Blog
March 20, 2023
Building the Future of B2B Payments with Reed Switzer and Thomas Rein
Jason Greenwood
Welcome to the At the Coalface podcast with your host, Jason Greenwood. This podcast is all about what it’s really like in the trenches of digital and e-commerce.
Hello everybody, and welcome to another episode of the podcast. I have two amazing gentlemen here for you today. I have Thomas Rein, and I have Reed Switzer from Hopscotch Payments with me today. Welcome gentlemen, to the podcast.
Reed Switzer
Thank you. Thank you. It’s good to be here.
Thomas Rein
Hey, thanks for having us.
Jason Greenwood
Absolutely. My pleasure, gentlemen. Now, you guys have been getting a ton of press lately, positive press. I’ve seen articles about you in Insider, in Payments.com. It seems like I can’t escape your guys’ name at the moment, which is really cool, which is one of the reasons why I wanted to have you on.
I did a post about you guys on LinkedIn because I thought some of the stuff you were doing was pretty groundbreaking. And I work in the B2B commerce space as a consultant, and some of the stuff you guys are doing around B2B payments is super exciting. So that is how this whole conversation came to be.
Reed Switzer
I’m glad we’re making the waves that we’ve been trying to make. It’s definitely been an exciting month since we’ve launched. I’m super pleased with the initial results we’ve been seeing and the noise we’ve been making on social media. And thank you for reposting that, and thank you to everyone else who’s been supporting the journey.
Jason Greenwood
You’re very welcome. And look, I guess one of the things, and just before we kick things off, just to set the lay of the land here for everybody who’s listening in, Reed. You are the CEO, and if we look at Thomas, your role is really Head of Product Strategy. And so in terms of, well, I’m guessing, I’ll let you introduce yourself, but you, I’m guessing, you have a huge influence on the product roadmap and the go-to-market plan for the business.
Thomas Rein
Yeah it’s obviously a partnership. At this stage, Reed as the CEO has to be highly involved in the product, not just working on strategy. And so I’d say it’s, it’s absolutely a partnership there, but it’s been, it’s been a great, what? About a little over a year now done with the company, and it’s been fantastic.
Jason Greenwood
And super exciting that Reed, you know. Look. Obviously you’re making waves in the FinTech space at a pretty young age. I read in the Insider article that you’re only 22 years old, which is just, man! I’m pretty jealous actually in the sense that I wish I was still 22, and I wish I was making the kind of waves you’re making in the Tech and FinTech space. I wish I was doing that at 22 years old myself.
Reed Switzer
I appreciate it. It’s easy when you have folks on the team like Tom, and Saradhi, Kevin, Javier, Rick, and really just everyone that we’ve brought on board that make it look so easy. But yeah, it’s funny. One of the conversations early on with some investors that thought I was like 28 or 29, and so when we got some of the first term sheets, I was 20 at the time, and they wanted to go out and celebrate for a drink, and I had this dilemma. I’m 20. Do I go out? Do I get a drink with them or do I just pretend like I’m much older? But yeah, yeah, it’s been fun. I think what we’ve been saying is that B2B payments is notoriously boring, and it’s about time someone comes in and shakes things up a bit.
Jason Greenwood
Yeah, it sounds like you guys are doing exactly that, and yes, obviously with the American drinking age being as high as it is versus say New Zealand, Australia, Europe, et cetera. Yeah, that, I can understand that dilemma. “Do I? Do I whip out my fake ID?” basically is the question at that stage. But you guys are based on the east coast of the United States in New York, and Reed. This sounds like Hopscotch was really your brainchild and it really sprang out of a need.
You were inspired after paying vendors for your apparel brand with paper checks, which is just, it’s mind-blowing that as of 2022 there are still suppliers. There are still vendors. There are still businesses that even use or deal with or have paper checks. I can’t remember the last time I used a check. In fact, I haven’t even had paper checks for many years now in my personal account, and paper checks just are not a thing in New Zealand anymore. So this feels very much like you were scratching an itch, and you said, “Man, there has to be a better way.”
Reed Switzer
Yeah. And before answering that for legal reasons, I do not have a fake ID.
Jason Greenwood
I know. Of course. That was just, uh. That was purely a joke from my side. I was not making false accusations. I promise.
Reed Switzer
No, I know. It’s all good. But, yeah, you’re right. I think that the first introduction to B2B payments was having to pay some of our vendors in the apparel space via paper check and noticing it was super, super inefficient. No surprises there. But I just thought “that’s the way that business is done.”
And it wasn’t until I started working under the CFO, like Combs Enterprises who left to start this really interesting music streaming startup, that I realized that there’s a much bigger gap in B2B payments. I’m a member of Gen Z. I grew up using Venmo/Cash app on a daily basis as sending money back and forth with friends. It’s fast. It’s free. Super, super easy and almost feels fun.
And if you compare that to the way B2B payments are handled here in the US, there’s a clear gap in the space. Roughly 40-45% of B2B payments are still completed via paper check today. That number is quickly decreasing, but frankly, the online payment systems aren’t much better. And so at Hopscotch, we’re trying to bring this consumer-grade experience to the B2B world and thankfully we have folks, like Tom and the rest of the team, on our side to help make that a reality.
Jason Greenwood
And we’re hearing this more and more, especially from the e-commerce space even. I’ve had the guys from Balance Payments on the podcast before, and they’re really focusing on primarily e-commerce payments for B2B marketplaces and online marketplaces. And so they see a massive gap there.
I’ve had the guys from Reach Payments on. This feels like a space that is truly heating up, because you’re all converging on the same area, which is this concept of B2B payments being very legacy and even ACH payments take a long time. They’re effectively the equivalent of SWIFT for b2b. And if we look at all the different payment platforms out there, even Payoneer, they still feel, although they might have this sort of thin veneer of a FinTech layer over the top of them, it still feels like underneath the actual rails of B2B payments are still fairly antiquated. And I guess that feels like the area that you’re looking to attack the most with your solution.
Thomas Rein
That’s 100% right. It’s not just the antiquated payment rails, but it’s also the cost. And the people who are offering you instantaneous payments are also charging an arm and a leg to do it. You’ll get card networks, that’s 2.5-3.5%. You’ll get ACH. It’s obviously much cheaper, but it takes a lot longer. You don’t really have much going on with the RTP rails yet and with Fed Now. We’re looking to build something that actually is instantaneous. We obviously aren’t charging for it. There are a little bit of costs to us, but it’s just not enough to actually charge for because we offer financing on top of that, and that’s how we can actually monetize the product.
Jason Greenwood
That was one of the things that leapt out at me in some of the articles was the fact that you were rolling out this invoice financing feature. It’s almost like bridging finance based on accounts receivable that are due. Money is owed to these businesses. You’re tracking, and you’re managing pretty much all of their financing and all of their payments across their business. Then you have a very clear picture of what’s due, presumably you plug into their finance package, whether it’s a zero, whatever their finance package might be, you’re plugged into that, so you know what’s coming. You know what billing is outstanding, and therefore you have your finger on the pulse of their business. And by offering this billable feature, which is this kind of bridging finance feature, then that ties your business in a way that brings really tangible value – especially to small and medium-sized businesses where their accounts receivable might have an average payment time frame of 60 days or 90 days in some instances, where you guys can fill that gap. You can plug that leaky boat for them. And that’s a way for you to monetize for you guys, so you can be profitable enough to where you can offer some of these other payment services for free.
Thomas Rein
That’s exactly right.
Reed Switzer
Yeah, that’s funny. We view our core payments tool (managing AR/AP on Hopscotch) as the loss leader. So the equivalent of hotdogs at Costco, right? Like they sell ’em for $1.50. They get you in the door, and then you buy a bunch of other stuff at the store. So we do provide that real tangible value-add to businesses and freelancers, and then we provide them with these super helpful, easy-to-use tools like Hopscotch Flow to avoid those gaps in cash flow. And we monetize that way. So I think it’s a business model that we think provides more value to our users and, frankly, most of the platforms out there charging transaction fees—we view them as predatory almost, right? Like you, you shouldn’t have to wait or pay to get access to money that you’ve already earned as a small business in the US. And Hopscotch changes this.
Jason Greenwood
Man, it’s so funny you bring up Costco because we’ve had the first Costco in New Zealand open up five minutes down the road from where I live, and they literally just opened up less than a month ago. And I tell you the lines are literally out the door and around the building. They’ve had to put in traffic control around Costco because it’s that busy. And uh, yes, certainly the food court, and the hotdogs, and everything are those kinds of almost loss leaders so to speak, to get people in the door. But people are walking out of there with a thousand dollars worth of groceries. So Costco’s certainly not losing out.
And so you’ve emulated that model. “Hey look, we know that we’re going to get our pound of flesh through a true genuine value add. And so we’re not going to try to nickel and dime our customers to death with every single transaction they put through our platform. We’re gonna attract them to our platform with our freemium model. And then we’re gonna hopefully get them on board with some very attractive financing that is gonna allow them to monetize those incoming payments.” But they can actually use that capital today to grow their business.
Thomas Rein
That’s absolutely right, and it’s a very underserved market that’s highly neglected by the incumbent financial institutions out there. It’s very hard for an SMB to get any type of bank loan until they’re profitable, usually for at least 1-2 years. There’s really no other type of financing out there aside from almost like a payday lending type thing where the rates are absurd. You’re basically going out for Loan Shark, and these guys have good cash flow. And what they need is just a way to get paid early because they have to figure out how to manage those cash flows.
Jason Greenwood
It’s very interesting that you should say that Tom, because here in New Zealand business banking is probably even more legacy, in some respects, than it is in the United States, particularly for small and medium-sized businesses. The way that a business would get a bank loan usually is just with an overdraft on their business bank account, right? Might get a $10,000-$15,000 overdraft on their business bank account. The interest rates are user risk. The owners of the business, and the directors of the business are jointly liable for any of the debt that the business takes on. So it does take on a tremendous amount of risk for the business owners themselves as well. And really there’s no, unless you want to put up your own personal home for example, or your own personal mortgage as a backstop to a business loan, most banks here will not give you a business loan based on your trading profitability and your accounts receivable outstanding. They just, that’s not a service that they offer. And it sounds like America, even as advanced as I guess finances in the United States, it sounds like it’s somewhat similar there still. Especially for SMBs.
Thomas Rein
Oh, 100%. As an anecdote, a friend of mine from school started a company that was trying to compete with the Vineyard Vines, and they were making ties and shirts and whatnot. And he needed his working capital loans, and he could only get a personal guarantee on it. And this is a guy that, that had good inventory, had good orders, but he needed basically a hundred K worth of money, and he had to put up, it’s a good portion of his house, cuz he had some equity in his house, and you had to put that up against the loan. And it just, it really impeded, impeded his ability to operate a business. And I think that impedes a lot of people like that because they don’t want to have to take on that, this personal liability on their business.
Jason Greenwood
And that’s why they’ve set up, at least here in New Zealand. That’s why they set up a limited liability company, right? They want it to stand on its own two feet. They want it to have its own business bank accounts. They want it to be able to trade effectively and still have growth capital and the whole. That was the whole idea of why they set up their company was for it to stand on its own two feet and to be joined at the hip like that. It’s almost like a, but when you have to put a personal guarantee against those things. And I know because I had to do this when I had my own business here in New Zealand. That’s exactly what myself and my business partner had to do when we took out the overdraft with our bank for some growth capital. But we had to sign on the dotted line that we were gonna backstop if, what is effectively a business loan, a rolling 30-day business loan is effectively what it is. It’s like revolving credit for a business but it’s super expensive credit as well. And so how do you guys see yourselves competing against the banks in this regard? Would you consider your financing on par with say a revolving, a revolving credit line with a bank? Or do you consider your credit more competitive than the banks even when you do? Cuz effectively you are extending loans to them. And how competitive are you with the major banks in terms of your financing?
Reed Switzer
Just to clarify this. I don’t think we necessarily compete with the banks on that level today, right? I think our target market, right, if we look at it. It’s really the lowest rung of the ladder in the business world in terms of size of the entity itself. So it’s freelancers and SMBs with two to 10 employees in the services space.
And so for the Hopscotch Flow product, we’re not really, we’re not offering a loan or extending credit in that sense. Really what we’re doing is purchasing the asset that is the receivable, right? And we’ve built this really powerful cash flow-based underwriting model to enable us to offer services, like Flow, to our users in as little as two clicks. And what we’re competing against today is really the traditional institutions that offer factoring, and the issue that they have is they see these small businesses, or these freelancers, come to them with an invoice that’s maybe a few hundred dollars to a couple thousand dollars, and they say, “Hey, I’m in a spot right now, I need some cash.”
And that institution will say, “Great! Let me figure out what type of business you are.” So they have to underwrite that entity or that individual, and understand what their financial health looks like. Then they say, “Okay, I need to figure out ‘Is this invoice legitimate,’” right?
So they have to reach out to that client of the business that’s coming to them and get a better understanding of whether or not that client is actually gonna pay the invoice. And then once they do all of that, they finally come to a decision and lay out what the terms are, et cetera and execute everything.
And so there’s an arduous process there just for the freelancer or the small business to get to a decision point. And frankly, a lot of the institutions out there won’t even look at users that are a part of our target market, because the ticket size is so small. It’s not worth the investment in terms of labor to underwrite the transaction and extend capital to the business coming to them. And so Hopscotch today is really solving, as Tom mentioned early on, like this underserved market that just doesn’t have access to working capital at the same level as some of these larger institutions. And even if they do have access to it, they certainly don’t have access to it with the same ease and speed as they’ll be able to find on the Hopscotch platform.
Jason Greenwood
Now your investors clearly see value in what you guys are doing. They clearly see a future to it. You guys have raised, according to the Insider article anyway – and you can correct this if it’s wrong – nearly 10 million in two funding rounds so far since October of last year. So you’re, you’ve really been going hammer and tongs at this for just on a year now, and Shine Capital Stellation Capital, Noemis Ventures among others it says in the Insider article there, so clearly there are investors that see tremendous value in what you guys are actually building at Hopscotch.
Reed Switzer
Yeah, that’s a hundred percent. We’ve been, like I said, we’ve been fortunate to find a great team and to find partners who see the vision that we’re going out to build and wanna support us in creating this future. The thing for Hopscotch is if you look to the future of B2B payments, right? Because we all agree today that B2B payments can be improved significantly. So if we look to the future, you have to ask yourself, “Are the same trends that we’ve seen in the consumer world – instant, fee-free payments in a user experience and interface that just looks and feels good. Can it extend to the B2B world?”
And so I think we’ve started to see a trend to where it is more quickly adopting electronic payment systems, right? So moving away from the outdated and inefficient paper checks. But as Millennials and Gen Zers step into the workforce and have a higher level of control on vendor decisions, are they gonna look to platforms that feel similar to the ones that they use in their day-to-day lives? And we at Hopscotch, along with our investors, think the answer is yes right? B2B payments should be as easy and should be as user-friendly as these consumer platforms, and we think it’s an easy vision to buy into and something that, frankly, should have already existed.
Jason Greenwood
And how do you guys see yourselves? What does your UX/UI look like today? What do you think it’s gonna look like in the future? I haven’t used Cash App or Venmo, but they are obviously very popular around the world. Does your, especially with this new Flow product, uh, do, do you effectively, because you’re tapped into their financial package, can you, in the app itself, ca- does your- As their accounts receivable flex and flow and go up and down, does that automatically surface to them how much working capital you’re gonna make available to them directly in the app? Or is that something that they actually have to sign up for? Or how does working capital / finance work from a user experience perspective today? And is that something you’re looking to enhance and extend in the future?
Thomas Rein
Yeah, so today, if you want to Flow your invoice, it’s right there in the user experience as you’re sending your invoice. In terms of our UX overall, our goal is to create a consumer-like experience in a B2B payments app. A lot of what you see out there right now is almost like an enterprise tool.
And I don’t mean to be rude to all the enterprise tools out there, but a lot of them were built just to solve a problem but not do it in an intuitive and easy way. You look at a number of them and they have a 60-page PDF job aid that teaches you how to use the product that just doesn’t make any sense. What you want to have is something that is extremely easy. Easy to use, highly intuitive, and that you can learn how to use within a couple minutes of signing up.
Reed Switzer
Tom articulated it perfectly. And I think the other really great thing that we’ve brought into Hopscotch is this notion of business profiles, right? Like on the standard B2B payment platform you’ll see out there, if you wanna send an invoice or add a bill, you get this standard sort of a plain vanilla directory dropdown list type experience, and you’ll select the vendor or client you’re looking for.
On Hopscotch, we took the approach that Hey! Let’s blow out these profiles and make them actually look good, where businesses can showcase their profile image, About information, and ultimately, highlight different elements of their business. Something that feels more like a profile you might see on LinkedIn, et cetera. And so it creates this really interesting consumer-like ecosystem foundation for the Hopscotch platform. And we think in the long run, as we continue to grow, that these profiles are gonna enable us to evolve in ways that our competitors might not be able to. And so, like Tom said, the goal is to make this feel like a consumer platform but with all of the utility that you would need to run your business.
Jason Greenwood
So this effectively becomes a digital wallet for B2B businesses as opposed to a digital wallet targeted at B2C end-consumers. And so effectively you’re creating a digital wallet type of experience, and, I’m guessing that, if both parties are using the Hopscotch app, then those payments are facilitated even faster when you don’t have to use the traditional banking rail. But obviously, if a payee is just using a traditional business bank account, then obviously there’s, I’m guessing, there’s some potential delays there having to go through the traditional banking system in the receipting of those payments On the other end, you’re limited to some of the machinations of the traditional banking system, but where it’s Hopscotch that must be on virtually instantaneous.
Reed Switzer
Just to clarify – the experience of paying or getting paid will remain the same whether or not you’re transacting with another user on Hopscotch, or a business via email, and then making a payment without having an account. So in terms of being able to leverage the capital et cetera, it’s equal. But you are right in the sense that as our ecosystem continues to grow, the goal is to have both parties on the platform and for the transactions to essentially happen through the Hopscotch Balance, which is the equivalent of a Venmo Balance.
Jason Greenwood
Love it. Absolutely love it. And so they’re connected in that way. That makes complete sense. And I might guess there is an incentive. A two-way incentive for people to move to Hopscotch in the sense that. “Hey, if I’m a payee and I want to get paid instantaneously, then it is absolutely in my best interest to also deploy Hopscotch in my business, so, that when I receive those payments, it’s instantaneous as opposed to having to go directly into my business bank account or whatever. And I have to wait a certain amount of time before it clears, so that I can then use those funds in my business as a payee even”.
And so it really does feel like you’re gonna be able to leverage some serious network effects here in the sense that it’s not just the payer that receives a much better experience by being on the platform, but the payee has a massive incentive to move to the platform as well.
Reed Switzer
You’re exactly right. We do think there’s a lot of power there. I think the balance and having the Hopscotch Balance makes this sort of almost a. We’ve seen some businesses leverage it as almost like a forward operating account, if you will, where they’ll leverage Hopscotch to manage budget on a monthly or or quarterly basis, et cetera. I don’t wanna dive too much into that use case, but you are right where the wallet, or what we call internally the Hopscotch Balance, as well as these profiles, gives us a leg up and enables us to really build this unmatched B2B payments experience. Spot on.
Jason Greenwood
Obviously you’re still young. It’s still very early days. I’m guessing your product roadmap might extend out to 6, 12, maybe 18 months max. So you may not be able to answer this question, but I’m gonna ask it anyway.
Do you see your future also extending into the e-comm space for B2B eventually? Because what we see in the e-comm space for B2B businesses that they sell to their B2B customers online. Usually it’s on account, and they get like a statement every month with all their invoices, and they get paid straight away. Or some B2B online businesses will allow B2B customers to pay via business credit card as well. If they, let’s say they don’t have a credit balance or let’s say they want to actually pay via their business credit card for whatever reason, sometimes they’ll make that available.
But oftentimes, it’s based on wire transfers. It’s based on SWIFT. It’s based on ACH. So there’s a lot of friction in the B2B e-commerce payment space as well. And it feels like that would be a very natural extension of what you guys are doing. Is to eventually become effectively a B2B payment gateway for B2B online businesses as well. You’re already in the FinTech space. You already have a really good understanding of these businesses and how they operate. You already have a really good understanding of the forward-looking inbound payments that they’re likely to receive over the next 30/60/90 days, particularly if they’ve transacted with you for a while. So this feels like a very natural next execution for you guys. Is that something that’s even on your radar at this stage at all?
Reed Switzer
I think we’re gonna go ahead and leave that over for our friends over at Balance to tackle. It seems like they’re doing a killer job over there. Um, yep. For us, we think the market that we’re focused on right now is massive, right? It’s a ton of transaction volume. And businesses that are, that need to be served by something like this and don’t think we’re gonna go into e-commerce. I think there are ways that we could integrate with some of these others that are out there, but that isn’t something that’s on the near term roadmap as of right now.
Jason Greenwood
Fair enough. Makes sense. You stick to your knitting. Obviously, you’ve taken on some funding to go after a very specific goal, and it sounds like you’re laser-focused on that, which I think is a super good thing.
And also what’s, what I find quite interesting is that you raised this capital, especially this year. You’ve raised this capital in a market where VCs are becoming very gun shy of deploying capital. They’re looking for opportunities that have a really, really high likelihood of succeeding. They have to show profitability, or at least a path to profitability. We’ve seen a major contraction in the capital markets, and so clearly your investors see a real future here despite the term, the global downturn, the high-interest rate environment, et cetera. And so has this high-interest rate environment challenged your ability to grow the Flow side of the business or is this, are you guys largely unaffected by this rising interest rate environment?
Reed Switzer
There’s more capital than ever in the private markets, right? And that capital has to go somewhere. Yes, there has been this pullback over the last year, but the fact of the matter is that the best companies will continue to get funded if you’re working on a real problem and building a real solution that has the potential to endure. But. point being, is if you’re working to these big outcomes. and you’re laser focused on getting there, and the VCs see that, and they see the opportunity, you’ll continue to bring in funding. And so we’re lucky to be doing exactly that and for folks to be able to recognize that.
And then the second piece is about interest rates affecting Hopscotch Flow. And the short answer is no. The way that Hopscotch Flow is architected. The way that we’re pricing the offering, we haven’t seen the current environment affect that program on a significant level.
Jason Greenwood
And, is your interest rate that you guys charge for Flow, is that a dynamic interest rate? So obviously you have to operate in the current interest rate environment just like everybody else does, and so therefore the cost of capital is rising, and so is that something that you know, effectively you just pass on those rises in interest rates to your customers, but it still allows them to leverage working capital in ways that they just simply wouldn’t be able to any other way?
Thomas Rein
Yeah, we’re obviously affected by our cost of capital as well. That said, because we are able to hold balances at our bank partner, we actually don’t have quite the cost of capital as some of our competitors get when they’re raising money from a credit fund at 15 to 20% interest rates. We are significantly lower than that because we have a bank partner, so we don’t really have to pass anything on just yet. If we had like an early eighties event where the overnight rate was up to 15% or whatever it got up to, sure we’d have to eventually pass that on. But as of right now, we’re actually okay.
Jason Greenwood
That’s great! And I’m guessing – and you can maybe validate my thinking here – I’m guessing that the nearly 10 million in funding that you’ve received, that’s not designed for loan underwriting. It was for you guys to be able to grow your business, build your product, grow the sales team, grow your marketing, et cetera, to expand to a much larger market. And I’m guessing that bank partner you referred to, and I’m guessing that there’s probably banks knocking on your door now to underwrite the actual lending portion of the business for a share of the carry. And I’m guessing that’s how you’ve built the business. “Okay, we’re taking on funding not so much to underwrite these loans, but we’re taking on this capital to help grow our business, grow demand for the capital, and then we’re gonna work with banking partners to actually underwrite the lending for a share of the take.”
Is that kind of how you’ve structured the business so that you can have the effective capital you need to roadmap the technology and continue to build that out and sell it to the market, but yet you have, I guess to a degree, if you’ve got banking partners helping to underwrite the lending, then what that means is you’ve got an almost unlimited pathway to growth so long as you can continue to show good fiduciary controls and a good or a very low default rate I guess is how banks would look at this.
Thomas Rein
That’s exactly right. We did not raise money to lend with. You got it on the head.
Reed Switzer
So we do have 1.5 million in a debt facility via SVB, which we have not leveraged to date. And so the reason that’s important to mention is when we’re, the way that we’re offering Hopscotch Flow is a cash flow based underwriting model, which we’ve built internally. So we’re not leveraging a third party to underwrite the invoices that are sent through our system, and we’re not relying on our bank partner to, to underwrite the invoices either. And so we’re doing all of this internally, and so over the first few months in market, while we’re offering Hopscotch Flow to our users, the key is obviously to prove that the model worked, right? To prove that we’re addressing risk correctly, and that we’re offering the right price to our users, and all of that good stuff. And then once we have the key metrics that prove the way we’re approaching our offering is spot on, and you’re right. We’re not getting hit with a ton of defaults. That’s when we then bring in some of the debt capital that we’ve partnered with SVB on, on providing our user.
Now in the long run, obviously we’ll need more debt capital to be able to provide this at scale. And so you are right that we are getting folks that are knocking on our doors wanting to get involved and wanting to understand how we can maybe even partner in the short term, which is super exciting, because, as an early-stage company, if you have folks that are coming to you and saying, “Hey, we wanna partner. We think what you’re working on is interesting. How can we get involved?” That shows that you’re on to, and even if it’s just a little bit of traction in the early days, I think those wins are certainly important to celebrate.
Jason Greenwood
Absolutely. No, I think you’ve hit the nail on the head there, Reed. I think if you are making such a significant wave or a dent in the market now. Sure in the overall capital markets, you guys are still a minnow. But I think if you guys are proving to the market, “Hey this is a severely underserved segment of the business community”, you can almost think of them as the unbanked to a degree. The people that either can’t get a bank account or they can’t get a credit card or they can’t, they don’t have access to buying into stocks. They don’t have access to brokerage accounts. We can consider huge sways of the consumer market as unbanked. And it feels, to a degree, a large segment of the SMBs can almost be considered unbanked.
Yes, they’ve got a business bank account. Yes, they’re operating. Yes, they’re taking payments. Yes, they’re making payments, but for all intents and purposes, they’re almost frozen out of some of the high-level banking services that the larger businesses do have access to. These larger businesses have easy access to working capital. People are falling all over themselves to provide them financing. They can go out there. They can, in some instances if they’re big enough, they can go public, or they can issue bonds as a private company. So there’s all sorts of ways that these larger businesses can access operating capital at relatively low rates compared to the broader market. But it feels like the SMBs, to a degree, are unbanked in that regard. And so you guys are filling a massive gap. And so it, it feels if these other larger lenders, for example, can see the gap that you’re filling, and see that you guys have underwriting absolutely dialed into where your default level is super low, and you’ve got a track record of that, it feels like these guys are gonna come running with open pocketbooks.
Thomas Rein
That’s interesting. At the last bank that I worked for there was an executive on the underwriting team that said, “It cost me the same to underwrite a $5,000 loan as it does to underwrite a $5 million loan. Why on earth would I ever underwrite a $5,000 loan?”
And you actually nailed it on the head. If we can underwrite in an automated fashion and prove that we can underwrite, every bank’s gonna wanna be handing us money because it is a completely untapped market. Because they don’t want to lend to those SMBs because it costs too much.
Jason Greenwood
And you guys effectively in that market would act as the aggregator, right? You’ve brought scale to a side of their business that they can’t scale themselves, and so therefore, you’re acting as an aggregator for a certain block of debt, for example. And if you can prove that you’re, that you as Hopscotch are creditworthy, then it doesn’t really matter whether you are, the businesses you work with are individually creditworthy. As long as you are creditworthy overall, then you’re gonna be able to access capital markets that these small businesses simply can’t tap into on their own.
Reed Switzer
Yeah, I guess you have a crystal ball over there somewhere, but you’re right. That’s the direction that we’re heading, and that’s part of why we have the thesis, to own as much of the underlying infrastructure, both payment, on the payment side, as well as on the underwriting side to be able to architect this future that you’re talking about.
So yeah, we’re super excited about the potential there and we’ve spoken a lot about small businesses, right? And we know everyone knows that this is a massive market. But on the freelancer side, there’s 70 million freelancers that are in the US today. And so beyond the 32 million small businesses, there’s also this sort of massive market of individual businesses that aren’t spoken about as much. And so the great thing about Hopscotch, as I mentioned before, is that we are focused on this lowest rung of the ladder, which also includes freelancers, right? So freelancers. SMBs with 2-10 employees. And so overall they’re completely unbanked by these larger institutions and there is a great opportunity there to be dynamic in the market and democratize access to these services.
Jason Greenwood
And how have you guys benefited from you, you spoke directly to it there with these freelancers. We can consider creators in that bucket of freelancers, right? So we’ve got all these influencers. We’ve got all these Only Fans performers. We’ve got every kind of freelancer you can think of that is working either as individual or as part of a very small team in the creator space, as an umbrella term in the creator space. And so they oftentimes have been shunned by traditional banking institutions. They’ve been shunned by traditional payments institutions and payments technologies, and they’ve had to get very creative about how they take payments, about how they spend their money. They’ve had to get super creative about that, and they also don’t benefit from being able to show a solid track record of building credit on their own as well.
I guess two questions to you is, have you benefited from the explosion in the creator economy, and do you see that as a major engine for growth for you guys? And then also do you see yourself in a position to provide broader banking services to some of these unbanked or moving forward at some stage in your future? Do you see them- Do you see yourself being able to provide a broader suite of services to some of these smaller individual creators in the space?
Reed Switzer
That’s a great question. So to answer the first piece there, I will provide more context on what we mean by freelancers, right? So this is either gonna be like a freelance designer, freelance marketer, or freelance writer. We don’t necessarily consider creators, right? They’re not on Only Fans. Likely not creating YouTube videos, et cetera. There are a whole bunch of great startups out there that are serving that market specifically, and that’s great. There’s a massive boom, and it’s a much-needed boom.
Hopscotch, on the other hand, is gonna be focused on those creative folks that are doing, some folks call them the digital entrepreneurs or digital freelancers that are providing those other sorts of thought services. And so we’ve certainly seen a boom in terms of the attention around the freelance economy over the past couple of years.
Now, whether or not that’s directly tied to this notion of the creator economy, I wouldn’t be able to make that sort of determination one way or another, but something is definitely happening in the freelance economy. And it’s something that folks should definitely be paying attention to.
Now, to answer your second question about whether we envision ourselves providing banking services to these users that adopt Hopscotch, we actually like to stay away from that word. We call it the “B word” – banking or bank. And so we don’t wanna be viewed as a bank, right?
Hopscotch is a platform that sits in front of your bank or sits in front of your ERP platform, and you use us on a daily basis to manage your cash flow, manage your invoicing, manage your bill pay, etc. And the reason being is we know banking relationships aren’t right. As you scale your business, whether you’re a freelancer, a small business, you’ll wanna maintain that banking relationship. And we think there’s a lot of noise in the neo-bank space, both for consumers and small businesses, and we just feel that Hopscotch is not the right platform to play in that space. However, we do offer some similar services to banks, being able to tap into offerings like Hopscotch Flow, uh, but we stay away from the “B word” like I said, and, and we don’t envision ourselves as becoming a bank.
Jason Greenwood
Love it how you use the “B word” internally to refer to an industry that you’re trying to effectively front-run. An industry that, in many respects, is still very legacy, and you’re trying to overlay digital technology on top of a legacy industry. I see you guys doing similar things to what we’re trying to do in the e-commerce space.
You know, traditional mercantilism is getting a digital overlay with e-commerce nowadays. And so I see us as providing similar services to a market that has been what I consider underserved for a very, very long time. So it’s super exciting to see you guys shaking up the space.
Now as we start to come to the end of our time together, what is the best way for someone to find out about Hopscotch if they’re considering it for their business? Now I know you’re US-centric today. I’m guessing that in the future, obviously, you can extend your platform internationally. But certainly you feel that at the moment the American market is so big, and it’s so underserved, and you’re gonna keep yourself busy there for a while. But certainly if, if growth starts to slow in the United States, then the international markets will be beckoning. No doubt.
But if someone wants to get ahold of you today, and they are based in the United States, and they are seeing challenges as a small business, as a small independent business or independent freelancer, what’s the best way for somebody to get ahold of you? Now, your website, just for everybody who is wanting to find the website, it’s gohopscotch.com, and are they best to simply go to that website? Should they reach out to you on LinkedIn? You or Tom on LinkedIn? What’s the best, the best way if somebody wants to learn more about Hopscotch and possibly jump on board with you?
Reed Switzer
Head over to gohopscotch.com. You can learn about the product on the site. You can definitely create an account by clicking the signup button there. But we love chatting with folks too. We’ve had our business owners reach out to us on LinkedIn, both Tom and I, and the rest of the team, and we love setting up Zoom calls to learn more about their use cases and how Hopscotch may be helpful. So definitely gohopscotch.com. Feel free to shoot either me or Tom a note on LinkedIn. And then our email addresses are reed@gohopscotch.com, and Reed is spelled R-E-E-D, and then Tom@gohopscotch.com.
Thomas Rein
And to reiterate, we absolutely love talking to our users cuz we can’t build a product if we don’t know exactly what their needs are and the problems they’re facing.
Reed Switzer
A hundred percent.
Jason Greenwood
Couldn’t agree more, gentlemen. Now we’re at the place where now I turn the microphone over to you. I’ll let you ask me one question. Any question you like. So Reed and Tom from Hopscotch, what question do you have for me today?
Reed Switzer
Tom, do you wanna go first or?
Thomas Rein
So I thought that when we were jumping on with you, you would actually have a Kiwi accent and you didn’t, and you told us that you’ve been living in New Zealand for 25 years, but we never asked what actually it is, was the impetus to move to New Zealand in the first place?
Jason Greenwood
My grandfather- it’s a very good question. My grandfather was a Kiwi, and so we were able to get our citizenship via my parents. My sister and I were able to get citizenship via my parents, who got it via his dad, who was the Kiwi. And he moved. My grandfather moved to the United States during the Depression, and he moved over there too, his father had actually passed away, and he was left supporting his mother and I think it was five sisters. And so he went to the United States, uh, when he was very young to find work. And then he married my grandmother in the United States and had my father and his siblings. And so that we basically were coming back to our roots to a degree. We were looking for a new opportunity, a new challenge. And I grew up in Southern California, and I was already living on my own at this stage.
I was already flattening on my own. And uh, the parents said, “Look. We’re looking at moving to New Zealand. You’re more than welcome to come with us if you like. We’re looking for a new challenge, a new opportunity.” So that’s exactly what happened. I followed them to New Zealand and have been here ever since. My, uh, my sister married a Kiwi, so my brother-in-law’s a kiwi. I’ve just recently married a Kiwi. And so my wife is a Kiwi, so we definitely have some roots here. And so that’s how we came to be in New Zealand, and it was a very good move. It was, I’ve lived my whole career in digital down here in the NZ region and it’s, it’s helped to make my career. So, uh, it’s been a very interesting move. But we are moving to Mexico in February of 2023, so I’m looking to move back to North America, like going halfway back around the world again.
Thomas Rein
New Zealand’s a pretty awesome place to be for 25 years.
Jason Greenwood
Yeah, absolutely. We’ve had our challenges during Covid and everything else. I don’t wanna get too political into it, but, uh, but certainly looking forward to the next chapter after New Zealand now.
Reed Switzer
Cool. It’s gonna be a bit more focused on Hopscotch in the space that we play in, but you’ve had the opportunity to speak with some pretty awesome innovators on this podcast. So my question is, what are you most excited about in payments and in B2B payments specifically?
Jason Greenwood
Look, I think B2B full stop, B2B e-commerce in particular, which is an area I have a huge focus on in my consultancy. I think B2B is undergoing a revolution right now, end-to-end across all aspects of B2B. Covid showed a lot of B2B businesses that maybe they’ve relied historically on field sales reps and BDRs and BDMs, et cetera, to grow their business and, and Covid. When their people couldn’t be out seeing people face-to-face, their B2B customers face-to-face. Oftentimes these businesses didn’t do e-commerce at all, or they hadn’t touched their B2B e-commerce website for 10 years or anything like that. And so what we found is a tremendous number of B2B businesses realizing we are not figured to operate in the digital age. We’re just not ready. And so a lot of businesses, B2B businesses tried to get up to speed very quickly.
They implemented e-commerce platforms very quickly. They tried to do it on B2C-focused platforms, like Shopify in some instances. And in some instances, they struggled with that. And so to be in terms of underlying digital technology is leaping forward at a great rate of knots now. And I think you guys are contributing to that leap forward for B2B businesses. And I’d like to think I am helping businesses to understand how they can create a very B2C-like experience, but in e-commerce with all the B2B functionality layered on top. So the ability to, for B2B customers, to request quotes and have responses digitally. The ability to have their own in- unique individual price list and catalog access online. Their own unique ability to have their own credit, their own credit account available for them online, all these things that the B2B consumer, the B2B customer on the other end of this is expecting the experience to be as seamless as their B2C experiences, right?
When they shop on Amazon or they shop on their favorite website, they want their B2B customer experience to be just as seamless. But with all that additional B2B functionality layered on top, I feel like B2C e-commerce, in particular, is exceptionally mature, right? And so it’s been mature for over a decade.
And so a lot of the technologies and processes and customer experience and user experience – that’s very mature. Personalization is very mature. Searching, site search and merchant personalization is all exceptionally mature from a B2C e-commerce perspective. But it’s very, it’s lagging massively from a B2B e-commerce perspective. And it feels like B2C and consumer-to-consumer banking and FinTech, it’s pretty mature too.
Like it, it’s got a long way to go. But I guess when we look at all of the technology that has come to the consumer FinTech space over the last decade with Robinhood and everything else, right? That’s made FinTech totally accessible to the consumer market now with digital wallets and Apple Pay and Google Pay, and everything else. It’s very mature. But I agree with you, I think the B2B payments space is so painful. It is so legacy. It is going through a similar transition to become more modern and more digitally enabled just like B2B e-commerce is. So those are the parallels that I see in the space.
Reed Switzer
I love it. The last frontier.
Jason Greenwood
Absolutely. Absolutely. And we’re here to break it down, right? We’re here to break into those new frontiers and make it easy and seamless for everyone in the B2B space to do business faster, better, more efficiently, and, more importantly, more cost effectively. I think that’s the key for me.
Reed Switzer
Definitely. I’d love to come back on here in the next few years. And let’s talk about all of the things that Hopscotch has helped change for B2B payments.
Jason Greenwood
Look forward to it. Gentlemen, Reed, Tom, super appreciate your time together. Look forward to getting you on again soon.
Thomas Rein
Definitely. Thank you. Thanks so much, Jason.
