Thought Leaders in Financial Technology: Infinicept CEO Todd Ablowitz (Part 6)

Sramana Mitra: This industry is very crowded and competitive.

Todd Ablowitz: It’s interesting that you say that because what we see is, when you combine a vertically-focused offering with payments and value-added services, you have the least competition and the most margin.

We have a chart that we use. On the up-down axis is how vertical it is. On the left-right axis is how value-added the services are. The top-right quadrant has the most differentiation, lowest competition, and the highest margin.

Sramana Mitra: What is the yielding?

Todd Ablowitz: It’s yielding about a hundred basis points of gross profit. Let me explain how you get to that. Square charges 2.75%. Underlying that are immutable costs. Those are called interchange. That’s the money that goes to the issuer of the credit card. Then there are some fees that go to Visa and MasterCard. That’s a variable cost that you can’t change.

Our customer revenue model is all based on how much they can make above interchange and those other fees that I described. They can make about a hundred basis points on average above those costs.

That’s about 1%. That 1% is what drops to the revenue line. Below that, you’ve got how many people you have to hire. You’ve got software costs. You’ve got some processing fees, which are a small per-item fee.

Sramana Mitra: Flip it around and put on the hat of a small business that has a large transaction volume. What choices would you make?

Todd Ablowitz: I have made these choices. What I would look at is, what is the value I’m getting on the overall offering of software payment. Is it worth it? Let me give you an example.

We put on an event called PFWorld. Our marketing person came to us and said, “I’ve got the event management software. It comes with a credit card. It’s 3.5%.” We’re like, “Are you crazy? We’ve been in this business for 20 plus years. We can get a way better deal than that.”

He starts justifying it and says, “This is the only way we can do it. They don’t offer another way to accept cards.” We boiled it down and we said, “What are we getting from them?” We were getting these signup software. How much is this costing us? It was $15.

We cocked our head and said, “That’s worth it. I’d pay that.” Even knowing that I could get a rate that’s 2.75% for the exact same service because it was bundled into this event management software, we were comfortable with that and happy to pay it. That’s what payment facilitators are doing; they’re building value for their merchants.

Sramana Mitra: What is the best way to build value for merchants?

Todd Ablowitz: Product. You figure out a problem that’s happening with your customer base. You figure out how your particular set of services are adjacent to that problem and how can you use the software, or even services, to take away that problem for your customer. When you do that, there’s margin there, and your customers love you.

Sramana Mitra: What you’re saying is basics.

Todd Ablowitz: Yes, but isn’t business that way?

This segment is part 6 in the series : Thought Leaders in Financial Technology: Infinicept CEO Todd Ablowitz
1 2 3 4 5 6 7