‘The nice thing about our model is everyone wins’: Plastiq allows consumers to use credit cards at businesses that don’t accept them

Eliot Buchanan dreamed up the idea of Plastiq seven years ago as an undergrad. A Canadian in the U.S., he got frustrated by how hard it was to transact paying for his tuition. His firm Plastiq enables individuals and businesses to pay for virtually any expense with a credit card — even if a merchant doesn’t take cards.

Since then, the firm has serviced over 1 million consumers and businesses and processed over $2 billion, as of last year. Buchanan joins us today on the Tearsheet Podcast. He has big ideas for the firm and we talk about the pain points of making a large transaction and how Plastiq addresses them. We talk about other products in the pipeline and where the firm is headed in the future.

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The following excerpts were edited for clarity.

When Eliot Buchanan was at Harvard seven years ago, he faced a tricky problem when it came for paying his tuition. As a Canadian without a credit score, the only type of credit card he could get was a cash secured card from a local bank. After scrambling to find one, he was faced with another problem: his college didn’t accept credit cards.

“It just felt so disempowering,” he said. “I began questioning why you couldn’t pay for big ticket items like tuition with a credit card.”

That was the genesis for Plastiq, the company he founded as an undergrad. It turns out that there are a lot of industries that are still cash-based and don’t accept credit cards, preferring instead to use wires, ACH and checks.

“Square and Stripe are both fantastic companies but they have been solving the last mile of payment, those everyday transactions at the local cafe or the online equivalent,” said Buchanan.

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Plastiq works with consumers and businesses that aren’t set up to take credit cards. Buyers use their existing credit cards to pay Plastiq and the fintech firm pays the merchant in whatever way it’s already set up to receive payments, requiring no behavior change of any party.

For the first use case for Plastiq, Buchanan turned to family and friends who had children in private schools and were willing to introduce him and his firm to their CFOs. These parents used Plastiq to pay for tuition, using their existing credit cards to get rewards for these large purchases and to enjoy the float associated with monthly pay cycles of credit cards. This first cohort of customers came back to Plastiq and asked if they could use the firm to pay for other things, like paying taxes.

At that moment, Buchanan realized the use case wasn’t really about tuition. It was about household bill pay. “We really started in one vertical and now, there are probably 100 industries we support,” he said.

Plastiq’s business model turns the traditional credit card transaction on its head. Where merchants normally pay interchange fees when they accept credit cards, Plastiq charges the payer between one and three percent. In large transactions, Buchanan has found that consumers — whether individuals or small businesses — prefer using the convenience of a card and are willing to pay extra for it.

“Turns out, consumers are willing to pay for convenience, rewards, and security,” he said. “But then we saw new users emerge: small and medium businesses, which now account for 90% of our customer base.”

Over the years, the initial Plastiq product that was intended to pay tuition by credit card evolved. The company also enables consumers to pay all their household bills through a single app. But the biggest change came when Buchanan realized that SMBs can use Plastiq to run their accounts payable.

These business customers have receivables to accept, but a lot of them don’t take credit cards, similar to the vendor side of the Plastiq network. “We wanted to bring the other half of the equation into the same sort of experience. A customer on our platform can run its payables using a credit card, but also send out invoices,” Buchanan said.

Visibility into a company’s revenues and spending puts Plastiq in an influential position. There’s data there to be mined and insights to be gleaned. Over time, the company plans to rollout functionality that tracks a business’s financial health.

“Tracking a business’s inflows and outflows means naturally you can offer that business data and insights into its performance. Are they doing well as a business owner? What can they do to do better? Or, should they slow down some payments or spend more or less with the same vendors and move to different suppliers or vendors?” he said.

Because Plastiq isn’t steering business away from the credit card companies or banks, the market doesn’t necessarily see it as a competitor. Plastiq charges payers, leaving credit card firms and member banks to continue to receive their interchange fees. Customers bring in new business clients they want to pay and vice versa. Plastiq also gets referrals from banks and credit card companies.

“The nice thing about our model is that everyone wins,” he said. “We’re this layer on top of the existing network and so as a result, a lot of our acquisition comes from the ecosystem because every transaction is net new. So, Visa or MasterCard or Amex, they’re all incentivized to make that happen.”