The idea of payment via mobile phone isn't exactly new, but making it a widespread reality is something else. Auckland-based Pushpay has entered the fray, hoping to be the Rebel X-Wing against the jostling Death Stars of some of the biggest businesses on Earth. And it's just raised more than $1 million in funding from local investors.
As any envious glance at profits from the banking sector will tell you, the best way to make money is to deal in money. For that reason alone Pushpay may be in good company. Created by Chris Heaslip and Eliot Crowther in February 2011, Pushpay is based around a service that allows users to make direct payments to registered companies and organisations on their smartphones, using just a four-digit code.
Many of us will have thought about this at least once, especially at times when we find we have forgotten our wallet, but not our phone. According to a study by IPSOS research commissioned by Google, 44 percent of New Zealanders over the age of 16 use a smartphone, and about three quarters of them say they don’t leave home without the device. Meanwhile, according to Statistics New Zealand Kiwis currently spend just over $5 billion a month using electronic cards.
This means big bickies for whoever leads the drive to replace the cards as the payment mode of choice, even before you start considering the gargantuan offshore potential. In 2008 UK-based wireless telecom research company Juniper forecasted that the combined market for all types of mobile payments will reach more than US$600 billion globally by next year.
As you might imagine, this means there are one or two big players with their elbows out trying to lap this mega-market up. Google has its ‘Wallet’. This stores your credit card details online and allows the currently fairly limited number of phones with Near Field Communication (NFC) technology to swipe instant payments at the even more limited NFC-enabled point-of-sale tills.
Meanwhile, interestingly, Apple decided not to incorporate NFC into the iPhone 5 because it feels its own Apple Passbook system fulfils any need in this area at the moment. Passbook stores and updates membership cards, tickets, coupons, and boarding passes, but doesn’t do payments. And they are remarkably reluctant to talk about it – there are no swish videos of people in pullovers whispering about how much effort went into it on the Apple website.
Add in to that almost every bank is developing its own app for this or that, and the telcos doing their own thing and you start to get a picture of slow and patchy implementation that has opened up a window of opportunity for smaller players like San Francisco’s Square. Square allows instant payments by phone to registered businesses by tapping one button and then simply saying your name at the counter. You can even set it up to pay ‘hands-free’ at your favourite locations, so that you don’t need to take your phone out of your pocket.
Square also offers a small plug-in unit for your phone that allows the user to accept credit card payments. Square is expanding rapidly in the US, especially after signing up Starbucks in August as both a customer and an investor to the tune of US$25 million.
You might think this has covered every conceivable angle, and that everybody and anybody with a fist full of Chinese-made technology can now pay in any way they please.
But Pushpay is busy squeezing itself into a couple of niches that remain largely unfilled: areas of the world where Square has not been widely adopted, and potential payment scenarios all the competitors can’t currently cope with.
For example, say you want to pay someone. You’re nowhere near a cash register, let alone one that is enabled for Google Wallet, NFC or Square, and/or you don’t have a credit card handy and there’s nowhere to swipe the sucker anyway? An example would be a benefit gig for your favourite charity where the lead dude calls for everyone to give five dollars right now, or a small local business or tradesperson who doesn’t want all the hassle and expense of setting up an EFTPOS system.
The Pushpay drawcard
The big draw for Pushpay is that it doesn’t need any more technology than a smartphone for the customer, and all the vendor needs is a bank account at any one of nearly all the major banks in New Zealand. As a merchant, you would also preferably have someone with the limited savvy required to log on to the Pushpay website to monitor and download the sales results, which allows you to integrate them into the rest of your figures.
This is Software as a Service (SaaS), with Pushpay doing all the backroom stuff with the bankers to set things up, which also gets Pushpay customers talking to their banks about their business. And the firm makes its dollars from a flat 50c fee per transaction.
This approach has the advantage that both customer and merchant are working through their own bank on an app that has been approved by them. At the same time, Pushpay never actually handles your money, so they won’t take any of it down with them if they collapse.
Inspiration to investment
So far it seems to be working. Pushpay has gone from a standing start to employing about a dozen full-timers in less than two years. The company has just hired a salesperson to expand into Australia, and is sending co-founder and marketing manager Eliot Crowther over to the US to set up operations there. This bold step has been prompted by a partnership deal with Nashville-based USA Payments Services Inc, which processes billions of dollars worth of payments across the continent.
But with potential competition on the scale of Google, it is by no means a slam-dunk. And it is still very early days: so far there are fewer than 500 people wandering around with the Pushpay App on their phones, and while Square has already landed a high street name, the organisations that you can Pushpay in New Zealand are mainly limited to churches and a handful of charities.
So Idealog went to speak with Crowther, and co-founder and CEO Chris Heaslip at the company’s office on Auckland’s North Shore, to find out how they got this far, and to see how far they are likely to go.
It seems the initial idea started with a niggle: Crowther was queuing at a coffee shop and wondered why on earth anybody was still having to do that. But after a few months of kicking ideas around he and Heaslip established that the world and his dog was trying to solve this problem, and it wasn’t really so much of a problem at all. Many retailers like people hanging around in their shops for as long as possible, and up-selling them at the point of sale with impulse buys of cakes, sweets and daily deals. Meanwhile, point of sale phone apps were generally only saving customers the few seconds it took them to swipe a card, which even Apple was saying wasn’t worth the effort.
Crowther says they spent a good four months around a table “nutting this out with whiteboard markers”, but realised it wouldn’t solve an issue.
“We believe it will take a massive amount of resources to take that experience from a nine out of 10 to a 10 out of 10, for such a minor incremental gain.”
So Pushpay chose to nurture fresh pastures – principally charity donations and things such as utility bill payments on the go. For this they would work Pushpay’s advantages over online banking: a front end that was faster and easier to use than having to deal with logins and bank account numbers, and that functioned the same no matter which bank the seller and buyer were with.
This meant they had two reasons to talk to banks: to sign them up as partners and try to get financial support from them. This meant they needed to create the business, get some early sign-ups and create the app to ensure they didn’t get laughed out of the door.
They invested a few more months and put together a team of advisors to help get them through all the right doors. This included Bruce Gordon, chief executive officer of ventilation firm HRV, who was chief manager, electronic banking and payments at BNZ for four years in the 1990s, as well as Earl Gasparich, finance director at EnviroWaste Services.
“We felt that as a bunch of young guys it was hard for banks to take us seriously,” Heaslip says. “We had to have a team of recognised advisors around us, and it has been invaluable in helping us structure the business.”
Before even building the app, they also wanted to test whether anybody would use it, so set about signing up half a dozen not-for- profit organisations to in-principle agreements.
Crowther says they embraced the idea very early that it was about having a significant amount of skin in the game.
“We sat down and costed everything we might need. We were both in the position where we could move our work to nights and do this during the day. We would show them our work, our team, the service and the product, and significant skin in the game in terms of time and money that we had invested.”
By January they were ready to write up shareholder agreements and tap up some investors. It wasn’t going to be cheap. The app was going to cost hundreds of thousands of dollars to get to the point where it was totally secure and worked flawlessly, a pre-requisite to gaining the kind of ironclad trust required.
This would mean careful design, testing and then further testing to match and exceed the requirements of the industry-wide PCI compliance standard.
The results were nail-biting.
“We got to our eleventh hour without getting the funding we needed, but we were on the hook in terms of giving our contractors the go ahead to build the thing,” Crowther says. “The money still hadn’t come through, but we had told people and signed agreements that we wanted them to work for us full-time. We closed the funding the day before it was due.”
You need irons in the fire
Although this was more about sheer timing than an inability to sell the idea, it reinforced a valuable lesson for Heaslip.
“Have the irons in the fire before you need them,” he says. “When we started on the second round of funding and got the product on the market, we had already begun courting the investors. Nothing gets done overnight, it’s a four-month process. And that’s exactly what we are doing now, working on that for the next round. You need to be constantly building relationships, proposing to people, talking to people, and engaging their interest. So that you have half a dozen people interested by the time you need them.”
Interestingly, not one taxpayer dollar has gone into Pushpay so far, which Heaslip puts down to a risk aversion among the government funding agencies.
“They seem to want a home run, an agreement with the bank signed in blood before they will help,” he says. “What they wanted to get the funding was so much information that it would cost tens of thousands of dollars to put together a hundred page business plan for a few thousand dollars worth of funding.”
Crowther adds that by the time that was going to be done Pushpay wouldn’t need the support anyway. “It was a really good learning experience, we knew that nobody was going to come along with a bucketful of money and say: ‘Build it. We trust you’. It has also meant that over the past year we have been forced to make really good decisions around our finances. So if we were privileged enough to get government funding in the future we will have the track record. We look forward to when they want to get on board.”
Fortunately, the major New Zealand banks did open their doors to Pushpay, except one. Heaslip says he got the feeling that bank saw Pushpay more as a competitor, so now Pushpay just endeavours to switch potential customers to one of the other banks.
So now, with the app out there in the wild gaining the user base required to convince the big corporates that Pushpay is at least part of the future of payments, and Australia and the US beckoning, have minds already turned to the big pay out and end game?
“There are obvious acquisitions partners that would be interested in Pushpay, but I think it is a bad move to tailor your business in that way too early,” Heaslip says. “We want to concentrate on our customers and generating revenue – everything else will follow. It depends how things go in America, it could be a billion dollar company. If Americans pick this up and start using it we’ll grow very fast, which is why we are more than comfortable with growing steadily in New Zealand and Australia.”
It’s not all about the app
The PushPay app was built by Phil Howie on Microsoft’s .NET platform.
“It’s not exactly off the shelf, it’s all bespoke, but it uses common technical practices, and is really all about putting together a bunch of well-known ways of doing stuff,” Howie says.
“A competent developer would understand it relatively easily. It’s the blend that makes it special. That said, we have built it in a way that we can change direction if we need to. There is nothing that is not changeable or is so locked in place that we can’t change course.”
Crowther adds that they thought about the end product and Howie was able to design it from the ground up.
“That is pretty special to be able to do that. But there has been a degree of evolution and I have no doubt it will change more. We’re excited to stand on the sideline and watch that.”
As for the rest of the data, it’s hosted in Auckland at a number of different locations to ensure security and service.
“A lot of startups have this idea that if you are not going down you are not growing fast enough,” Howie says. “That is not our approach. We are not selling homeware here, we are dealing with financial transactions. We think about that very carefully.”
Heaslip confesses that the development of the app and its capacity has led to a lot of arguments between his desire to go faster and Howie’s caution. Luckily they have been friends for a long time, making it easier to accept the technical limitations.
“We have a lot of corporates we have spoken to, but their approach is to say come back when you have X amount of users – neither us or them wanted to overload the system.
“In a business like financial services, as we work with corporates and become the mechanism of choice, we can’t afford to have down time. Ninety-five percent up time is not good enough, you are the critical piece. I like the saying, ‘nine women can’t make a baby in one month’ – sometimes you just can’t speed things up any more.”