simple? And how
can you get adoption andtraction? And I was thinking
about how can we deliverpayments where, you know, again,
12 trillion checks, half of itspaper 20,000 or so middle market
(33:52):
companies that need this? How doyou get your first few
customers? How can you get sometraction? How can you show some
excitement to write get theinvestment to build that Bigger,
Longer term investment to getinto the software space that to
your point takes longer and moreexpensive than you thought? But
you can't go to the biggestplayer in an industry and say,
Hey, take my processing solutionand plug it into your software
(34:13):
when there's no proof points. Itdoesn't, it doesn't really work,
you know?
Dan Geraty (34:19):
Yeah. Yeah. The other nice thing about your
business is the demand side isclearly there. Like they
definitely want to offload thisprocess. And again, you you, to
a certain extent, benefited fromthe pandemic. And that's to say,
yeah, let's accelerate this moveto having somebody else do the
actual payments, we'll justdeliver the file. And so from an
(34:40):
investment standpoint, I thinkthat the opportunity on your
side to do to make everythingsimpler once you receive that
file to invest in thetechnology, once you receive
that file to make it all justwork beautifully on your
platform. That's that's the kindof investment that can be made
and you can just keep gettingbetter and better. Now that you
know that demand is for surethere on the part of the payors.
Ernest Rolfson (35:02):
The demand is there. I mean, we've seen
probably a five year and I thinkthis speaks to digital
transformation. Generally, Ithink right now it's a great
time to be a software company,even a better time to be a
software company sellingsomething to the CFO, where
we've seen like a five yearacceleration of a push to
digital transformation, aroundoutsourcing, payments
(35:26):
processing, workflow automationsoftware, we're targeting all
those factors in one, which isnice. And so I think that now
that companies have had to workfrom home for so long, and
almost overnight, go digital.
That barrier of Oh, yeah, it's apriority. But you know,
(35:47):
digitizing our payments is inthe top priority. It's so much
more obvious now for companiesto go and do this. And they're
looking for ways to I hate tosay it, the companies did layoff
people and reduce theirfootprint due to rabid so now
they're like, how do I not goback to that old cost structure?
How do I not hire people back?
(36:09):
Others are just like, I like theefficiency we got working from
home being digital. How do wecontinue that? Yeah. So it's,
it's been it's been prettyamazing.
Dan Geraty (36:22):
It's Norm Tice. So again, gentlemen, that was on my
board and was a made a lifetimebanker on the MasterCard board
for 17 years wonderful guy. Heused to talk about when EDI was
first, you know, the technologywas first invented, so was back
in the 1970s. And he said, Iremember, we were all in a board
(36:43):
room. And, you know, we had, wehad managed to create this EDI
solution, bank to bank andsomebody proudly proclaimed that
this is the death of the checkand help us like 1970s. And it
seems like it's just impossibleto kill the check. But maybe
we're starting to finally.
Ernest Rolfson (37:03):
It is it is dying, it's slow as death. You
know, and there's somebody atChase listening to this podcast,
and they're in a room, they'rein a check printing room,
someplace in the bowels of Chaseand they're just hanging on to
make sure that they're thatthey're the last person there,
they're going to flip the lightswitch off. 30 years from now,
(37:23):
they'll be in that room. Now.
There's that one light bulb, youknow what the string, they're
gonna pull that string and closethe door. And that's that
that'll be the end of the movie,but I think we've got a ways to
go there. That person inprobably in Ohio, or knowing
Chases footprint, they'reprobably in a giant 100,000
square foot facility in Ohiothat is some bunker.
Dan Geraty (37:43):
Well, that's great.
That's that's the demographicthat all the podcasters are
after Ernest.
Ernest Rolfson (37:51):
I'd like that person raise the prices on your
commercials I'd like he or sheto be listening in and and they
can they can write in and tellus what what they're doing. What
we're on. Absolutely. Now, it'scrazy. Even digital check.
E-check is is fairly slow toadopt. It's it's still gaining
(38:12):
some ground, we've had a lot ofsuccess with that. We we have a
client. It's about a 200 yearold college called Amherst
College, up in Massachusetts.
And they had an very interestingCOVID problem, which is that a
school is closed, and they'vegot heavy international student
component, right? So now all ofthe Chinese students, well,
(38:35):
those poor kids, they can't evengo back to China. They've been
stuck in random places, whereveryou can find them. Other
countries in Africa, kids inEurope, and at the college, they
only had their dorm address. Andso now they've got to refund
tuition. They've got a refundroom and board. They have no way
to get them the money. And sofirst we thought well, maybe we
(38:58):
do some crazy, internationalmoney transfer thing. These
people are all overseas. We'vegot a partnership with Veem and
they're a client of ours arereally excited about that and
our work with them Marwan theirCEO is going to be a guest here
soon. And it turns out it wasactually although that's an
awesome solution. probablyoverkill for this what we
(39:19):
realized was we had all thestudent emails, so we're like,
Can we just send them a check orjust send them a picture of a
check digitally, and now theycan have the freedom and
wherewithal deposit thatwherever and however they want
so using the check, you know 21technology and everything but
just kind of digitizing thecheck a new form factor. That
(39:41):
was a great way and some of themI'm sure use Pay Pal to convert
it. Some of them use somethingin their home country to convert
it and little dicey there is wekind of figured this out and
there was high intensity by theschool and college around
helping get these students gettheir money but Interesting
implementation and way to usesome kind of newer tech to solve
(40:02):
some old tech problem. And Irealized that wasn't necessarily
a b2b use case, we're a b2bcompany. But again, if you're
embedded with a company, theylike you, you're solving their
problems. You've taken them frompaper to digital. The next time
they have a payments problemthat pops up, they're not
calling their bank. Who are theygoing to call their bank that's
(40:23):
going to help them with thisright? They get a call. That's
right. They're gonna tell menext that movie was actually
written and founded by a man inSt. Louis. But I don't think
that's the case on that one. St.
Louis, the payments capital ofthe Midwest. That's, that's
(40:45):
great. Now good to share some ofthese, some of these war stories
here. So I wanted to just findout from you to, uh, you were on
the Inc 5000 fastest growingcompanies for like eight years
in a row and Nelson report hedgeis one of the top us merchant
(41:07):
acquirers. I mean, what? Whatwas the secret sauce here? You
were EY Entrepreneur of theYear? You know, what advice?
Yeah, you know, for people likeme, others, a lot has to go.
Right, in your favor, certainly.
But this also doesn't seemaccidental something. Tell me
(41:29):
your secret.
Dan Geraty (41:38):
to say it's what everybody else tells you. It's
that you have to hire reallygreat people, you have to give
them an environment in which tobe productive, where they want
to work where they, you know,you know, feel like solving
problems together is a reallyrewarding experience. You know,
so culture is just, I mean, it'sjust incredibly important that
you're building this idea thatit's, you know, you know, we're
(42:01):
in this doing something specialtogether. And we're attracting
as many smart people as we canto go solve problems. So, so
there's nothing, nothingsurprising about that. And then
I just, I really firmly believeon the power of a platform. So
not only the platform that webuilt in claret, but when we go
out to buy companies, we'relooking at the power of their
platform, and thedifferentiation that the
(42:23):
platform gives them. And so Ithink those were, you know, two
of the most important reasonsfor our success. We surrounded
ourselves with good advisors,good board members, good
partners. You know, it's wecertainly made mistakes along
the way. And there are things wewould do differently if we had
it all over again, but but lovethe team that we built, and I
(42:44):
firmly believe that it was the,you know, that team and the
people that that got us to wherewe ended up.
Ernest Rolfson (42:51):
Yeah, and you spoke heavily about your board
and getting the right advisorsand board members there as well.
So I'm sure partly kind ofavoiding some of the mistakes
that they made in their pastwas, yeah, probably something,
Dan Geraty (43:06):
Do your best to never, like when you're hiring
somebody never settle for goodenough, always go and strive to
find the best possible personthat pays huge dividends.
Ernest Rolfson (43:17):
Absolutely, we've seen that.
Dan Geraty (43:21):
So I think every entrepreneur has,
Ernest Rolfson (43:23):
so let's just talk here about, you know, you
did eventually grow the companylarge enough to sell it or sell
a majority piece. And nowthere's another combination
here, and exit, but what whatwas your like? How did that
investment that was with Advent?
How did that change thecompany's trajectory? You know,
what did that free you up to do?
(43:46):
Or think differently about howto grow the company? Was there a
specific payments opportunity orgrowth opportunity you all saw
together that you want topursue?
Dan Geraty (43:57):
Yeah, for sure. So as you know, I have that it's
probably been more successful inpayments than any equity firm
out there, you know, creating,you know, worldpay. And then
they've owned a lot of assetsaround the world in payments. So
incredibly smart, talented groupof people. And, you know, we had
done the Spot acquisition, youknow, saw that it worked well,
(44:20):
and wanted to go out and buyadditional companies. And so we
just needed a sponsor that, youknow, could help us do that
both, you know, operationally,as well as with deeper pockets.
And so admins fund their currentfund, I think it's like $17
billion.
Ernest Rolfson (44:38):
Just enough, as it turns out
Dan Geraty (44:40):
Just enough to go buy a few companies and so, so
bringing them to the table, youknow, brought all that
expertise, all that knowledge,all that execution ability, and
you know, pretty fat checkbook,I shouldn't say checkbook,
electronic payments.
Ernest Rolfson (44:54):
It was a digital wallet, and he was a digital
Dan Geraty (44:57):
Exactly, and he was an E wallet to buy company. This
is pretty impressive.
Ernest Rolfson (45:01):
Got it? How do you think in terms of payments,
it has been white hot, you'vebenefited from that it's a great
time to be a seller right now,it's actually worse time to be a
buyer and an investor. And youhear about the valuations, we've
seen, like in the b2b paymentsspace, there's only just a few
(45:22):
public names right Wex,fleetcore, an argument could be
made about Koopa. Bill.com,Repay, soon to be Avid exchange
will probably get a $10 billionvaluation here, just there's no
way to really invest publicly inb2b payments. Some of these
(45:42):
other areas in payments are alittle bit more accessible.
However, the prices are stillvery high. Valuations are pretty
eye popping Visa and MasterCardstock has gone through the roof.
There's been a big recovery inpayments since COVID, there was
an initial dip, and thenactually people did reasonably
well, because of this shift, youmentioned to ecommerce and this
(46:03):
digital transformation shiftwe've been talking about where
probably more paper waseliminated due to COVID, then
business prospects being downdue to reduce spending. So So
when you're making an investmentmaking an acquisition around
payments, are you how concerned?
Are you about the price you'repaying? versus the market fit
and strategy? I'm sure itfactors in but just kind of
(46:27):
curious about how you in some ofthe top minds in payments, PE
are thinking about, you know,investment strategy around this
just at a height, you know, highlevel General, general terms?
Dan Geraty (46:41):
Yeah, so I, you know, we've tried to be very
disciplined about it, I thinkwhat you're seeing these days
is, you know, softwarecompanies, were the ones who
used to talk about being valuedon a multiple of revenue. And
that seems to have crept intothe payments sector as well,
where people want to be valuedon a multiple of revenue. Sure,
do. You know, once you get tosee, of course, everybody does.
(47:07):
Once you get to a certain scale,though, you're you're going to
be valued by a multiple ofEBITDA. So we had to be really
disciplined and continue to bedisciplined about what we buy,
because we have to be able tosee, you know, taking something
that we might have to buy on amultiple of revenue and being
able to look out 12 to 18 monthsand know that on a synergized
(47:27):
EBITDA basis, it's going to bean accretive acquisition. So
that does mean that the numberof companies out there that are,
you know, fit into thoseparameters is is smaller. But,
you know, it's just the fact ofwhere the market is these days.
Ernest Rolfson (47:45):
Yep, that makes sense. Yeah. So it's, so it's
almost like you can have apayments business, it's growing
quickly, you're not you don'thave any earnings. But if you
can show an acquisition andacquire potential acquirer that
your platform or product fitsnicely into their ecosystem, and
can drive even more value, yourodds of getting a deal done and
having successful Win Winoutcome is, is a lot higher.
Dan Geraty (48:09):
Yeah. And I think that in the, you know, the high
growth part of the world,everybody wants to know that
your unit economics work. And ifyour unit economics work, then
hey, you know what, let's justpour gas on the fire and build
it up. And, you know, we'll beable to sell it, you know, on a
multiple revenue later, short,much bigger number short, and so
that that actually makes it evenmore problematic to go out buy
(48:32):
things because because a lot ofsponsors are still pushing for
the kind of behavior whereEBITDAis certainly a distant second
priority to revenue care. Sure.
But you saidevaluation is sohighly correlated to revenue
growth.
Ernest Rolfson (48:48):
How much and rate of right I mean, it's so
important, but you touched onit. I mean, I think the days of
the, you know, the Ubervaluations and some other names
I can't think of right now oryou're just upside down on every
transaction you do, or everysale you do, you're losing
money, those days are definitelyover. And we are in this kind of
(49:10):
rapid growth curve, which isexciting because I have a
business that's like that, wherewe're not we're making money on
each transaction, despite notbeing profitable overall. But if
you can show the growth and showthat there's a big path to
upside here, you can keepbuilding and extending your
reach. building out yourinfrastructure, right?
Dan Geraty (49:27):
Yep, that's good margin on every single
transaction that you do.
Ernest Rolfson (49:30):
Exactly. So So what's next for you? We talked a
little bit about the future ofClearant and they go forward but
you personally and also just thepayments industry as a whole. I
don't know if there's anypredictions you want to make,
but what do you kind of youpersonally excited about working
on what what other big trends inpayments? Are you fascinated by
(49:55):
you've mentioned risk andsecurity around payments to me
in the past, so I know you havean interest in that. But what
are you kind of kind of keepingyour eye open towards? And where
are you spending more of yourtime?
Dan Geraty (50:07):
Yeah, so I'm, you know, still involved in Clearant
on the board, or I should say onboard of Xplor. And so that's,
that's an interesting place tobe. I've invested in six or
seven different new relativelyearly stage, you know about
Finexio stage companies, some inpayments, some in you know,
FinTech more broadly. And, youknow, I continue to think that,
(50:32):
you know, things like, openbanking is pretty exciting. I
think real time payments isinteresting, because there are a
lot of applications for that,which, you know, where you're
providing a totally new valueproposition to the recipient.
Ecommerce still has so much roomto grow. And I think that's a
(50:56):
really interesting spot too. Andof course, as you know, I think
b2b is a great opportunity too.
Payments, you know, it's justsuch a great market, as we
discussed, it's big, it growsevery year 60%. So no matter
why, you know, clockwork andjust, you know, if you're part
of a market that's growing 6-8%that's, you know,that's a
tailwind To start with, that'sjust great for your business.
Ernest Rolfson (51:20):
That's great.
That makes a lot of sense. Itjust as a final, maybe some kind
of Final thoughts here. Anyother advice? Maybe someone just
trying to start up a paymentscompany, a FinTech company, you
mentioned, you know, youmentioned you made some
(51:40):
mistakes, things you would havedone differently, any, any kind
of ways you could kind of pay itforward here, or any kind of
advice, you'd even give yourformer self around how to get
something going. And we eachhave our own war stories about
getting things going here, yourart in arguably a lot more
successful than I've been sofar. Hope to be behind you one
day.
Dan Geraty (52:04):
Yeah, well, no, we're all we're all rooting for
you. Ernest, obviously, youknow, I think that we've touched
on a lot of the themes, I thinkthat you have to find a place
where, you know, you're most inlife, just the way I think about
it is, you know, what is theplatform? What are you doing
this differently? How are youmaking payments kind of
disappear? A lot of the thingsthat we've talked about today
(52:28):
are the things that somebodystarting out in this space
should have top of mind. Ifthey're if they're just getting
into payments now, because thereare really good competitors out
there in almost every sector.
Ernest Rolfson (52:40):
Getting fiercer and fiercer, right?
Dan Geraty (52:42):
Yeah. It really ended, you know, it's always
been fierce. It's just alwaysthe fact that it's such a big
market. And that customers, youknow, keep moving from place to
place to place. And so there's,you know, always an opportunity
to pick up a customer from thatside, but it's also true. Yeah,
but, and then there's always theguys who are, you know, stranded
on a legacy platform, therearen't people to innovate. And
(53:03):
so there's opportunity toinnovate. So, you know, I think
there's still so manyopportunities for
entrepreneurship in theelectronic payments ecosystem.
Just you just have to be carefulabout where you pick your
battles.
Ernest Rolfson (53:17):
Sure. Well, look, that's um, that was the
list of questions slash generaldialogue that we naturally
stumbled into. Yeah, it's been adelight here.
Dan Geraty (53:31):
It's been good talking with you Ernest.
Ernest Rolfson (53:33):
Thanks for listening to B2b cash flow
conversations. This is ErnestRolfson, the CEO and founder of
Finexio. I welcome yourquestions and comments. You can
reach me at podcast@Finexio.com.
You can also find us on Twitter@FinexioPayments. To subscribe,
you can go toFinexio.com/podcast. Be sure to
check out my new episodes onApple podcasts, Spotify, or
(53:55):
wherever else you listen topodcasts. Thanks and talk with
you again soon.
Hey, this is Ernest Rolfson, the CEO and
Founder of Finexio. Welcome toB2B Cash Flow Conversations, the
podcast dedicated to sharinginsights and innovations in
business to business payments,working capital and cash flow
management, and FinTechentrepreneurship. In each
episode, my guest tonight tacklequestions in the ever evolving
world of FinTech and paymentsindustry that's rapidly evolving
(00:26):
and of great interest toinvestors and businesses alike.
Looking forward to having thisconversation. So today, we're
meeting with Dan Geraty, theFounder and Chairman of
Clearent, a full servicepayments processor and merchant
services provider. Dan has over30 years experience in the
payments and softwareindustries, and was named
Entrepreneur of the Year in 2017by Ernst and Young. He's been
(00:48):
credited with Clearent'sunprecedented growth since its
launch in 2005. Good to be withyou, man.
Dan Geraty (00:55):
Thanks for having me on, Ernest. It's good to be
here.
Ernest Rolfson (00:57):
How you doing?
Dan Geraty (00:59):
Oh, great. I'm great. Spring is in the air.
Vaccines are in the air.
Ernest Rolfson (01:04):
I was gonna say there's still virus in the air
as well. The vaccine in the airis countering the virus in the
air. Where do our friends andlisteners find you today?
Dan Geraty (01:19):
I live in St. Louis.
So that's where I am today. Youknow, I look forward to spending
more time traveling aroundagain, as we're as we're
starting to come out of it.
Ernest Rolfson (01:30):
Yes. St. Louis isn't necessarily known as a
payments hub. Is that correct?
Or do I think that's a fairstatement? I
Dan Geraty (01:43):
MasterCard does have a big facility here. It's mostly
a big data center. But therethey have I don't know, maybe
maybe a few 100 people or moreout here. But no, you're right.
It's not really a payment hub.
Except that you know, Squarecame out of St. Louis. Also Jack
Dorsey's a St. Louis native,we've you know, so we've got
(02:06):
some we've got some payments inour DNA.
Ernest Rolfson (02:10):
Absolutely. So how did the idea for Clearent
come about? And were you wereyou in St. Louis at the time and
decided to build the companythere?
Dan Geraty (02:24):
I wasn't really actually. I had been working in
a telecom software company inNew Jersey, of all places. But
I'm from St. Louis. And we hadsold the company, the telco
company to Cisco Systems. And soI had some, some time to think
about what to do next. And I wasnetworking in different places
around the country. But I grewup in St. Louis, I still have
(02:49):
five siblings that live here, abunch of nieces and nephews. So
you know, it's definitely homefor us. And I was fortunate to
meet a group of people who hadbeen in the payment space, I
really didn't know anythingabout payments. You know, I just
thought Visa, MasterCard dideverything. I didn't know how
large the ecosystem was. And soI've met folks like a gentleman
(03:10):
named Norm Tice, who was on ourboard. It was an industry, he
had been on the MasterCard boardfor 17 years. And, you know, he
introduced me to payments andthe payments ecosystem. And we
met some technology folks whohad built one of the first
payments gateways, and they wereout of St. Louis. And so just
through networking, got to knowpeople in the payment space and
(03:32):
got to know more and more aboutthe payment space. And I found
it really, really interesting.
And as you know, back in 2005,when we started there really
wasn't much innovation inpayments, especially on the
merchant side. It was it wasreally considered a cash cow. A
lot of the processors were bankowned, and there wasn't really
there wasn't really much newinvestment going on. And that's
really why we saw an opportunityto jump in and build a new and
(03:55):
and much better platform thanwhat was out there for folks at
the time.
Ernest Rolfson (04:04):
Got it. That sounds the more we talked the
more it sounds like St. Louis isa payments town. We were we got
it wrong that we got it wrong.
Yeah.
Dan Geraty (04:14):
Yeah. Like it's your brother. I mean, there are a lot
of payments folks here right onmy board. I had a St. Louis and
who was the CFO of payment tech.
I mentioned Norm. And then weattracted other folks from
outside of St. Louis to theboard as well.
Ernest Rolfson (04:29):
Got it. Got it.
Taking a step back. I mean, howwould you describe Clearent as a
business? or How would youdescribe it today? Maybe for
folks that aren't necessarilyfamiliar?
Dan Geraty (04:41):
Yeah, sure. I mean, we're the merchant acquirer or
so we stand between merchants orcard acceptors on the one side,
and Visa MasterCard on the otherside, and we move around all the
Got it. It was there. When whenyou were getting into this, as
data and the money associatedwith credit and debit card
transactions. So when you go inand you swipe your card at a at
(05:02):
a restaurant, you get thisauthorization that that
there a specific problem thatyou were solving? Or was it more
transmits our network goes toVisa MasterCard, to determine
whether the card is good. Andthen you get this authorization,
your transaction goes throughthe end of the night, all those
transactions are batched. Up,they come to us. And basically,
through a settlement process, wemake sure that the merchant, the
(05:23):
restaurant gets their money, butthen everybody along the chain
as well gets their slice of thattransaction. So that all comes
down to to Clearent to do thatas was there. So we do that now
or about 60,000 customers.
(05:46):
like, there's a lot of whitespace here?
Yeah, I mean, it's just as youknow, payments, especially, you
know, as they continue to becomeelectronified. I mean, it's just
kind of amazing that this isstill going on after, you know,
Visa and MasterCard have been inthe market for 50 plus years.
And there are still plenty ofcash transactions, plenty of
(06:08):
check transactions that can beturned into an electronic
transaction for the benefit ofalmost everybody involved in
the, in the in the ecosystem. Soit is a giant market. But again,
what we saw was just a lack ofinnovation. I mean, it was,
again, the the folks who do whatwe do were almost all bank
owned, or, you know, bigcompanies that were not
(06:30):
investing in their platforms.
And the customer experience as aresult was generally terrible. I
mean, you wouldn't find anybodythat said they love their
merchant acquirer as a partner.
So that's why we really thoughtthere was an opportunity to to
build a better platform, bothfor the benefit of our own
salespeople, our channelpartners, and of course, for the
(06:51):
for the merchants that we workwith.
Ernest Rolfson (06:53):
Got it? Got it, I want to ask how things are
kind of different now than whenyou started. But if you kind of
just touched on something, itwas like, yeah, I wasn't around
these days. But when merchantacquiring or credit card
processing first came out, itwas actually seen in some
respects is kind of helping thethe merchant, right helping
(07:15):
accelerate receivables helpingincrease ticket size. And now
over the years, maybe that thelight of the customer has
dwindled. And it's now seen as acommodity in some respects. And,
and it's about well, how cheapcan you give it to me and seen
as okay, I don't want to pay afee for taking the card. And now
(07:35):
discounting heavily all of thoseother benefits, you touched on
around eliminating the paper andthe waste and inefficiency. So I
guess around that, like how isselling credit card processing?
Your Merchant Services merchantacquiring? How is it different
now back from back when youstarted? Because I think there
(07:57):
are some pretty fundamentalchanges.
Dan Geraty (08:00):
Yeah, for sure, there are I mean, a lot of what
was happening. And when westarted back in the, you know,
early 2000s, was simply it wasall terminal base, you know,
even in a restaurant, there wasa terminal in the back that
somebody was swiping the card.
And you know, now it's much moreabout integrations with
software, it's about, you know,I think it was actually Jack
Dorsey who said it, but if youdidn't, he shouldn't have that,
(08:22):
you know, really payments shoulddisappear into the background,
the transaction shouldn't beabout the payment, the payment
should just happen withoutpeople thinking about it. So
while that sounds easy, there'sa ton of sort of changes in
mindset changes in technology toenable that. It is, as you say,
that, you know, if you're justout there trying to sell a
terminal, or somebody alreadyhas a terminal, it's really it
(08:43):
is a commodity, and it's hard towin. You know, we try to win
based on service and a betterplatform, etc. But it's really
this, you know, accelerationtowards payments, disappearing
into the background, that, thatthat's, that's really driving a
lot of the innovation and makingit easier on the merchant so
that the fact that they have topay for card acceptance, you
(09:04):
know, you get they see morevalue out of it as a result.
Ernest Rolfson (09:11):
What you know, we say, Here, in terms of paying
with car, when we get asked thatquestion, why would people take
the card is like, well, they're,they're willing to pay for it,
if they see value in it. If it'ssolving a problem for them,
they're gonna they're gonna pay,right. I mean, it's like, what
is free in life?
Dan Geraty (09:30):
There's an expectation on, there's an
expectation on the part of theircustomers that they're going to
be able to pay with card. Andso, you know, if you're in the
business of delighting yourcustomers, you're not going to
end that experience when they goto pay and say, Well, you know,
what, we only take cash or checkand that's just not what your
customers want to do. Andparticularly even now in the
(09:51):
pandemic, you see thisacceleration towards electronic
payments. Even less cash hasbeen used over the last year and
a half. Yeah, yeah, you have toconsider, you know, both sides
of the transaction. When youthink about whether or not you
know, there's a valueproposition in payments. It's
not just that the merchant seesvalue and allowing people to pay
(10:13):
with the card. It's what you andI see when we when we use our
cards, right. So some people areall about the points. And like
chargeback protection doesn'treally exist if you pay with
cash, right. So there's, there'svalue on both sides of the
equation. And you know, cardsare here for a long time to
(10:36):
come.
Ernest Rolfson (10:37):
I think it's moving as the industry is
investing, much mentioned on thesoftware integrations, so much
more emphasis is now beingcreated on that experiencial
factor. And it's the wow factor,whether it's the Goldman Apple
card, which is this beautifulvirtual card dynamic thing. Or
even you know, I bought a pairof slippers, I've got a hole in
(10:59):
my slippers. Oh, so I bought anew I've got these Italian wool
slippers. I've they're theseluxury wool slippers. I bought
them from Facebook ads, and allecommerce, right? And now I've
worn them. You know, these areexpensive slippers. I'm wearing
them till they're literallyfalling apart. You know, I want
to get my last dollar of valueout of these slippers. So I had
(11:22):
to give in today. And it's allGoogle pay. Plugged right in and
it's like it's two clicks. It'sbeautiful. You don't even have
to do anything appears and it'slike it's awesome. Shoes you're
wearing. I'm wearing I amwearing slippers. That's I'm
wearing Italian wool slippershandmade in Portugal with a hole
(11:45):
by the pinky toe. And I've got abunch of just put some duct tape
that have been yeah. And there'sa bunch of mulch in them because
my dog went crazy. So I got abunch of mulch in my slippers.
So that's, that is I'm wearingmy next co branded t shirt. I
don't know if you can see thathere. And very fancy slippers. I
(12:07):
am wearing shorts as well. justround it out. Yeah. Great.
Great. So what we can kind ofthink from here, because you
mentioned the software, youmentioned the integration,
you've been, you know, buying orinvesting in different
businesses there. Were thereany, are there any software
(12:27):
specific? You know, the strategyaround this had implications
around an integrated softwareapproach around selling and
delivering payment services towhether it's a business or
consumer?
Dan Geraty (12:48):
So you mean it at Clearent? Are the acquisitions.
So yeah, yeah, yeah. I mean, we,we were eager to partner with
software developers, you know,to enable payments as part of
their value prop, which is, youknow, great for them, because
they get this additional revenuestream in payments, also good
for their customers, becausethe, the experience of payments
(13:11):
is much more seamless. And sowe've been partnering with
software companies for a longtime, to, again, enable payments
for them. And back in 2017, youknow, we came across or met a
company called Spot have in allthings dry cleaning store
management software, right,super sexy. But the idea was
(13:34):
that almost everybody pays fortheir dry cleaning with a credit
card. And we like the space andwe like these guys, because they
were the dominant player intheir space, the the founders
were ready to retire. And, youknow, this intersection of
payments and software we thoughtwas, we still believe it is, is
a tremendous opportunity,because software makes payments
(13:55):
stickier because software is sosticky, right? So so we acquired
Spot, and we move theircustomers to Clearent for
payments, which was a muchbetter solution for their
customers, by the way. And so wewere able, we were able to pick
up you know, revenue synergiesassociated with payments as part
of the revenue stream. But wewere also able to really improve
(14:18):
their business and improve theexperience for their customers.
And that transaction went, youknow, so well, that we, we
realize that, you know, as we aswe go out to partner with
software companies, from time totime, there'll be verticals that
we really like, where we want toacquire a company as a platform.
And so we we've done that inother vertical markets as well.
(14:41):
And now, I don't know if you didyou see the announcement of the
merger with TSG and the creationof Explorer, which is, which is
which I think when theannouncement went out a month
ago.
Ernest Rolfson (14:54):
No, no.
Dan Geraty (14:57):
So TSG was also an ad that bet company out of the
UK, Australia, New Zealand. Andthey follow a similar strategy
to clear that they are owned anumber of software companies and
verticals like child care andhealth and fitness. And so the
two companies are comingtogether. And the new name is
(15:18):
Xplor. And so we're gonnacontinue that strategy, we now
have, you know, a globalplatform to continue that
strategy of acquiring softwarecompanies in verticals that we
really like, in addition topartnering with software
companies, you know, that wedon't know. But that we can
improve their paymentexperience.
Ernest Rolfson (15:39):
I you know, I did see this, but it looks like
there's now a whole detailedstrategy out there and in a
release, so so there's somespecific verticals that you you
guys really like? It turns out.
Is that because verticals arereliant on some specific
software to help run theirbusinesses that you think
payments fits nicely into?
Dan Geraty (16:00):
Yeah, we like to buy platform companies where the
software is mission critical. Soyou know, the first one I
mentioned spot, I mean, you runyour entire dry clean,
Ernest Rolfson (16:08):
you can't use you can't run the dry cleaning,
if you don't have the software.
And if you run the dry cleaningoperation, you need payments,
payments comes with thesoftware, you turns out you
bought payment software, youdidn't even know it.
Dan Geraty (16:21):
Yeah, there you go.
And then, you know, we likeother verticals. So we've, we've
acquired a couple of companiesin the field services space,
right. So think about companiesthat have you know, 10 to 50
trucks on the road servicingHVAC, customers, we really like
that one, because you know, it'sa, there's a lot of whitespace
for the software. A lot of thosefolks use Excel and Google
(16:44):
spreadsheets and things likethat to do their scheduling, or
additions. Yeah, big opportunityfor software, further
penetration into the market. Andthe other thing that was
happening at the same time isthe whitespace, around payments,
it used to be all those guyswould bill you, you know, 30
days after they came to fix yourHVAC. Now they have a tablet,
and after they finish, they wantyou to give them a credit card
(17:05):
right at your door, right at thepoint of service. And so a big
whitespace around payments,that's that's expanding really
quickly, as more and more of theField Services folks expect to
be paid by card and expect to bepaid when they do the service.
Ernest Rolfson (17:22):
Got it got it so that they're actually that these
folks are walking up, they'vegot a tablet of some sort with
their scheduling software andbilling software. Now they're
able to just turn around andgive it to the consumer, right
and just swipe their card in thetablet. Is that the kind of
experience we're talking abouthere?
Dan Geraty (17:38):
Yeah. And the software is much more rich than
sort of a point of sale. I mean,it does, you know, truck
routing, and scheduling matchingtechnicians with jobs, etc, etc.
So it's, again, it's missioncritical to the field service
solution provider.
Ernest Rolfson (17:54):
I mean, is this, is this the biggest change in
the landscape? You would say,since you've started? I mean, is
this did you see this kind oftrend coming? I don't know if
you saw it, that you'd be in abusiness of buying and owning
vertical specific softwarebusinesses and the like.
Dan Geraty (18:12):
I wish I could tell you I had that much for you back
in 2005. But no, no, we didn't.
We didn't anticipate this. Butyou could see it starting to
happen right back with. Youknow, openedge was one of the
first companies if you rememberthem that the global bought,
where they were doing a lot ofintegrations with software
companies and growing like aweed as a result. And you can't
(18:33):
help but take notice, as youknow, you know, in the merchant
acquiring space, attrition isjust a challenge, right? Yeah.
Unless you're, you got a realhook. And the software is the
hook. And the software is evenmore of a hook when you own it.
Ernest Rolfson (18:52):
Right, right.
Just for listeners too that maybe familiar with a company like
a Stripe or something like that.
Like how is maybe what you'redoing different than that. It
seems like it's in the generaltrend area of right, having
credit card processing availableto developers, you can embed
into the software.
Dan Geraty (19:14):
I mean, Stripes, Stripes, a terrific company,
they've done a great job ofmaking it really simple for
people to integrate paymentsinto their software solution.
What we find is that, you know,Stripe does, it's a little bit
more of a one size fits all kindof a solution. And while
software developers when they'resmaller, you know, Stripe is
(19:36):
like kind of the go to whenyou're just getting started. As
this software company matures,as the business matures, we find
a lot of them are looking for adifferent solution with more
support, more support for theircustomers, different pricing
solutions or different pricingoptions. So you know, they're a
terrific company and they seemlike they're taking over the
(19:56):
world with their valuation, butyou know, it's a little bit like
Square where it's not a one sizefits all. Not everybody can be a
Square merchant when complexitystarts to enter the equation.
Ernest Rolfson (20:07):
Right? Okay. So it's everyone has its has its
place or its specific focus,essential
Dan Geraty (20:16):
It's just gigantic.
Right? The global paymentsmarket, is huge.
Ernest Rolfson (20:22):
It's stupidly large. Absolutely, absolutely.
I'm excited for. Now, Stripe hasso much money now they can just
start buying islands. They haveall the islands around Richard
Branson is gonna be like, Hey,we're all these people that own
these islands here. Yeah, maybethat Red Bull Island?
(20:42):
Unbelievable. Yeah, well, Ilook, I see the same, the same
trends, you're not to talk aboutmy book too much here. But it
seems like you know, theparallels that we're seeing and
credit card processing, and howthe shift to getting the
processing into the software.
That's, that's actually what I'mbetting my entire company on is
that, you know, CFOs are notgoing to be buying paint
(21:06):
outbound payment processinganymore, out sourced check
printing anymore, or havingtheir back office staff be
making payments over the phonewith a credit card anymore.
They're buying procurementsoftware, or AP software to run
their business. And theexpectation is they're pressing
one button that says buy thisgood or service. And it's not
only writing to the accountingsoftware, but it's also making
(21:29):
the payments for the minutes anembedded part. And payments is
pretty confusing andcomplicated. And pricing can be
opaque. You know that you'veseen these interchange tables
that grow with complexity everyyear. So I think it's easier to
not engage with it. And if youcan delight a customer or solve
(21:51):
a business problem, it'sactually very elegant to get the
payments in there. And onceyou're in, it's very hard to get
pulled out, especially if you'vegot some kind of vertical
integration or vertical focusare some series of vertical
partnerships. Like your examplewith the laundromats were very
heavy in the hospitality andhigher education. verticals, for
(22:15):
instance.
Dan Geraty (22:19):
Yeah, it seems like in b2b, it's what we, you know,
have seen happen in on themerchant acquiring side over the
last 15 plus years, is, again,this idea that you have to make
it seamless, basically makepayments disappear, because
people don't want to deal withpayments. Like he said, they
don't want to engage withpayments, they just want it to
work like a utility. And it'snot easy to just make it work,
(22:42):
right.
Ernest Rolfson (22:42):
It's actually the complete opposite.
Dan Geraty (22:46):
Right, right. It's totally right. So, you know,
again, people talk aboutpayments and commoditization of
payments. Well, again, if you'reswapping out one clunky terminal
for another clunky terminal,yeah, that's, that's pretty much
of a commodity sale. But if youcan really delight your
customers by making it so supersimple for them and for their
customers. That's real value.
Ernest Rolfson (23:08):
Yep, yep. The grass seems to be always greener
on the other side, doesn't it?
Especially when you're swappingout one clunky, you know, not to
disclose any kind ofconfidential info, but and then
going a bit off? off topic? Imean, around that point, I mean,
when you think about you'veactually did become yourself a
merchant acquirer, right, notjust an ISO o or a super ISO,
(23:28):
you actually develop their noone, develop the infrastructure.
So maybe it'd be interesting foryou to mention about, like, when
and how did you decide to makethat investment? And it always
seems to be like that feels likeit could be a commodity piece
for like, oh, I'll just changemerchant acquirers are all just
(23:49):
change processors. And I'd loveto hear from you why you think
that's not necessarily so easyor smart. And if you've got a
partner in place, you know,that's a pretty big undertaking,
making the switch and the riskand complexity and customer
service. So I just threw a lotat you. But I, it's interesting,
because you did make that jump.
(24:13):
And that's not a common. That'snot a common move, I would say,
considering the years many, many1000s of credit card processing
and ISOs in this country, andgrowing only so many very big
ones of which your company isone of the few very meaningful
ones globally.
Dan Geraty (24:32):
Yeah, so it's interesting you would ask that.
Part of it is a little bit thatwe were not coming from the
payment space. And, you know,like a lot of entrepreneurs were
like, well, we could build thisback end settlement system in
six months might cost us about$5 million. And I thought I was
being really savvy when I said,Well, we better just double that
(24:54):
estimate. Because becauseeverything's harder than you
think it is. So let's say it'sgonna take us a year.
Ernest Rolfson (24:59):
that was probably pretty astute, though.
But you were probably still offby double that. Right?
Dan Geraty (25:03):
I was still off.
Yeah, I needed like club,quadruple it. Because it's like
you said it's complicated.
They're like 450 Interchangerates, you know, so yeah. But
our strategy right from thebeginning was to build the full
stack, you know, paymentsprocessor, because what we
wanted was control. And we wantto control, you know, partly for
(25:25):
our own business, because wewanted to control our costs,
right. But we also knew that ifwe didn't control the, you know,
user experience, we didn'tcontrol the roadmap, we didn't
control features. And we weresubject to using, you know, one
of the big, you know, megaplatforms that's out there,
right, right, then it'd beimpossible to differentiate,
(25:45):
right? You're just basicallyeverybody's selling the same
loaf of white bread, because thebackbone of what they're using
is the same across all right,different ISOs. And so, so we,
we build that processingplatform, right from the
beginning, it's funny how manytimes I would go to like to an
ETA and describe the people whatwe were doing, and they would
(26:05):
just like shake their head,like, that's just, that's just
not a good idea. It's acommodity, why would you want to
do that it's not a good idea.
But we really felt like, youknow, if you're going to
differentiate yourself, thedifferentiation starts from the
technology platform. So that'swhy we made that investment.
Ernest Rolfson (26:20):
And I think this is a good lesson for the
investors too. And you must havehad great investors on board to
see that vision because it takesa massive investment, and so
much time to build something ofreal meaningful, like
infrastructure type value inthis space. And most investors
don't have the time horizon, tobe able to withstand that,
(26:43):
because now years later, yourcompany, I don't know that it's
partly on public, your yourcompany may be worth billions of
dollars at this point. But ittook a long time for you to get
there and building that that wasa, you know, you probably had to
go back to your investorsmultiple times and say, taking
longer and more money than wethought is Yeah, I'm not putting
words in your mouth, sounds likethat's what happened.
Dan Geraty (27:05):
Yeah, we did for sure. And we went back five
different times, although wewere pretty capital efficient. I
mean, we only raised like $25million, only, you know, yeah,
before we had institutionalinvestment. Yeah. But almost
100% of that money came from,you know, individuals and family
offices. So it wasn't until2015, when FTV joined the cap
(27:31):
table as a minority investor,that we actually had real
institutional money at thetable. And there were pros and
cons to that, as you mightimagine, like, you have a lot of
individual investors, which, ifyou treat them right, is a great
network for you. And, and that'show we felt, I mean, we had
almost 100 people on our captable. But But I liked that
(27:53):
process. Even though it soundsunwieldy to have 100 people on
your cap,
Ernest Rolfson (27:56):
I think we're about half that. Now. And I've
been certainly gotten somecriticism for doing it. But
that's the way that you did it.
And But to your point, youfoster some of those
relationships, you work withpeople, as advisors, you ask
them for advice. And thestrategy for me has been to try
to find people like yourselfthat have done it before, that
can not only give the councilbut can also help it I think
(28:20):
it's the ultimate smart money,right? people that walk the same
path in the same kind of shoes,versus that institution, where
the love you until they don'tnow FTV or, you know, blue chip
that their top class, that's howme and you got to know each
other through those guys, butthey're the, you know, probably
(28:43):
the best investors you could getfor your company.
Dan Geraty (28:49):
They were for sure at that phase, because they're,
you know, the they know allabout payments and their growth
investors. And still, you know,that was, you know, we were very
much looking for a growth equitypartner at the time. But yeah,
it's, I did have a really greatgroup of investors. And as a
result, we were able to have a,you know, I thought was really
(29:10):
important to have a real board,you know, real governance and
have people on the board thatunderstood the business. And so,
effectively, we ended up withseven independent directors
whose interests were all aroundthe company, not that it was
divorced from their investment,but that were mostly about
trying to solve the problems forthe company. And so that worked
(29:31):
out well for the for thebeginning phases of Clearent.
Ernest Rolfson (29:35):
The these were these were these truly out some
of them, were outsiders, trulyor were they on your cap table,
but they wouldn't be willing torun our cap table. And had
payments experience. Yeah, no,that's great. I've done similar.
It's kind of cool that we shareeven some of the same investors
(29:56):
like David that got involvedwith them early on, and involved
with us early on to so?
Dan Geraty (30:03):
Well, there's a lot of investors who've done very
well in payments and are alwayslooking for another. Another
good opportunity.
Ernest Rolfson (30:11):
So why don't we, since we're stumbled onto that
track? I mean, you are aninvestor, at Finexio and an
advisor. I mean, what did yousee here that you liked? And
what thoughts do you have on b2bpayments, specifically, that you
might want to share?
Dan Geraty (30:32):
Well, let's start with that with b2b which is just
that it's a gigantic market, youknow, it's just huge. And it's
just the early innings of, youknow, becoming like, or moving
to electronic payments. So lovethe size of the market, you
know, as we said, whitespace, Imean, we love the idea of
whitespace. And the opportunityto grow and that there can be
(30:52):
multiple winners in the space,it's by no means a winner take
all kind of a market. Yeah, asyou said, I've known you for for
quite some time, I don't know,we went to an FTD conference
together, maybe seven or eightyears ago, right. And I spent,
Ernest Rolfson (31:08):
I was in I sent out into Napa, they tried to
close off the valley, but theycould not get me out. So I told
my way did the straight you'renot a portfolio company, and
you're not a limited, but theyjust let me let me and they they
liked me enough to let me in. Ihad a few interesting things to
say, yeah.
Dan Geraty (31:25):
Well, and I think that that's part of it, right,
you have been living andbreathing the b2b payment space
for a good part of your career,and you've been championing the
next CEO for I don't know howlong it's been five years, the
last five years have beenbuilding the company, right. As
a result, you have a company anda platform that's, you know,
five years mature, which is, youknow, I like when to invest in
(31:49):
that stage when there's aplatform that's out there that
has differentiation. And also,to return to another theme that
we've talked about earlier isjust this, this idea of making
payments simple. And the flexiosolution, I believe is super
simple, right? You know, all ofthe AP people have to do is, is
create that AP file and thengive it to you and like what
(32:10):
could be simpler for them thanthat. So love that the company
is helping to speed the processof making b2b payments, simple,
seamless, and customer focused.
Ernest Rolfson (32:25):
We started what you know what one of the ideas
was, let's let's just get thedata in like an Excel file like
an a CSV, it's like we're likeevery company can do that, from
the shoe manufacturer to thereal estate company to law firm.
And, you know, no it No problem,right? It's like, Hey, can you
(32:47):
get your back office worker ifyou had to generate an some
Excel file. And, and this iskind of when Dropbox or Box or
Google Drive is kind of comingout. And we're like, you know,
file transfer is great. And wehad this vision for integrating
into procurement and APsoftware. But we said to start,
we have to make something wereto just take advantage of this,
(33:09):
because we saw the barriers withbanks having this arduous crazy
implementation process and threemonth cycle form on cycle of
getting somebody live and up andrunning or like, just be able to
get the staff to move a CSV intoa web page, and start making
payments as a way to start andso that we still have not seen
(33:30):
that really replicated yet. Andb2b payments, the technology
exists. So just that idea of howdo you make it simple? And how
can you get adoption andtraction? And I was thinking
about how can we deliverpayments where, you know, again,
12 trillion checks, half of itspaper 20,000 or so middle market
(33:52):
companies that need this? How doyou get your first few
customers? How can you get sometraction? How can you show some
excitement to write get theinvestment to build that Bigger,
Longer term investment to getinto the software space that to
your point takes longer and moreexpensive than you thought? But
you can't go to the biggestplayer in an industry and say,
Hey, take my processing solutionand plug it into your software
(34:13):
when there's no proof points. Itdoesn't, it doesn't really work,
you know?
Dan Geraty (34:19):
Yeah. Yeah. The other nice thing about your
business is the demand side isclearly there. Like they
definitely want to offload thisprocess. And again, you you, to
a certain extent, benefited fromthe pandemic. And that's to say,
yeah, let's accelerate this moveto having somebody else do the
actual payments, we'll justdeliver the file. And so from an
(34:40):
investment standpoint, I thinkthat the opportunity on your
side to do to make everythingsimpler once you receive that
file to invest in thetechnology, once you receive
that file to make it all justwork beautifully on your
platform. That's that's the kindof investment that can be made
and you can just keep gettingbetter and better. Now that you
know that demand is for surethere on the part of the payors.
Ernest Rolfson (35:02):
The demand is there. I mean, we've seen
probably a five year and I thinkthis speaks to digital
transformation. Generally, Ithink right now it's a great
time to be a software company,even a better time to be a
software company sellingsomething to the CFO, where
we've seen like a five yearacceleration of a push to
digital transformation, aroundoutsourcing, payments
(35:26):
processing, workflow automationsoftware, we're targeting all
those factors in one, which isnice. And so I think that now
that companies have had to workfrom home for so long, and
almost overnight, go digital.
That barrier of Oh, yeah, it's apriority. But you know,
(35:47):
digitizing our payments is inthe top priority. It's so much
more obvious now for companiesto go and do this. And they're
looking for ways to I hate tosay it, the companies did layoff
people and reduce theirfootprint due to rabid so now
they're like, how do I not goback to that old cost structure?
How do I not hire people back?
(36:09):
Others are just like, I like theefficiency we got working from
home being digital. How do wecontinue that? Yeah. So it's,
it's been it's been prettyamazing.
Dan Geraty (36:22):
It's Norm Tice. So again, gentlemen, that was on my
board and was a made a lifetimebanker on the MasterCard board
for 17 years wonderful guy. Heused to talk about when EDI was
first, you know, the technologywas first invented, so was back
in the 1970s. And he said, Iremember, we were all in a board
(36:43):
room. And, you know, we had, wehad managed to create this EDI
solution, bank to bank andsomebody proudly proclaimed that
this is the death of the checkand help us like 1970s. And it
seems like it's just impossibleto kill the check. But maybe
we're starting to finally.
Ernest Rolfson (37:03):
It is it is dying, it's slow as death. You
know, and there's somebody atChase listening to this podcast,
and they're in a room, they'rein a check printing room,
someplace in the bowels of Chaseand they're just hanging on to
make sure that they're thatthey're the last person there,
they're going to flip the lightswitch off. 30 years from now,
(37:23):
they'll be in that room. Now.
There's that one light bulb, youknow what the string, they're
gonna pull that string and closethe door. And that's that
that'll be the end of the movie,but I think we've got a ways to
go there. That person inprobably in Ohio, or knowing
Chases footprint, they'reprobably in a giant 100,000
square foot facility in Ohiothat is some bunker.
Dan Geraty (37:43):
Well, that's great.
That's that's the demographicthat all the podcasters are
after Ernest.
Ernest Rolfson (37:51):
I'd like that person raise the prices on your
commercials I'd like he or sheto be listening in and and they
can they can write in and tellus what what they're doing. What
we're on. Absolutely. Now, it'scrazy. Even digital check.
E-check is is fairly slow toadopt. It's it's still gaining
(38:12):
some ground, we've had a lot ofsuccess with that. We we have a
client. It's about a 200 yearold college called Amherst
College, up in Massachusetts.
And they had an very interestingCOVID problem, which is that a
school is closed, and they'vegot heavy international student
component, right? So now all ofthe Chinese students, well,
(38:35):
those poor kids, they can't evengo back to China. They've been
stuck in random places, whereveryou can find them. Other
countries in Africa, kids inEurope, and at the college, they
only had their dorm address. Andso now they've got to refund
tuition. They've got a refundroom and board. They have no way
to get them the money. And sofirst we thought well, maybe we
(38:58):
do some crazy, internationalmoney transfer thing. These
people are all overseas. We'vegot a partnership with Veem and
they're a client of ours arereally excited about that and
our work with them Marwan theirCEO is going to be a guest here
soon. And it turns out it wasactually although that's an
awesome solution. probablyoverkill for this what we
(39:19):
realized was we had all thestudent emails, so we're like,
Can we just send them a check orjust send them a picture of a
check digitally, and now theycan have the freedom and
wherewithal deposit thatwherever and however they want
so using the check, you know 21technology and everything but
just kind of digitizing thecheck a new form factor. That
(39:41):
was a great way and some of themI'm sure use Pay Pal to convert
it. Some of them use somethingin their home country to convert
it and little dicey there is wekind of figured this out and
there was high intensity by theschool and college around
helping get these students gettheir money but Interesting
implementation and way to usesome kind of newer tech to solve
(40:02):
some old tech problem. And Irealized that wasn't necessarily
a b2b use case, we're a b2bcompany. But again, if you're
embedded with a company, theylike you, you're solving their
problems. You've taken them frompaper to digital. The next time
they have a payments problemthat pops up, they're not
calling their bank. Who are theygoing to call their bank that's
(40:23):
going to help them with thisright? They get a call. That's
right. They're gonna tell menext that movie was actually
written and founded by a man inSt. Louis. But I don't think
that's the case on that one. St.
Louis, the payments capital ofthe Midwest. That's, that's
(40:45):
great. Now good to share some ofthese, some of these war stories
here. So I wanted to just findout from you to, uh, you were on
the Inc 5000 fastest growingcompanies for like eight years
in a row and Nelson report hedgeis one of the top us merchant
(41:07):
acquirers. I mean, what? Whatwas the secret sauce here? You
were EY Entrepreneur of theYear? You know, what advice?
Yeah, you know, for people likeme, others, a lot has to go.
Right, in your favor, certainly.
But this also doesn't seemaccidental something. Tell me
(41:29):
your secret.
Dan Geraty (41:38):
to say it's what everybody else tells you. It's
that you have to hire reallygreat people, you have to give
them an environment in which tobe productive, where they want
to work where they, you know,you know, feel like solving
problems together is a reallyrewarding experience. You know,
so culture is just, I mean, it'sjust incredibly important that
you're building this idea thatit's, you know, you know, we're
(42:01):
in this doing something specialtogether. And we're attracting
as many smart people as we canto go solve problems. So, so
there's nothing, nothingsurprising about that. And then
I just, I really firmly believeon the power of a platform. So
not only the platform that webuilt in claret, but when we go
out to buy companies, we'relooking at the power of their
platform, and thedifferentiation that the
(42:23):
platform gives them. And so Ithink those were, you know, two
of the most important reasonsfor our success. We surrounded
ourselves with good advisors,good board members, good
partners. You know, it's wecertainly made mistakes along
the way. And there are things wewould do differently if we had
it all over again, but but lovethe team that we built, and I
(42:44):
firmly believe that it was the,you know, that team and the
people that that got us to wherewe ended up.
Ernest Rolfson (42:51):
Yeah, and you spoke heavily about your board
and getting the right advisorsand board members there as well.
So I'm sure partly kind ofavoiding some of the mistakes
that they made in their pastwas, yeah, probably something,
Dan Geraty (43:06):
Do your best to never, like when you're hiring
somebody never settle for goodenough, always go and strive to
find the best possible personthat pays huge dividends.
Ernest Rolfson (43:17):
Absolutely, we've seen that.
Dan Geraty (43:21):
So I think every entrepreneur has,
Ernest Rolfson (43:23):
so let's just talk here about, you know, you
did eventually grow the companylarge enough to sell it or sell
a majority piece. And nowthere's another combination
here, and exit, but what whatwas your like? How did that
investment that was with Advent?
How did that change thecompany's trajectory? You know,
what did that free you up to do?
(43:46):
Or think differently about howto grow the company? Was there a
specific payments opportunity orgrowth opportunity you all saw
together that you want topursue?
Dan Geraty (43:57):
Yeah, for sure. So as you know, I have that it's
probably been more successful inpayments than any equity firm
out there, you know, creating,you know, worldpay. And then
they've owned a lot of assetsaround the world in payments. So
incredibly smart, talented groupof people. And, you know, we had
done the Spot acquisition, youknow, saw that it worked well,
(44:20):
and wanted to go out and buyadditional companies. And so we
just needed a sponsor that, youknow, could help us do that
both, you know, operationally,as well as with deeper pockets.
And so admins fund their currentfund, I think it's like $17
billion.
Ernest Rolfson (44:38):
Just enough, as it turns out
Dan Geraty (44:40):
Just enough to go buy a few companies and so, so
bringing them to the table, youknow, brought all that
expertise, all that knowledge,all that execution ability, and
you know, pretty fat checkbook,I shouldn't say checkbook,
electronic payments.
Ernest Rolfson (44:54):
It was a digital wallet, and he was a digital
Dan Geraty (44:57):
Exactly, and he was an E wallet to buy company. This
is pretty impressive.
Ernest Rolfson (45:01):
Got it? How do you think in terms of payments,
it has been white hot, you'vebenefited from that it's a great
time to be a seller right now,it's actually worse time to be a
buyer and an investor. And youhear about the valuations, we've
seen, like in the b2b paymentsspace, there's only just a few
(45:22):
public names right Wex,fleetcore, an argument could be
made about Koopa. Bill.com,Repay, soon to be Avid exchange
will probably get a $10 billionvaluation here, just there's no
way to really invest publicly inb2b payments. Some of these
(45:42):
other areas in payments are alittle bit more accessible.
However, the prices are stillvery high. Valuations are pretty
eye popping Visa and MasterCardstock has gone through the roof.
There's been a big recovery inpayments since COVID, there was
an initial dip, and thenactually people did reasonably
well, because of this shift, youmentioned to ecommerce and this
(46:03):
digital transformation shiftwe've been talking about where
probably more paper waseliminated due to COVID, then
business prospects being downdue to reduce spending. So So
when you're making an investmentmaking an acquisition around
payments, are you how concerned?
Are you about the price you'repaying? versus the market fit
and strategy? I'm sure itfactors in but just kind of
(46:27):
curious about how you in some ofthe top minds in payments, PE
are thinking about, you know,investment strategy around this
just at a height, you know, highlevel General, general terms?
Dan Geraty (46:41):
Yeah, so I, you know, we've tried to be very
disciplined about it, I thinkwhat you're seeing these days
is, you know, softwarecompanies, were the ones who
used to talk about being valuedon a multiple of revenue. And
that seems to have crept intothe payments sector as well,
where people want to be valuedon a multiple of revenue. Sure,
do. You know, once you get tosee, of course, everybody does.
(47:07):
Once you get to a certain scale,though, you're you're going to
be valued by a multiple ofEBITDA. So we had to be really
disciplined and continue to bedisciplined about what we buy,
because we have to be able tosee, you know, taking something
that we might have to buy on amultiple of revenue and being
able to look out 12 to 18 monthsand know that on a synergized
(47:27):
EBITDA basis, it's going to bean accretive acquisition. So
that does mean that the numberof companies out there that are,
you know, fit into thoseparameters is is smaller. But,
you know, it's just the fact ofwhere the market is these days.
Ernest Rolfson (47:45):
Yep, that makes sense. Yeah. So it's, so it's
almost like you can have apayments business, it's growing
quickly, you're not you don'thave any earnings. But if you
can show an acquisition andacquire potential acquirer that
your platform or product fitsnicely into their ecosystem, and
can drive even more value, yourodds of getting a deal done and
having successful Win Winoutcome is, is a lot higher.
Dan Geraty (48:09):
Yeah. And I think that in the, you know, the high
growth part of the world,everybody wants to know that
your unit economics work. And ifyour unit economics work, then
hey, you know what, let's justpour gas on the fire and build
it up. And, you know, we'll beable to sell it, you know, on a
multiple revenue later, short,much bigger number short, and so
that that actually makes it evenmore problematic to go out buy
(48:32):
things because because a lot ofsponsors are still pushing for
the kind of behavior whereEBITDAis certainly a distant second
priority to revenue care. Sure.
But you saidevaluation is sohighly correlated to revenue
growth.
Ernest Rolfson (48:48):
How much and rate of right I mean, it's so
important, but you touched onit. I mean, I think the days of
the, you know, the Ubervaluations and some other names
I can't think of right now oryou're just upside down on every
transaction you do, or everysale you do, you're losing
money, those days are definitelyover. And we are in this kind of
(49:10):
rapid growth curve, which isexciting because I have a
business that's like that, wherewe're not we're making money on
each transaction, despite notbeing profitable overall. But if
you can show the growth and showthat there's a big path to
upside here, you can keepbuilding and extending your
reach. building out yourinfrastructure, right?
Dan Geraty (49:27):
Yep, that's good margin on every single
transaction that you do.
Ernest Rolfson (49:30):
Exactly. So So what's next for you? We talked a
little bit about the future ofClearant and they go forward but
you personally and also just thepayments industry as a whole. I
don't know if there's anypredictions you want to make,
but what do you kind of youpersonally excited about working
on what what other big trends inpayments? Are you fascinated by
(49:55):
you've mentioned risk andsecurity around payments to me
in the past, so I know you havean interest in that. But what
are you kind of kind of keepingyour eye open towards? And where
are you spending more of yourtime?
Dan Geraty (50:07):
Yeah, so I'm, you know, still involved in Clearant
on the board, or I should say onboard of Xplor. And so that's,
that's an interesting place tobe. I've invested in six or
seven different new relativelyearly stage, you know about
Finexio stage companies, some inpayments, some in you know,
FinTech more broadly. And, youknow, I continue to think that,
(50:32):
you know, things like, openbanking is pretty exciting. I
think real time payments isinteresting, because there are a
lot of applications for that,which, you know, where you're
providing a totally new valueproposition to the recipient.
Ecommerce still has so much roomto grow. And I think that's a
(50:56):
really interesting spot too. Andof course, as you know, I think
b2b is a great opportunity too.
Payments, you know, it's justsuch a great market, as we
discussed, it's big, it growsevery year 60%. So no matter
why, you know, clockwork andjust, you know, if you're part
of a market that's growing 6-8%that's, you know,that's a
tailwind To start with, that'sjust great for your business.
Ernest Rolfson (51:20):
That's great.
That makes a lot of sense. Itjust as a final, maybe some kind
of Final thoughts here. Anyother advice? Maybe someone just
trying to start up a paymentscompany, a FinTech company, you
mentioned, you know, youmentioned you made some
(51:40):
mistakes, things you would havedone differently, any, any kind
of ways you could kind of pay itforward here, or any kind of
advice, you'd even give yourformer self around how to get
something going. And we eachhave our own war stories about
getting things going here, yourart in arguably a lot more
successful than I've been sofar. Hope to be behind you one
day.
Dan Geraty (52:04):
Yeah, well, no, we're all we're all rooting for
you. Ernest, obviously, youknow, I think that we've touched
on a lot of the themes, I thinkthat you have to find a place
where, you know, you're most inlife, just the way I think about
it is, you know, what is theplatform? What are you doing
this differently? How are youmaking payments kind of
disappear? A lot of the thingsthat we've talked about today
(52:28):
are the things that somebodystarting out in this space
should have top of mind. Ifthey're if they're just getting
into payments now, because thereare really good competitors out
there in almost every sector.
Ernest Rolfson (52:40):
Getting fiercer and fiercer, right?
Dan Geraty (52:42):
Yeah. It really ended, you know, it's always
been fierce. It's just alwaysthe fact that it's such a big
market. And that customers, youknow, keep moving from place to
place to place. And so there's,you know, always an opportunity
to pick up a customer from thatside, but it's also true. Yeah,
but, and then there's always theguys who are, you know, stranded
on a legacy platform, therearen't people to innovate. And
(53:03):
so there's opportunity toinnovate. So, you know, I think
there's still so manyopportunities for
entrepreneurship in theelectronic payments ecosystem.
Just you just have to be carefulabout where you pick your
battles.
Ernest Rolfson (53:17):
Sure. Well, look, that's um, that was the
list of questions slash generaldialogue that we naturally
stumbled into. Yeah, it's been adelight here.
Dan Geraty (53:31):
It's been good talking with you Ernest.
Ernest Rolfson (53:33):
Thanks for listening to B2b cash flow
conversations. This is ErnestRolfson, the CEO and founder of
Finexio. I welcome yourquestions and comments. You can
reach me at podcast@Finexio.com.
You can also find us on Twitter@FinexioPayments. To subscribe,
you can go toFinexio.com/podcast. Be sure to
check out my new episodes onApple podcasts, Spotify, or
(53:55):
wherever else you listen topodcasts. Thanks and talk with
you again soon.
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