‘For each card issuing module we roll out, we should have a unique right to win’: Lithic’s Bo Jiang

Welcome to the Tearsheet Podcast. I’m Tearsheet's editor in chief, Zack Miller. I recently got back from Money 20/20, and a big theme this year was embedded finance. There were a host of old and new players vying for position in the financial tech stack. It makes sense – a few years ago, you could have counted the embedded platforms on one hand. Now there are dozens, just in the US. 

Enter Lithic, a software infrastructure company that enables companies to launch new card programs. I sit with co-founder and CEO Bo Jiang, who shares his firm’s genesis story and describes the impact being born out of a consumer app has had on Lithic. We talk about how the firm stacks up against other embedded finance players and the need to scale as a platform in the space.

Bo Jiang is my guest today on the Tearsheet Podcast.

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The following excerpts were edited for clarity.

Payment infrastructure players

I started the company back in 2014, originally as a direct to consumer company called Privacy.com. We had this idea for an easier and safer way for people to spend online. And over time, it's grown to become one of the leading providers of virtual cards for consumers. And in the process of doing that, we ended up having to build all this infrastructure for ourselves. And that informed our point of view around what the industry needed. Our point of view really has been customer informed. It's way too hard [to launch a card]. Usually, it takes  6,12, or even 24 months to launch your card program, and oftentimes millions of dollars of investment. And once you've launched, oftentimes, you're at odds with your infrastructure provider. So, we've made it easier and faster. And we've also built this more modular and configurable way that kind of slots into growth stage companies, as well.

Standardizing card programs

Until now, companies really had two options for building card programs. They could either use a sort of productized, narrow offering – like, if you've got a really simple use case for B2B payments, you might be able to use someone else and get started relatively quickly. Or you could kind of go down this really expensive and time intensive route, which a lot of companies end up doing, of customization. We've kind of broken this either/or model where we've productized a bunch of different use cases, but customers can also mix and match and incorporate our API’s in a fully customized solution.

Positioning programs for different types of clients

If you think about the stakeholder, or the components that you need to launch a new card program, you've got the sponsor bank, which can also be launching their own programs. You've got the networks, like Visa, MasterCard, and Discover. And then you've got the processor, which is sort of the technology layer. We mostly focus on providing that technology layer. And what we found is for some customers, they enjoy having an all in one solution, where we can also bring in a partner bank, which obviously has full visibility into what's going on. We also found that some customers prefer to bring their own bank. We mix things up because we have this modular solution that can expand or contract depending on what your needs are.

Lithic vs. other competitors

Marqeta tends to be a little bit more expensive. They tend to be highly customizable, which can be really great but can also take a really long time to get a program launched. Historically Marqeta focused on fairly large customers like Block and DoorDash. And that means that smaller customers may not get the same level of attention that they need or desire. Galileo is interesting in that they're good if you're just looking for that processor and you want to bring in your own sponsor bank, and you want to pick and choose and do all your KYC, compliance, AML, and bank partner stuff. It's highly customizable, so you have to do everything in house and ends up being pretty expensive and takes quite a long time to get to market. So the way we generally positioned ourselves is like, we are generally much faster to market. Our technology stack is quite a bit newer, so we're able to be a little more nimble to customer needs as a cutting edge technology company.

Deciding where to go with product

A friend of mine who has been in fintech for much longer than me said problem selection is one of the hardest challenges as a fintech company, especially for a relatively new entrant. And that's definitely true. There's definitely tension around what, internally, we think about – we're building a lot of these building blocks that people can mix and match and put together, but each one of the building blocks that we're building, we should have a unique right to win. And something unique to say to the market. We're never going to just do something and tack it on, because – maybe – we can generate a bit more revenue here and there. It's sort of this principled approach, which sometimes has tension: sometimes we do have to tell people, hey, we can't do this for you, but we'll work very nicely with this other provider that you can bring yourself.

Target customers

We target two types of companies. First of all, companies of all sizes use Lithic to build their unique card programs. There's a few where they’ve launched on a legacy provider, and they're scaling and finding technology, operations, or partnership constraints with the legacy provider. They want us to bring more of the technology in house. That often is a really good fit for our processor-only model and you see more scaled players taking that approach. 

The other one that is really interesting are companies that have relatively simple and like productizable use cases, and they're actually creating net new use cases. So my favorite is a vertical software company or procurement platform that does a lot of ACH or check payments. And they find that, hey, I can actually move, say, 10% to 20% of my payment volume over to cards, and I can monetize that. It's a much better user experience. It shows up in real time on your dashboard. There are a host of benefits there. And what's cool is we made it faster, easier, and cheaper to launch these programs, and you end up having all these net new use cases.

Finding you own path to scale

This definitely goes back to being informed as a customer ourselves – sort of the legacy ecosystem and the constraints there. We were very motivated to solve the problem for startups and smaller companies just because of the pain that we had in launching our current program. But over time, we've realized we can't do everything. And the way to grow our customers is to allow them to take more control over the process. 

If you're neobank, one thing you really care about is that KYC process and having a direct dialogue with the sponsor bank around that, and around the trade offs there. We’re the only player in this space that has a smooth graduation path from where we're the program manager and helping to streamline a launch to graduating to a processor-only model, where you can have that direct dialogue with the bank and bring your own LEGO pieces.

Teaching fintechs how to launch

One thing we found is launching a financial services product is tough. It takes a lot of effort – no matter how good the technology is, there's a huge education component. And so one thing that we've really invested a lot in is putting the content that we have as a team.

Wwe have a legal library, a podcast, and a bunch of how-to guides. It's good marketing for us. It's also genuinely helpful information that's informed by our point of view, having launched a card program. What did we wish that we knew or existed in the ecosystem when we were launching Privacy all those years ago?

Running Privacy.com on Lithic

Privacy runs as a kind of a subsidiary of Lithic with sort of a small contained team, that basically runs and scales business. I think the benefit of having it running as a customer of the platform is that you have a really fast feedback loop when things are changing, and you maintain that customer point of view. 

One challenge that we had with some of the legacy providers prior to launching Lithic was that there wasn't a lot of customer empathy. When things broke, it's like, oops, something broke, and we'll fix it next week. And on the flip side, as someone that's interfacing directly with the customer, it's you taking that NPS hit. You feel that pain. We've found it really helpful, actually, to have that kind of point of view in house.

Lithic Send

Our infrastructure is generally a pretty horizontal option. We saw use cases across payouts for insurance claims, class action settlements, clinical trials, corporate Incentive programs, or payroll/earned wage access programs. We solve these common product elements across all these different verticals. Send makes it easy to launch. Instead of taking a couple of weeks or months, you can do it in days.

Next for Lithic

For us, it's really about following the customer and that we're really focused on making the experience flawless, like end to end, and productizing more of these use cases. The theme for us as a company is narrowing the focus and really tight execution on what we do. So you're not going to see us go and do a bunch of different new product initiatives. It's really kind of doubling down on that core and delighting our customers.