Power of Payments Ep. 13: ‘You need to have a good answer to the question, how do you get to profitability?’ – Rapyd’s Eric Rosenthal

Welcome back to the Power of Payments podcast. I’m your host Ismail Umar, and before we get into today’s episode, I’d like to quickly remind you that we’re holding Tearsheet’s Power of Payments Conference on Thursday, September 15^th at Current, Chelsea Piers, New York City. We look forward to seeing you there!

On today’s episode, I’m joined by Eric Rosenthal, vice president of corporate development, strategy and partnerships at Rapyd.

Rapyd is a London-based payments firm that markets itself as a fintech-as-a-service platform, which provides APIs to help businesses integrate local payments and fintech capabilities into their applications in a simple way.

Rapyd has built a global payments network that allows businesses to accept payments in over 900 different local methods, including bank transfers, e-wallets, and cash, in more than a hundred countries.

In our conversation, Eric talks about the meaning of fintech-as-a-service, how Rapyd caters to businesses of different sizes including major firms like Uber, what American companies can learn from payments firms in Latin America, Asia, and Europe, and how startups in the space should try to deal with the current downturn.

If you’d like to access more of our coverage on payments, subscribe to our Payments Newsletter.

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The following excerpts were edited for clarity.

My name is Eric Rosenthal. I'm currently in charge of three functions at Rapyd: the corporate function, what we call network relationships – which is ultimately the function of managing all of Rapyd’s downstream partners, and the last function is ecosystem and channel partnerships. I’ve been with the company for close to five years. I originally started with Rapyd as the eighth employee, and was charged with opening up operations and the commercial focus of the company in the Americas in 2018, where I led that function for the better part of three years. Prior to joining Rapyd in 2018, I spent a number of years working in another fintech startup, actually in the early days of crypto and the early days of blockchain technology, with a company called Abra. And prior to that, I had a series of different positions at McKinsey, Citibank and First Data across private equity, strategy, and corporate development. And I actually spent the early part of my career in public service, working across a variety of different regions, working on issues of economic development and such. From a personal perspective, which I think is very much entwined with my professional background, although I was born and raised in the US, I spent the better part of about 13 years living overseas across Europe, Latin America, North Asia, Southeast Asia, and then back to Latin America, and have been back in the United States for approximately eight years, previously based in the Bay Area, and as of about a year ago, based in Miami.

Can you tell us why you decided to join Rapyd, and what need it serves in the payments industry?

From a market opportunity perspective, the primary reason that I chose to join Rapyd was, during my time at my previous company, we were very fortunate in 2015 to be one of the first blockchain, crypto, Bitcoin companies that received institutional funding from a variety of very, very renowned investors, including American Express. As a result, we had a very large spotlight on us. And what was quite common during those years – 2015 to 2018 – was companies from all over the world would come to Silicon Valley, and do a bit of innovation tourism, and would want to meet companies that were doing a variety of different endeavors, and wanted to understand that. And one of the main things that companies would ask was, we find what you're doing is very interesting, but would you be willing to white-label it? Would you be able to give us access to your technology, to your network, or whatever it might be. That, coupled with my experience prior to joining a startup, working at First Data, I was part of the team that was facilitating or helping Apple launch Apple Pay in the early days of Apple Pay. And Apple similarly came to First Data looking for infrastructure. And upon sort of looking around during that period of three to four years, it was actually not really readily available to have financial infrastructure-as-a-service. So when I got connected to Arik, who's one of our co-founders, in 2017, he was just in the beginning of the process of pivoting away from being a B2C company to being a B2B company. And it consequently felt like a great opportunity to facilitate and help the company pivot away from being B2C and go full on into B2B, and really shape the story of the company. And ultimately, having had so much international experience, and really understanding the complexities of so many of these different markets, and the proliferation of payment method types and different regulatory frameworks and the like, I was very keen on finding an opportunity that gave me global exposure, particularly in light of the fact that despite the enormous amount of diversity that exists inside of the US and within Silicon Valley, ironically, many companies end up becoming very American-centric in their go-to-market. So, it felt like a great opportunity from a market perspective, as well as one that would leverage my personal and professional experience.

Rapyd describes itself as a fintech-as-a-service platform or a financial infrastructure-as-a-service platform. How would you say that's different from banking-as-a-service or embedded finance?

I would say, we like to believe that we are one of the first companies to begin coining the term ‘fintech-as-a-service’, as well as referring to this notion of the ‘AWS of fintech’. When I joined the company in 2017, we really struggled with the ability to express what we were doing. And we’d be searching for analogies, we would say, ‘Hey, we’re the Twilio of payments, we’re the AWS of this, we’re payments-as-a-service.’ And it wasn’t really until 2018 when we hired our current chief marketing officer that we went through a process to be able to really articulate in a very clear manner, that we were referring to fintech-as-a-service. The reason that we referred to fintech-as-a-service rather than banking-as-a-service, as well as rather than embedded finance, is that we see banking-as-a-service and embedded fintech sort of as subsets of fintech-as-a-service. Not all solutions require a bank account. Not all solutions require a bank. Particularly once you leave the United States, you see a proliferation of different regulatory frameworks from governments, precisely to actually remove the dependency on banks in order to facilitate certain types of financial services use cases with specialized lending licenses, specialized payments licenses, specialized e-money licenses. So really, the focus away from banking-as-a-service was because we believe that the opportunity is much larger. Banking-as-a-service, for better or worse, very much seems to refer, in most cases, to debit and credit cards, as well as a very finite reliance on a bank, where we're also seeing, even within the world of networks, Visa and Mastercard, for example, an enormous focus within both of those entities on embracing non-bank financial institutions, and allowing principal membership and associate membership for non-banks. That's sort of why we’re not banking-as-a-service. Why not embedded fintech? Because we also fundamentally believe it’s a subset. There's an enormous market opportunity and a market need to solve payout use cases, collection use cases, to solve card issuing use cases, where yes, you're using an API, and you're, from a technical and perhaps linguistic perspective, embedding the solution into a company's workflow, into a company's checkout or payout workflow, AR AP workflow. At the end of the day, embedded finance, I think, is more of a generic umbrella term that tries to really correctly highlight the fact that there are numerous digital communities, both consumer and business, that have the opportunity to monetize their user base in additional manners. And embedding financial solutions into that enables companies to do that. With that said, it is a market that we serve, but it's a subset of what we do. So, when we describe what we do, we say, we do cross-border payments, which is very similar to a handful of companies out there, we do merchant payments, where we’re collecting funds so that companies don't need to set up entities where they and every country they want to engage with. That's a subset of our business, but actually, there's a variety of competitors in that space. We do card-issuing, we do wallet services, we do FX services. So, really, the reason that we refer to fintech-as-service, to sum it up, is we feel it’s the largest, all-encompassing term.

Let’s talk about Rapyd’s customers. Rapyd caters to a lot of different businesses, including major companies like Uber and IKEA. If we take the example of Uber, what kind of problems is a firm like Uber trying to solve when it comes to payments? And how does Rapyd work to solve those problems?

Rapyd has a wide variety of client types. When the company first started, we were very focused on enterprise clients: the Ubers and the Cornershops of the world, where we were solving something for them that was very difficult for them to solve on their own. One was global coverage. Multiple payment flows in and out, holding funds in the middle. And as our company has evolved, we continue to serve that client type where they're coming to us because they might want to collect funds across multiple geographies, and bring them all back to one specific settlement hub. And what they're looking for is a single technical connection, a single contract, and most importantly, a single reconciliation. As the company has evolved, Rapyd now serves commercial-sized clients. In many cases, a significant component of our portfolio is made up of venture-backed companies that are scaling very quickly, and have realized, very similar to larger enterprise companies, that when you have finite resources, you don't want to be spending those finite resources, particularly in the case of product and engineering resources, to connect to multiple vendors. It makes way more sense to minimize the number of relationships you have with third parties, from a bandwidth perspective and a cost perspective. And it makes sense to do that because it allows you to scale very quickly. As of about a year and a half ago, Rapyd expanded into the SMB segment as well, mainly focusing on companies that are looking for collection solutions, AR solutions, that are selling either domestically across Europe, that that are trying to integrate multiple payment method types, or selling cross-border, and probably will be providing the necessary infrastructure for channel and ecosystem partners, called ISVs, that want to take Rapyd’s capabilities, and yes, using that term that you referred to a second ago, embedding our collection and service capabilities, whether it's card acquiring, SEPA, faster payments, virtual accounts, whatever it might be, so that they can offer those solutions to their underlying clients, or what could be called sub-merchants.

An important area of focus for Rapyd is around building a global payments platform. Can you talk a bit about Rapyd’s expansion into international markets? Which countries has the firm expanded into so far, and what’s the strategy for launching into new countries?

Rapyd was very fortunate as a company in 2017-18 to mainly focus, if not exclusively focus, on building out the Rapyd network. I would say, 80% to 90% of our market expansion actually happened in the very early years of the company, because it became very similar to other payments companies – a bit of a chicken and egg, which is, you cannot come to market and offer a global proposition if you say, well, we're only present in five markets in the Americas, and in two years we'll be in more markets. So you can say that we front-loaded the market expansion. And at that point, we were very much inspired, driven by the fact of following some of our early clients and going where they needed to go, or being where we expected them to go. Looking at macro dynamics, population size, money flow, whether it was B2C flow, C2B flow, B2B flow, and really chose which markets we would go into in that regard. So we're present, I think, in 16 different markets across Latin America, obviously US and Canada, across all of Western Europe, across both Southeast Asia as well as Northern Asia. I think the question is, when does Rapyd make further investment in certain markets? So there's certain markets where we're only present in the sense that we can collect funds or disburse funds into that market. And then there's other markets where we can hold the currency, we can hold funds in market, we might be licensed. As a custodian of record, we might have our Visa and Mastercard bins, and that has really been the focus in a very small subset of markets: Singapore, US, UK, as well as continental Europe. And then, really choosing markets where there's a huge market opportunity, like Mexico and Brazil. So as of now, we refer to those as our settlement hubs, where we're trying to be as full-stack as possible. And then, the other 100 markets are present, but it doesn't mean that we have salespeople, it doesn't mean that we have entities there. What it really means is that we're able to transact with those markets.

Let’s talk about your own international experience. You spent over a decade working in different parts of Latin America, Asia and Europe before moving back to the US. Can you share with us what you learned during your time abroad about how payment trends in these different regions compared to those in the US, and if there are things that US firms could learn from these countries when it comes to payments?

That’s a great question. I’ll start with this latter part of the question. I think the number one thing that American firms can learn is, not everyone’s carded. Not everyone has access to credit. And while Visa and Mastercard are very, very important players, and they’re making huge strides in their ability to embrace this concept of being a network of networks, relative to other markets, American companies and American consumers are still very focused on bank-issued cards as a primary means of payment. Once you leave the US, what you see is a proliferation of different payment systems, whether it’s faster payment systems, whether it’s using bank clearing systems, whether it’s using cash, whether it's e-wallets, whether it's mobile money. And ultimately, what you realize is that there are thousands and thousands of payment methods out there, or payment rails, better said. And ultimately, the key learning for American companies, particularly those going overseas with their business, is, you have to meet your end user, whether it's a business or a consumer, where they are, and using the methods that they're accustomed to, that they’re using to engage in commerce with you. I think too often, American companies sort of start off with a very US-centric view, and then realize that it doesn't necessarily work once they leave.

There’s obviously a lot of talk about the current fintech downturn, with investor funds drying up and mass layoffs happening in many parts of the industry. How do you think this situation is going to impact payments firms in particular? How does Rapyd plan to deal with it? And how do you think startups in the space should try to get through this period?

Rapyd is very fortunate that we raised an enormous amount of funding prior to this change in the environment. I think it’s important to consider and remember that, despite talk of a recession, despite very acute macro indicators with regard to inflation, at the end of the day, venture funds, sovereign wealth funds, those that are investing into venture-backed companies, continue to have an enormous amount of dry power. So it’s not that there’s no money available – as I said, you’re seeing a shift and a diversification of investor funds into a variety of different asset classes. But a subset of those investors, because of their mandate, need to continue to deploy capital, and they will continue to deploy capital. So, I think that what's really changed in the environment is, there was a feeling six months ago that everyone was getting funded, and now there's a bit of a feeling of, a subset of companies are getting funded. So companies that have strong metrics, companies that have large addressable markets, companies that have strong management teams, we’re still seeing them getting funded. What we're also realizing or seeing is that companies like Rapyd become, to a certain degree, more important for companies, because as, and this is similar to what we saw even during COVID, as you saw some countries in lockdown, flow or commerce flow would fall drastically in certain regions, and therefore, companies were shifting their focus to other countries that were opening up or were already open. I would expect the same to continue to play out, where the impact of the global economic uncertainty that currently resides in the market is not uniformly happening across the world. So, you'll see companies concentrating in certain geographies, and really needing a way to sort of quickly shift that focus. As a result, I think that one of the other key pitches that we talk about as Rapyd for startups is, do you really want to be spending finite time and energy and ultimately resources, particularly in this market? Doing immense integrations, rather than building your core product? Now is really a great opportunity to leverage companies like Rapyd that simplify what would otherwise previously have been a build decision. Now, it's very much, why don't we just buy this service? Some general advice: similar to what anyone probably is hearing already today, which is, conserve capital, make smart investment decisions, focus on measurable results. And ultimately as well, understand that, even if you continue to be focusing enormously on growth, you need to have a good answer to the question of, how do you get to profitability? Not that you need to make that shift, per se, but you need to have an answer, and a line of sight of how you would get there if you needed to.

Where do you see Rapyd headed in the next couple of years? What's on the horizon?

Sometimes there's a feeling internally at Rapyd that there's so many different things happening, it's hard to really know where to start. But I'll list out some of the things that we've done that I believe will give an indication of where we're going or where we’d like to go. So, one is, we're the first Israeli company to open up a presence in Dubai. So we now have an office, we’re building an engineering hub, a product hub, as well as pursuing getting our license there, which is probably an indication of where we'd like to be in the region, which traditionally, for an Israeli company, would have been impossible for geopolitical reasons. We still have $300-400 million on the balance sheet that is fully dedicated to doing M&A. We've completed three acquisitions over the past 18 months. And we expect to complete two to three over the next 12 to 18 months as well, with a focus on the US market and Latin America as places where we're looking for targets. So, expect to see activity and consequently us being one of the top players looking for market consolidation opportunities. I think that what you'll also see is a significant expansion of Rapyd’s focus on three segments. One is channel ecosystem partnerships – up until now, we really have not distributed our product through partners, it’s been very much a direct sales model. So expect to see a significant investment in our partnership program. We expect to see a significant investment in our SMB segment, even further than what we have already had up until today. And lastly, a market that we've actually been serving for quite some time but haven't necessarily focused on from a market awareness perspective is B2B payments. Rapyd has one of the world's largest virtual accounts networks, as well as a very large payout network, to be able to support payment sizes of anything from one dollar to multiple millions of dollars. So expect to see a focus there as well. And ultimately, also expect to see more and more companies looking to replicate what Rapyd is. It's been great to see, as an early employee, the number of companies out there that say, “We’re the Rapyd of…” The Rapyd of Southeast Asia, the Rapyd of Latin America, the Rapyd of the Middle East. So it's very validating for us to realize that our original concept that we laid out almost five years ago is not only coming to fruition for ourselves, but it's coming to fruition for multiple companies out there.