Dive into the world of fintech with our latest episode of the Count Me In podcast, where we discuss the transformative power of financial technology for businesses of all sizes. Join us as we chat with Joe Keeley, the CEO of Justify, a company dedicated to accelerating the fintech potential of software platforms. Discover how companies can leverage fintech tools to reduce costs, enhance revenue, and offer new services to their customers. From the giants like Amazon and Starbucks to small businesses, the opportunities are endless. Don't miss this insightful conversation that will change the way you think about the financial landscape.

Connect with Joe: https://www.linkedin.com/in/joekeeley/

Full Episode Transcript:
Adam:            Welcome to Count Me In. Today we have a special guest, Joe Keeley, CEO of JustiFi. Joining us to discuss the world of fintech and its impact on business. We'll explore what fintech really means?

 

How companies can harness its potential, and why it's important for businesses to understand the various tools available in the fintech toolbox. Joe will also share are some fascinating success stories and insights on how companies can thrive in this financial, technology-driven world. So let's get started and delve into this exciting world of fintech.

 

So, Joe, I want to thank you so much for coming on the podcast, today. We're really excited to have you on and we're going to be covering the topic of fintech, and that is a big buzzword in the industry right now. And I was hoping that we can maybe start with defining where you fit in the fintech world, and we'll continue on from there.

 

Joe:                 That's great, thanks for having me, Adam. And it is, I think, fintech is one of the biggest buzzwords that's out there. It's been said by leading venture capital firms that every company should be or will be a fintech company. So it's like, "Okay, well, that's a lot of pressure."

 

So first of all, I think, we need to step back and say, "What is that mean?" I mean, it's just an abbreviation, just flat-footed, first, it's financial technology, which can mean so many different things. But, for us, the company that I lead is called JustiFi and we exist to do just that. To accelerate the potential or the fintech potential of other software platforms. 

 

So in that context, it turns out that a lot of companies that are out there, one of their major, or their biggest, or only economic engine is not actually selling the product, or the service, or the access, then, that is there in plain sight. 

 

So, for example, software platforms, there are many software platforms that sell a SaaS fee, and they charge you to use it. But that is simply the Trojan horse to get funds flow. So they're making money on payments. They're making money by offering additional fintech products like embedded insurance, embedded lending, card issuing. 

 

So when you think about interchange that, deliberately, opaque monster that no one really seems to understand. You can make money and participate on interchange, by lowering your costs and keeping your price. And you can make money on interchange by participating at being high, too, by issuing cards. So there's just a lot in there. But, ultimately, what we do as a company is help platforms with their economic engine being fintech, and we provide infrastructure and a team to help them do that. 

 

But it's interesting for all companies, not just software companies, to think about and try to understand what are the different tools in the fintech toolbox, 

and how could they be applicable to your business, big or small? Whether that be through cost reduction, or an area that's typically not talked about by finance and accounting professionals is enhancing the revenue.

 

Adam:            Totally, and I think the other part of the problem that we run into, with every company being a fintech company is that, you and I were touching on this a little bit before we started recording, where does it live? Your IT team has to manage it and finance has to touch it, but nobody really owns it. And how can you really fully manage it if no one really owns the software, when it's within your company?

 

Joe:                 Yes, and that is a really big issue. And part of our JustiFi, we have what we call our tech infrastructure, but we also have an engaged fintech team. Where we have a dedicated chief payments officer. A chief fintech officer that's available to our clients because they sit in between finance and accounting, and product and engineering or IT at a particular company. But I would think one of the things that I would really encourage and if multiple people own something, to your point, Adam, then nobody owns it. 

 

But to finance and accounting professionals, to really take the ownership of how can we and challenging the status quo. Does this 3% need to be 3% when we collect or how could we think about differently on lowering cost? 

 

How could we think differently on what adjacent revenue streams could be available to us. Where you're enhancing the offerings to your customers? It may not be the core product but, ultimately, it's been said that on every dollar in commerce, there's up to 10% of that. So a thousand basis points that is available and leaks out, whether that's in fees-in fees-out, early pay discounts, all of these different things. 

 

So I would encourage from a strategic perspective, it's one that finance and accounting can own this. Implementation of how it's working is more product and engineering.

 

Adam:            Of course, an example that comes to mind is I just saw an article, a couple of days ago. Where Amazon is going to start accepting Venmo as a payment option. And if the big behemoth, Amazon, can start accepting Venmo as a payment. What possibilities are there for every company to accept different types of payments, and be more creative using technology?

 

 

Joe:                 That's right and, sometimes, you're accepting a type of payment like Venmo or a buy now, pay later, and it's actually a more expensive payment method. Those are more expensive payment methods, then credit card and debit card, and then bank transfers, and ACH, going all the way down. And you do that because you're trying to get more customers or you're trying to ease the customer journey, the customer experience. 

 

But in terms of every company being a fintech company, you want to make those choices with your eyes wide open. Because what if you could monetize or make money on that payment flow? And it takes certain kinds of architecture to do that. But just understanding the space, it's the first step. Why are we doing something? 

What is it actually going to cost?

 

And there's just an immense amount of opportunity that exists there. But basis points can matter at scale, they very much matter at scale.

 

Adam:            Yes, especially, when it's affecting your bottom line in the long run. Especially when there's a tight market, and inflation, and everything else happening.

 

Joe:                 That's right.

 

Adam:            So as we think about companies trying to be more advanced, and trying to be a fintech company, and trying to be creative. Do you have any examples of companies that have been successful? It doesn't have to be specifics, but are there any things, successful ways of becoming a fintech company? If you're just a regular, maybe, we could talk about some success stories that you've seen.

 

Joe:                 Yes, that's great. I mean, we have a number of them and we help a number of software platforms harness the power of fintech. And, in that instance, it's a little more straightforward because in software platforms, they have business customers. The platform has a business customer, and then the business customer has a customer themselves. And when you have three legs of the stool there's, then, opportunity to do probably one of the more best-known fintech monetization, which is payment arbitrage. 

 

Where you're charging 3%, at a platform level, to the customers, but your cost is actually 1.9%. And then you take that delta and you multiply it times funds flow. So then that number can, sometimes, get much, much bigger than the actual SaaS fee that someone might be charging. 

 

So examples of that are, Toast is one that many of us interact with on a weekly basis, whether we know it or not. So Toast is a vertical SaaS platform for the restaurant industry. They provide hardware, they provide software for restaurants. So if you go and order out for takeout or delivery, or you go into a restaurant and you swipe at their terminal, you'll see the little Toast logo. 

 

Well, Toast is just a fintech company, really. They provide software and hardware, but they're monetizing all the funds flow from all these restaurants. And then once you understand the funds flow, then you can start offering those restaurants short-term loans, maybe, to repair an oven. And why would you do that, from a customer standpoint, is because if you are embedded in their software. 

 

That is a much better user experience than that restaurant owner deciding, "I want to go walk down and talk to my local banker. And by the time I fill out that application, and do the KYC, and all the things that need to be done, I've already put the new oven on my credit card because it's an emergency. More or less, short-term capital needs. 

So there's all of these. Toast really started as a fintech company first, that was their intent all along. But if you look at a direct-to-consumer company, this example that's been fairly, widely, used is one we all or many of us interact with on, sometimes, our daily ritual and that's Starbucks. So you think about Starbucks. 

 

Starbucks launches their app, and if you notice when you are topping up your balance, the default is $20. Now you can go in and change it, but when you add $20 to their card, their app, now their average transaction size is much bigger than a $4 cup of coffee. So their effective rate on credit card processing goes down, and they clearly have ability to negotiate beyond, let's say, all of us at this point. 

 

But also Starbucks is now a bank. They're holding billions, and billions, and billions, of dollars on stored value cards in which they can use as working capital for no interest, while we wait captive to order the next Macchiato. So just really stopping and thinking about how is money flowing into your organization? 

 

How is money flowing within an organization? Maybe that applies, maybe it doesn't, depending on the size. And then how is money flowing out of the organization? So that's the first thing to think about as a fintech company. And are there opportunities to capture a couple of basis points? And you might say, "Oh, a couple of basis points, I don't have the time." And maybe you don't and maybe it doesn't apply. 

 

But, for us, we work with vertical software platforms. And a lot of times it's not uncommon that they can get to many hundreds of millions or billions of dollars of money flowing in and around their ecosystem. 

 

So thinking about how, and capturing 20 basis points on a couple of billion, all of a sudden, is material. The other thing that folks should think about is where, if they think about themselves as a platform. Whether they're, literally, a software platform like we work with at JustiFi or maybe they're a marketplace. How many dollars are flowing, not maybe through your P&L, but in and around your ecosystem. And could you bring those dollars in in any way, shape, or form? Could you offer that? 

 

So that's really what software platforms are doing. On the Toast example, they're providing lending, probably, either off their own balance sheet, or a credit facility, or, probably, initially, through partners, and they're participating in that transaction. But what they did is, "Our restaurants are having short-term capital needs, and it's not happening within our software. Wouldn't it be great if we brought that in and then we're going to participate in that? " 

 

So that is the thing that we do with our clients. We help them build what we call a strategic fintech map, which is, "Where are all the opportunities?" And then you stack rank and you go on that journey. 

 

But finance thinking about dollars in, dollars within, and dollars out in the whole ecosystem, and is there a way that we could reduce cost?  Or oftentimes, even more exciting is impact revenue by harnessing some of these fintech tools. And it doesn't mean, in fact, you should not go out and think, "Okay, we have to go build a bunch of infrastructure." We have a sub account architecture and the software that we provide for platforms.

I mean, gone are the days if your product and engineering, or IT team says, "well, jeez, we're going to have to build all this stuff." That makes about as much sense as saying you need to have a server farm, now, instead of using AWS or something.

 

Adam:            Yes, that makes a lot of sense. And even as you were talking, it made me think about the small to medium-sized businesses. Not everybody is a Starbucks and can handle that kind of a thing. But the way the technology is going, any small and medium-sized business can access this technology. 

 

Whether it's working directly with you or they're working with an organization like Toast. Where they can get access to these payment methods, to make these things more accessible to their customers, and give the ability to have those types of payments. And the ability to have this type of technology, even if they don't have a big IT team or finance team.

 

Yes, and, I think, if their business allows it, if you're able to monetize the power and harness the power of some of these different fintech tools. The value creation that it can have in your company in terms of valuation and how investors or acquirers look at the company, can have an impact of 10X, literally, 10X.

 

So when we work with software platforms that maybe make 65 or $100 a month in SaaS fees to their customers to use it. So, maybe, it's a barbershop platform, a software that helps barbershops run. If they charge a barbershop $100 a month, they'll get good SaaS multiples on that revenue for the valuation. But if, all of a sudden, "Well, we make money on payments and we sell insurance to the barbershops, and we provide capital to the barbershops, and we do spend management." Now, all of a sudden, you're in a completely different valuation category.

 

Adam:            So what effect does that have on the business? Does it give them exponential ability to grow from that point on?

 

Joe:                 Oh, it increases the lifetime value of the customer, probably, five X.

 

Adam:            That's huge.

 

Joe:                 Because if you think about it, if someone is charging $100 a month, so we have a $1,200 customer there for the software. But, now, if they process, let's say, a couple of million dollars a year, and you're making 70 to 100 basis points off of that. And now you're getting 20 basis points off of a lending product, or if you're getting, ultimately, 200 basis points as you go on your fintech journey of monetization, by bringing partners in and doing different things. 

 

Now, you could double, or triple, or quadruple that $1,200. So now that customer lifetime value is two to five X bigger than it was just selling software fees. And not only that, we know from our experience that they're remarkably more sticky. Meaning the churn that you experience is lower and, oftentimes, what software platforms that we work with, at JustiFi, 

they have negative churn. Meaning their existing customers are growing beyond that because their payment volume is growing.

 

Adam:            Mh-hmm, so based on our conversation, it completely makes sense if you're not already doing something and, probably, pretty much everybody is. But let's say somebody's just getting into this space and trying to integrate different fintech into their business. Are there any red flags that they should be on the lookout for, since this is an ever-growing, ever-changing thing, with companies popping up all the time?

 

Joe:                 Yes, I mean, I think that a couple of things that I would have folks think about, is if you are bringing folks, partners, into your ecosystem, you should be participating in the monetization, number one. 

 

If you are finding yourself talking about or actually building core infrastructure, you should stop and ask, "Is this something that we need to build?" And, three, in order to participate in this, it used to be that you had to go through just immense pain and exposure to liability, to be a payment facilitator or to lend off your own balance sheet. You no longer need to do that, you should not do that. 

 

So don't take on the burden of being in the payments business, being in the lending business. There are businesses that are doing that, but you can partner with them and participate in it and you are a better-together scenario. Because the cost to build, maintain, to be in this business, of course, with financial regulations, et cetera, is ever increasing. 

 

So I'm not saying that everyone should go out and say, "Now we are a fintech company." JustiFi is a fintech company. We help others harness the power of fintech within their platforms. That doesn't, necessarily, make them a fintech company. And, so there's a slight nuance there. Instead of the way the quote was from, I think it was Andreessen VC firm, "Where every company is a fintech company." Well, I think, I would modify that, ever so slightly, that every company could or should harness the power of fintech and fintech tools within their company.

 

Adam:            And that makes a lot of sense because, right before you said that, I was going to ask you that question. So how can every company [00:18:59] be fintech company in that case? But you answered that, where everybody can harness, has the potential to harness that power. And when you do harness that power, you've already given examples of how they can grow, exponentially, from that. 

 

So as we look at the future, markets are all over the place. There is inflation in the U.S. and globally. What do you think the future of fintech is going to look like as things are changing, as we go forward?

 

Joe:                 Well, I think it is going to continue to accelerate. There's all kinds of buzz out there, as it relates to the challenging of interchange, the crypto blockchain, et cetera, and all of that will happen. But that's really the leading bleeding edge right now. I think that there'll continue to be alternative payment methods. There is a great addiction to our credit card points in the U.S. 

So I don't see that going away anytime soon. Even if it reduces 10%, which would be a massive number, it's still just a massive space. So I think that companies are going to need to really think about and meet customers where they are. How do they want to pay?

 

When do they want to pay and with what method? And, I think, just challenging the status quo, the way that things have always been. Having that fintech mindset is what I would encourage folks to think about. Look through that lens and say, "Does this need to cost what it has always cost, and why?"

 

"Is there a revenue stream that we can participate in?" And, sometimes, the answer might be no, depending on the business. But it's amazing that the power and the value that can be increased, with just a different point of view. Sometimes the economic engine that exists or could exist inside of a business, is not what the business is actually in. Because when you think about the size of all fintech. Which includes payments, which is one of the largest industries in the entire world, and insurance, and lending, it's pretty amazing how big it is.

 

Adam:            It is pretty amazing, and as I circle back to the finance and accounting team. Just thinking about that team, the look of that team is constantly changing with the advances of technology. Do you think that like an accounts payable person, their set of skills is going to have to change? What is that set of skills going to look like in the future? Because in the past, it was just like receiving payments and sending them out. But that set of skills and that knowledge is going to have to change, as the technology changes.

 

Joe:                 Yes, and there are some great technologies that are out there to help accounts payable be more efficient. And a lot of times those tools will be available for low or no cost. And that might be great, and maybe that's just embracing new technology, and new companies that are out there. 

 

But if you have the fintech mindset, you're able to look at that and say, "How come I'm going to use this platform and they're going to handle all my accounts payables. How do they make money?" Is the question one should ask. 

 

Well, they might be aggregating all these accounts payable going to vendors, and getting the early pay 5% discount. Now, all of a sudden, that's 500 basis points that they've captured and they may be paying those payables on a card, a virtual card, a credit card that they spun up, and are participating in a portion of the interchange for another 80 basis points. 

 

So having that mindset, because basis points matter. They matter at scale, they matter over years and years. So having that mindset around, and identifying, certainly, for some businesses, I mean, it's very clear the playbook for vertical SaaS platforms and marketplaces, that's who we work with to help them. 

 

It may not be as clear for the neighborhood coffee shop, let's say. I'm saying "Well, I'm not Starbucks and I'm not a vertical SaaS platform." But they do use a lot of software and platforms. So just having that mindset, and looking at the world and understanding how is the money flowing and who is making money on this money flowing, I think, is a great place to start.

 

Announcer:    This has been Count Me In, IMA's podcast, providing you with the latest perspectives of, uh, thought leaders from the accounting and finance profession. 

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