PODCAST TRANSCRIPTION SESSION NO. 253-MARWAN FORZLEY

Welcome to the Lend Academy Podcast, Episode No. 253. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

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Today’s episode is sponsored by Lendit Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show ever. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa

Peter Renton: Today on the show, I am delighted to welcome Marwan Forzley, he is the CEO and Founder of Veem. Now, Veem is an interesting company, they have focused on business-to-business payments, or as he likes to say Venmo for businesses and they’ve got a very technology-centric approach and we get into that in some detail. We go through an example how it works, we talk about the use cases, but the company also does more than just payments.

They have started up a working capital product, they’re also involved in the Paycheck Protection Program which we also talk about, we talk about the blockchain technology…the five different rails they have to actually send payments. I thought that was fascinating and we talk about what’s next for the company. It was a fascinating interview, I hope you enjoy the show.

Welcome to the podcast, Marwan.

Marwan Forzley: Thank you and thanks for having me.

Peter: Okay. So, I’d like to get this things started by giving some background. I know this is not your first rodeo so, why don’t you give the listeners a little bit of background about what you did before Veem.

Marwan: Thank you, I started Veem back in 2014. I used to run e-commerce for Western Union. I got into Western Union through an acquisition of a company called eBillme which I founded and sold to them.  Prior to that, I was in another startup that ended up with Nokia so I spent my career back and forth between startups and very large companies.

Peter: (laughs) And now, you’re back in a startup again.

Marwan: Yeah, it’s addictive, I guess.

Peter: Right, right. So then maybe….let’s just take a step back and talk about Veem and how do you describe it, what do you guys do?

Marwan: We make it really simple for businesses to pay and get paid around the world. It’s a wire replacement service, simplest way to describe it is it’s like Venmo for businesses globally. So, for example, you’re in California, you want to send money to a company in China, you log-in, all you need to do is enter the email address of the receiver in China (inaudible) and that’s it, the receiver gets a message…hey, you’re getting paid, this is the US dollar amount, shows your local currency. When you accept the payment, we pick up money from one country, deposit money in another country.

Peter: They have to link their bank account, I imagine, right, to get their money.

Marwan: Yeah, you link up your bank account on both ends, on the sending side and the receiving side.

Peter: Right.

Marwan: Essentially, we do this in 110 countries, 50 plus currencies, we have about 200,000 businesses that sign up to use Veem.

Peter: Okay, okay. So, I did say, it’s a wire a replacement then there’s a huge variety of companies that would use wires so, is your target market like anybody could send anything internationally, is that….who is your target market?

Marwan: Actually, domestically, I mean, we have quite a lot of customers that use us in the US to move money from California to New York, for example. Instead of using a check or bank wire, they use us because it’s a lot simpler than wire. So, they take off use cases customers have, they use us to pay suppliers, they use us to pay labor like contractor payments, they use us to move money within their own bank accounts and sometimes they use us to collect money from buyers that they have around the world. That’s the various use cases we’ve seen with Veem.

Peter: Okay. So, you said you’ve got 200,000 businesses, I can see that you could scale that…you look at Venmo or PayPal, I mean, PayPal has like a couple of hundred million businesses I think….not businesses, a couple of hundred million accounts so you’ve certainly got a lot of runway, I imagine, that you can do it.

So, I’m curious about the fact that we’ve had this sudden economic downturn, has this really impacted you guys as well because we’ve got….you know, there’s just less commerce happening, obviously, less international commerce as well. So, how have you been impacted over the last few weeks?

Marwan: The business has had amazing performance for the past three months, during COVID, on all measures really, you know, accounts, revenue, volume and I would describe it as follows.

COVID created two different worlds, one world is doing quite well and the other is struggling and it’s going to take some time for it to recover. It all boils down to the formula itself, like six feet apart, and so if you’re required……anything that requires physical exchanges of goods or services, that world is going to take some time.

So, that’s like physical retail and travel and all the things where you really depend on people next to each other to exchange the goods or require the service. In my world, I have a lot of e-commerce merchants, a lot of online businesses, a lot of supply chain and that world benefited actually from the disruption because the sales shifted online. So, what happens is their businesses picked up and we’ve benefited from that.

So, again, it depends on what segment you’re in, but you know, e-commerce has done phenomenally well this past quarter. I’m not alone, I mean, PayPal had the same guidance, Adyen, Shopify, Amazon and all these businesses, they’re all on the high end at the moment with the public markets so that’s the broader phenomena that’s going on.

Peter: Right, right, okay. So, that’s really interesting and I imagine, that…..I mean, I’d love to sort of talk about the interface and how…..because obviously everyone has got their accounting system, mostly small businesses are going to have Quickbooks or NetSuite, or Xero, or something like that, how does that actually work? Can you do this from inside these accounting suites, or do you need to go out to Veem and do interface, tell us how the tech works.

Marwan: Yes, we’re plugged into various accounting packages, Quickbooks, Xero, NetSuite and we’re plugged into Magento, Zapier, other systems as well. So, we’ve always had this belief that we should go to you and live in the context of the environment that you work with as opposed to the other way around.

So, for example, if you’re within that suite and you have a bill that you need to pay, the bill shows up, Veem has a button on the bill that essentially connects Veem as one of the applications to your environment. So, you click on it and we take the data from NetSuite, we pas it to Veem through the API and then we send the payment out to their recipient. So, that’s an example of a model where you do it from the context you’re in, from the environment you’re in within NetSuite when the bill shows up, you do it on that bill.

And then the nice thing about that model is when the payment is completed, all the status of the transaction is reported back to NetSuite so, it closes it out for you. So, instead of manually marking it, you know, that this transaction has been paid, or this invoice has been completed, you can synchronize it, just the data, it’s coming back to Veem, we send it back to NetSuite. That’s an example of how it all works. Does that make sense?

Peter: Yeah, yeah. So, you know, we have to send the occasional international payments and what we’ve been using is Transferwise, so maybe….why are you guys better, what’s the difference between Veem and Transferwise?

Marwan: So, transfer wires seems to be more consumer than business. We tailor more to the business environment and business environments require integrations into accounting systems, payment approvals, account approvals, you have accountants managing different accounts so the entire software allows for that configuration to happen.

You can do single transactions, you can do mass where you upload a file and it sends it to a whole bunch of customers. And also, the way we work, we have both the sender and the receiver so what happens…basically, you can use the system to either send, or request money, it’s bi-directional. So, Transferwise is a remittance model where you send money, there’s no request capabilities…I mean, there is, but it’s not a model where you have the receiver on the platform that’s invoicing or requesting, it’s mainly send.

Peter: Right.

Marwan: So, these are all examples of differences between the Transferwise system and the Veem system. Our model is also dependent on an email, that’s all you need to send money. Their model is a bit heavier on the user experience in that you need to get the receiver’s bank account information and bank details before you send money out.

Peter: Yeah, yeah, got it. When we chatted recently, you were talking about how, you know, you have a two-sided marketplace and all these others have a one sided marketplace because, I imagine, when someone sends a payment to another company, you suddenly have the possibility of having this company or they’re going to have to actually accept the money they have to release create the account, right, so you suddenly have a new user you can market to. Is that kind of how you’ve grown the business?

Marwan: Yes, that is correct and that’s because there’s also value to the receiver. So, one of the things that happens in bank wire is when you send the money, first of all, you as the sender, you have to get a whole bunch of information on the receiver; the receiver’s name, address, business name and address, currency for Swift code, intermediary banking code. Then you have to do it before cut-off time and then when you send the payment you really don’t know what happens to that payment until the receiver tells you, hey, I got your money.

And then it’s equally painful to the receiver because the receiver doesn’t know when they’re going to get paid so what happens is they’re going to go check the bank account all the time to make sure that there is money. When the money shows up in the bank account, you really don’t know sometimes what’s going to happen, like how do I take that money and figure out which money belongs to what invoice because the statement details when the money is deposited in the bank….there isn’t that much information given to you that this money belongs to that invoice.

And so, what we do at Veem is we add benefit to the receiver so the receiver then is able to track the transaction so they see money coming to them, they watch it come to them. We also give them preferential pricing on foreign exchange and then they can reconcile it so they know what money belongs to what invoice and they get the data and the payment together. So, when you receive the payment, you’re receiving the payment along with the details of the payment, invoice, contract, whatever it is that needs to be passed from the sender to the receiver because, generally, when you’re doing bank wire, you have three different systems that are siloed. You have the information, the data itself, the invoice that goes back and forth between sender and receiver on email, or other systems.

There’s the payment itself that happens on banks and there’s the accounting systems where you close things, you reconcile them. So, what we’re doing here is we’re marrying these three things together so that you can originate from your accounting system. The payment and the data come together, they go together; the receiver picks it up, they know which payment belong to what invoice, they’re able to track the transaction and get better exchange rates.

Peter: Right, got it. And so, you’re talking businesses here…I mean, a lot of businesses send very large payments around….I mean, given the fact that you’re a completely, you know, online play, how much can you go up to, what’s sort of a typical transaction size?

Marwan: You know, a typical transaction is wire replacement so it’s somewhere between, you know, $5,000 to $10,000 is the bulk of the payments. We’ve handled transactions as lows as like $500, sometimes $100 for like expense payments or commissions and we’ve had transactions that are very large like a few million, $5 Million, $6 Million that are, you know, for container payments, for large shipments so it varies quite a bit. There isn’t a limit, but what happens is the more….the bigger the amount, the more KYC and KYB required.

Peter: Right, right, understood. So, you don’t just do payments, I know you also have a working capital product for loans so, tell us why do you create that product and tell us a little bit about it.

Marwan: Yeah, one of the things that we noticed when we were talking to customers is that working capital is a pain point to them because that’s another silent process because, generally, they have payments somewhere and then they go apply for working capital loans or credit lines somewhere else, generally, with lenders or banks. A good chunk of that data required to approve a loan is actually payment data and KYC data which we’ve already got on you so, what we’re trying to do is basically take your KYC history on Veem, your payment history and, essentially, automate underwriting decisions, but in the context of the transaction.

So, for example, if I have an invoice that I need to pay…a good example of that, I have the invoice, it’s $10,000, I can either pay it now in full, or I can pay it in six monthly installments. Essentially, what we do is we take that data, we pass it through partners, they underwrite it and, essentially, you get to pay on installments.

The flip side of that, for example, another use case, when the invoice was created, you can also have the invoice paid on the spot which is a factoring type product and then we can have the lender underwrite it. So, our role is….in our case, we’re handling the customer, we have the customers on the platform and we work with partners to underwrite, we originate, essentially, the loans to the various parties we work with.

Peter: Right, right. And is this….I mean, obviously, the lending business is a monstrously big market, you’re really focusing on your existing customers, it sounds like, or is this something that you’re going to scale up at some point?

Marwan: We think of it more like payments is a really good way to establish a relationship with the business, with the customer. If you accomplish the most important task which is earning their trust, once you move their money, they basically trust you. With that, we start providing them other things that can benefit them. It only makes sense when the data and the payments are all integrated together….

Peter: Right.

Marwan: …so it helps you do something within that you cannot do it somewhere else. If you do it somewhere else, you do it with a restriction. So, we’re not necessarily like going into lending on our own, we’re more like up-selling to accounts that have a payment relationship with Veem. We’re, basically, using that data to help you with lending decisions. A good example of that, or a good analogy will be Square, Square started with payments and, of course, they have capital and capital is, you know, it’s a good chunky business for Square so, that’s a good example or a good analogy.

Peter: Right, right, got it. You know, I’m on your website on my other screen here and I also noticed you’ve got a Paycheck Protection Program offering here. So, tell us a little bit about that, you know, I wouldn’t have thought logically you guys would be heavily involved in that, but tell us about why you created that program.

Marwan: So, the beginning of COVID, we started talking to customers and they were asking us more questions about the Veem capital product because there was a big chunk in lending needs because of the market, except that a lot of the lenders started having issues because of the market. So, at the same time, the SBA started the program with the PPP project. What’s interesting about that whole setting, you know, what’s required for PPP was basically authentication of accounts so you can KYC and KYB the customer, you can collect data to pass to SBA and you’ve got to essentially manage the work flow.

So, interestingly enough, that’s we do with payments so we take KYC and KYB history on you to get you to use a system to pay that’s why we have to KYC you and then we’re managing the work flow to pay or request the payments, it’s actually a work flow. And we’re very used to collecting documents from you to then essentially use that data to process the payments. So, it was not necessarily a big, you know, procedure that required a very different set of expertise to go, you know, do a PPP Program.

So, what we ended up doing was we essentially took the initial data from the customer, passed it to the banks and the bank was actually the one underwriting and managing the interactions with SBA. So, just to be clear, we’re not a lender, we’re simply, you know, like an agent that passed the information to their partners and then they underwrite the loan.

Peter: Yeah. I read somewhere, I think Cross River Bank was one of the banks you guys were working with, is that the primary one you work with, or you have a whole range of them?

 

Marwan:  That was the primary….we had other ones, but Cross River was the main one we worked with for the PPP Program.

Peter: Right, right. I’m actually going to get those guys on the show here in a little bit, an amazing job with so many people from the PPP. So then, we touched on the technology, but I wanted to…..I know that this is a blockchain-based system, or crypto currency type. The core of what you guys are doing is based on that so maybe…..no, you don’t mention it, I mean, there’s one little link to blockchain on your website, I can’t find it pretty much anywhere else so tell us about…..you’ve been around for a long time and obviously, post-Bitcoin, but still….tell us a little bit about your kind of experience with blockchain.

Marwan: Yeah. So, we’re quite versed in blockchain matters and crypto matters, we’ve been using that technology since we started, since 2015. We used it to do a synthetic cross from one currency to another so the way the system works is essentially, for every transaction there’s a buffer that routes between different rails, we call that multi-rail.

So, we have five different methods of moving money from point A to point B, we have our own bank accounts which is the default method, we use cards, we can move money to real time to an account associated with your debit card, we work with third party payment providers, we have blockchain and we have Swift as well for very large transactions along different currencies.

So, in the context of blockchain, we basically scan the various cryptos, figure out which one is the best to work with, which ends up being…like the bulk of Bitcoin, that’s where the volume is. So, what we do is we go from US dollar to Bitcoin to Bitcoin to pesos, for example, so if I’m sending money to Mexico that’s what’s happening. So, Bitcoin becomes a way to cross from US dollar to pesos. Now, we don’t really watch the Bitcoin price and we don’t carry inventory, we go in and out.

Peter: Right.

Marwan: We do it so that, regardless of what the price of the currency, we use it as a transportation mechanism to take US dollars and convert it into pesos on the other end. The system is agnostic to all the rails and actually the system is agnostic to any of the cryptos. It simply stands for whoever has the most volume and just picks it up. In practice, like the bulk of the volume is on Bitcoin so that’s what ends up happening.

Peter: So, does that mean the bulk of the payments you’re processing internationally goes through Bitcoin?

Marwan: No, no. So, Bitcoin is one of them like crypto is one of the rails, we have five different ones.

Peter: Okay.

Marwan: Within crypto, the bulk of it is like, I mean, all of it is Bitcoin. So, the process on Bitcoin…..just to be clear, I am not holding Bitcoin.

Peter: Yeah, I realize that, yeah. So, when you say you’re agnostic on the channel to actually transmit this money, what’s the deciding factor? Is it just purely a cost play that…what the…..

Marwan: No, no. The inputs to the model is basically the size of the transaction, currency per country and then when do you need it by, what time do you want the transaction to land on the receiving end. And so, it goes from anywhere from real-time to same day to next day and sometimes, depending on the country if it’s really long tail, can go longer. So, these are the inputs. Now, what you get from crypto that’s different than others in that the transactions…I can cross from…once I have US dollars and I want to covert to pesos, that cross is basically near real-time because I’m going in and out.

The other thing is, because it happens on the blockchain, I can track the payment. I can Google Map my payment, again, I know exactly where the payment is at. And also, there’s no banking hours, you can do transactions in the middle of the night and you can tell the customer, hey, your money is in the country when the banks open, you can have it. At least, you know, the customer knows and so, it derives benefits that are different than what you typically get from the other systems.

Peter: Right, right, okay, that makes sense.

Marwan: And we don’t……and just to answer your question though, we used to have it more prominent on our communication, except that when we’re dealing with customers…..like one thing that we learned doing this is that customers don’t really care about payments.

Peter: Right, (laughs) they just want the money.

Marwan: Yeah, they just want to ship their T-shirts or boxes or whatever they’re doing, that’s fundamentally what they want. The last thing on their minds is actually how payments work.

Peter: Right.

Marwan: And so, we kind of simplify the communication. We basically explain how we send the payment, when do you need it by, for instance, the mechanics of actually how it works.

Peter: Right, right, okay. So then, what’s your business model? How are you making money?

Marwan: So, we make money in a variety of ways so, foreign exchange is one of them. When you cross currencies from US dollars to Euro to Pound to RMB, we make money on foreign exchange. We also make money on fees for domestic payments and for payments that originate in US dollars and stay in US dollars internationally so, same currency transactions. Domestically, it’s a dollar per transaction and cost for US dollars is $20 per transaction. We also make money on origination fees to lending partners for bringing transactions when a customer wants to underwrite their invoices so we make money that way.

Peter: Right, right, okay. So, basically, if I’m sending money out of the country, I’m paying $20 and I’m sending money inside the country it’s $1.

Marwan: If you’re sending money internationally, it’s free. The receiver decides which way to take the money. If they decide to keep it in US dollars, we charge the receiver $20.00. If they choose to take in local currency, there is no extra charge, that’s it. So, it’s the sender…..unless you’re sending domestically, the sender is free all the time.

Peter: Right, got it, okay. Thank you for the clarification. So, can you give us a sense of what scale you’re at, I mean, how many transactions you’re doing a day. Just give us some sense on the scale.

Marwan: We have about just over 200,000 businesses, it doubles pretty much like every year, the system doubles in size. So, it gives you an idea of the scale of it and a good chunk of the reason why it doubles is because of the way it propagates because every time there is a sender, there’s also a receiver and sometimes the sender becomes the receiver and the receiver becomes the sender, On it’s own, actually, it does propagate and so, roughly every 12 months the number of accounts double in size.

Peter: Right, okay. How do you market, are you really relying on this sort of network effect to grow, or do you have really a targeted marketing programs you’re running?

Marwan: So, a good chunk of the accounts come from the network, from our customers. That’s actually the majority of the accounts, then there’s ….the new ones tend to be…online is the biggest channel, we get them through the web, we have a sales team as well for the larger accounts and we get a bunch of accounts from partners, Quickbooks, Xero, NetSuite, like from the various partnership channels, But, the majority of accounts come from customers who are happy using the system, they introduce us to other customers who then themselves like it and bring it forward to other customers. That’s the larger portion of how the system grows.

Peter: Right. And to be clear, it’s a web-based system, right. Is there a Veem app, or is it all just web-based?

Marwan: It’s web-based, but it’s adaptive to mobile phones so the language that we write in, all the screens are adaptable to whatever device you have. It’s not a native app where you download it, but it has a pretty optimized experience to your mobile phone.

Peter: Right, right, okay. So, last question then. You’ve a really interesting company here and obviously this can become…I mean, the potential is massive, when look at say the next 12 months, what are you focused on?

Marwan: So, we’re looking at more countries, more currencies, more integrations. Customers love integrations so like all the work we’re doing with Quickbooks and Xero, we have a list of packages that customers that want us to integrate into. We’re definitely interested in partnerships, in general, know how to distribute the product, but also add value to the experience of lending, in particular, is of interest to us.

We have a particular view that, you know, payments and lending are tied, they need each other. So, in general, when you’re servicing the customers and the thing that they need us as payments is lending and when they go to ask for any of the lending products, you need payments as a history so that you know whether you can actually underwrite or not because that’s where you get the historical value of the account. So, these products are tied together and so, we are definitely interested in working with partners to figure out how do we best optimize that experience to the user.

Peter: Right, right, okay. Well, best of luck, Marwan, it’s been fascinating chatting with you today. Thanks for coming on the show.

Marwan: Thank you for having me.

Peter: Okay, my pleasure.

You know, I completely agree with Marwan when he said there that payments and lending are inextricably linked. You’re talking about the two largest verticals in fintech, payments and lending, and they’re not really staying as separate verticals anymore. I mean, we’re seeing that with Square, with Square Capital. I mean, PayPal has a very large lending operation now and on the other side you see Kabbage getting into payments, Fundbox is getting into payments.

So, we’re seeing this blurring of the lines and that combined with this trend towards embedded finance is where you’re going to see even non-financial companies offering payments capabilities, offering lending capabilities and we’re seeing that already with companies like Shopify. It’s going to be super interesting to see how this trend continues and Veem is well positioned here. I mean, they’re really building their business with payments, but lending is going to provide a good source of revenue, it sounds like, going forward.

Anyway on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by Lendit Fintech USA, the world’s largest fintech event dedicated to lending and digital banking is going virtual. It’s happening online September 29th through October 1st. This year, with everything that’s been going on, there’ll be so much to talk about. It will likely be our most important show. So, join the fintech community online this year where you will meet the people who matter, learn from the experts and get business done. LendIt Fintech, lending and banking connected. Sign up today at lendit.com/usa.