Episode 11: TapGoods | What CEOs Need to Know About Payments
Today, our guest is Doug Levy, the CEO of TapGoods, an industry-leading SaaS company in the rental space. We discuss everything from why CEO’s should care about payments to mind-blowing macro trend on how people are using hardware or hard goods to what’s next in embedded finance.
Read the full transcript below.
Episode 11: TapGoods | What CEOs Need to Know About Payments
Todd Ablowitz (00:09):
Welcome to It Pays to Know, the Infinicept podcast where we dive deeply into unexplored areas of payments, embedded finance, and more. My name is Todd Ablowitz. I’m co-founder and co-CEO of Infinicept, and today my guest is Doug Levy. Doug is the CEO of TapGoods, a super impressive company in the rental space. Today, we discussed everything from a mind-blowing macro trend on how people are using hardware or hard goods to what’s next in embedded finance.
(00:37):
Along the way, we’ll touch on topics like why CEOs should learn payments and the intentional complexities in embedded payments. Without further ado, I’m super excited about this one, so I hope you enjoy our conversation as much as we did. Doug, it’s great to be here with you again. How is your day going?
Doug Levy (00:56):
Going great. Good to be with you, Todd.
Todd Ablowitz (00:58):
Awesome. Awesome. Well, I want to start out and really dive in. Let’s get a little background. Tell us about yourself and about TapGoods.
Doug Levy (01:05):
You bet. I spent most of my career in digital marketing, ran an agency and grew that, and then sold the business, and around that time needed to rent something. I realized how absolutely painful it was to rent things. Rental of inventory, we’re talking about AV, tool and equipment, party and event, sanitation, recreation, all these categories where you have warehouses with stuff that gets rented, that’s a big industry. It’s about a trillion-dollar industry, but it’s run on old software. From a customer perspective, it really feels like that.
Todd Ablowitz (01:39):
A trillion-dollar industry? I had no idea.
Doug Levy (01:42):
Yeah, it’s a big space. Absolutely, yeah, all those different categories. I think it’s a space that actually has a lot of potential to grow. People want access to things more than ownership of things, but there’s so much friction in the rental process. There’s certainly a lot of friction for the renter, and it’s like that exponentially for a rental business that’s managing that inventory on the backend. It’s an industry that really needs specialized software.
(02:08):
If you think about some of the intricacies of not just inventory going out like it would in a manufacturer or a retailer, but inventory going out and coming back, so needing to be scheduled, and then charging for that inventory based on time. You end up with a lot of peculiarities that are associated with this industry such that the industry really isn’t and can’t use modern ERP and e-commerce functionality. Hence, the need for specialized software. The specialized software exists. It’s just largely software that was developed decades ago pre-internet and that’s powering the industry today.
Todd Ablowitz (02:44):
This is a bit off schedule, but is this trend kind of like the trend of what we’re seeing with automobile manufacturers rethinking business models and thinking about self-driving, maybe not being so much a buy a product one time business, but more in the annuity? I mean, what do you call it? It’s not software as a service. Is it hardware as a service? Is it everything as a service
Doug Levy (03:10):
Having access to things when you need them and paying for that versus owning things and having them sit unused. The typical car, to build on your example of the changes in the automotive industry, the typical car is used 4% of the time, and I think automakers are seeing the waste in that and how do we get more usage out of that inventory, whereas there are plenty of things in our lives that are used a lot less than 4% of the time.
(03:36):
That’s precisely what we’re working to do is address that opportunity, the call it inefficiency today of things that don’t get used very much and how do we make it easier for people to rent, and as part of that, make it easier for rental companies to operate and rent things out.
Todd Ablowitz (03:51):
Wow. As long as I’ve known you, I had no idea what a vast opportunity it is. You see, it’s like Airbnb, it’s Uber, it’s so many cool things. That’s very, very interesting. You can’t do any of it without a payment. Let’s talk a little bit about your payments journey
Doug Levy (04:07):
Yeah, absolutely. I think probably like a lot of SaaS entrepreneurs or CEOs, my first focus was on this particular industry, in our case, rental businesses and renters. But it wasn’t long after that that we realized the dollars were flowing through and we got input from others, “Hey, you need to make sure to monetize that.” We did what a lot of companies do, and that was start with Stripe.
(04:31):
It’s very easy. They’re great APIs. But through dialogue with Stripe and then really a lot of research and learning and understanding and some dumb luck was able to figure out that through Stripe we wouldn’t get the optimal results. That payments were an incredibly important part of the business and something that we needed to invest time and energy in to fully understand to be able to optimize.
Todd Ablowitz (04:58):
Interesting. Because when we were talking and getting ready for this, we started to talk a little bit about the different decision makers in businesses. As you’re talking, I think most of the people that listen to this are fellow CEOs or certainly C-levels in software companies. What would you say to fellow CEOs when they’re thinking about that payments journey, that payments evaluation?
Doug Levy (05:19):
Payments are critical to the success of any SaaS company. It’s what can make the difference between winners and losers. SaaS CEOs need to have payments expertise. It’s worth learning and understanding. One way to think about it is just considering what percent of your net revenue today as a C-suite executive of a SaaS company, what percent of your net revenue is coming from payments?
(05:43):
For us right now it’s about 30%. Some are north of 50%. Given the magnitude of the revenue impact, you can see how this is make or break. It’s what differentiates the winners and losers. A CEO needs to understand an area that’s this critical to their revenue and therefore needs to be as critical to their strategy.
Todd Ablowitz (06:04):
That’s kind of self-evident, and yet I want to just double click one time on that. Because if there are good APIs out there, what’s the difference between letting your CTO, which many software companies will go CTO side of things or developer side of things, why make decisions from the CEO office instead of delegating to one of the C-levels?
Doug Levy (06:27):
I mean, certainly you can have others on the team that are involved and understand, and I think that’s wise. But because of the criticality of this, when it’s something that does or could represent half your revenue, it deserves some time and attention. I understand why it often doesn’t because it’s not where people started. Most SaaS CEOs started their companies thinking about the industry that they’re serving or the key business problem that they’re solving.
(06:54):
They didn’t think about payments. It gets relegated to the side, but the reality is it’s critical. You could look at it as a critical opportunity, but also one where if you don’t get it, your competitors certainly are. If they can generate 2X the revenue because they’re thinking about payments well, then it’s a potential risk. I think because it didn’t start out as the core thing that the founder or CEO is paying attention to, it gets relegated when it shouldn’t. It’s something that CEOs need to understand.
Todd Ablowitz (07:25):
Okay, what I’m unpacking from this is if you delegate it solely to a CTO, you might get a beautiful technical solution and not make enough money. If you delegate it to the CFO, you might get an inexpensive solution, but not be able to maximize your opportunity. If the CEO really understands it, youcan get the nexus between the right technical solution and the right economic solution and something that grows the revenue to that 50% plus clip where you’re aiming to get.
Doug Levy (07:52):
Absolutely. Absolutely. I mean, to build on that a little bit more, Todd, I think that Stripe and potentially others like it do such a great job of reaching technical decision makers. They’ve got a great API, a great set of APIs, and a great product offering. It has a lot of benefits, honestly, and it could be a really good starting point, but it’s hard to really make money when on Stripe
(08:16):
If you’re just leaving it to a technical decision maker, that’s exactly the route that you might go down. There does need to be that balance of thinking about the ease of implementation and the financial benefits near term and long term. Those are the kinds of ways of thinking that a great CEO can incorporate. They can understand various perspectives and bring them into balance.
Todd Ablowitz (08:39):
That’s very cool. We’ve been through this for a minute. Tell me how you see some of the problems in the payment space. What do you see wrong in payments when you look out there?
Doug Levy (08:52):
It’s complex, but that complexity is somewhat intentional. This may be a little cynical, but I believe that the payment system is built to confuse. It’s certainly confusing to merchants and they end up paying more than they need to, and it’s confusing to software companies and they also end up paying more than they need to.
(09:11):
Really breaking it down and understanding it is a critical element then of getting the best possible solution and maximizing profitability. I’d say that those that can sift past the complexity and understand how it really works can add more value for their customers and capture more margin.
Todd Ablowitz (09:30):
It reminds me of the mortgage game. They make margin in complexity, and I’ve seen it for 27 years in payments. I’m still a student of things like interchange and how this whole complex system works. We also started something last year called the Embedded Payments Bill of Rights.
(09:50):
When I think about you talking about the confusion or the complexity, and especially with it being intentional, we’re really talking a lot about how do we get transparency and openness and clarity in this system. I hope we can work together and keep doing that. That I think is just so important. I agree with you wholeheartedly. There’s so much confusion, and certainly in some corners it’s intentional.
Doug Levy (10:16):
Yeah.
Todd Ablowitz (10:18):
As you have launched your payments program, what are the things that are starting to stand out for your program with TapGoods and where are you looking to take it?
Doug Levy (10:29):
We started where we started, again, as most companies do. From there, it was really learning more about how this process works, and then I’d say a pretty significant mindset shift. Here’s the mindset that we ended up with that I think is so critical- that our customers are our customers. I think a lot of payments partners want to take that customer relationship and be the ones in charge of it as it relates to monetizing payments. But when we shifted our thinking to no, these are indeed our customers, and then we bring in partners to outsource components of it
(11:05):
We don’t do it solo. This is the case with a lot of elements of our business. We bring in partners to handle components, but we’re not handing over the relationship to any other partners. We would never hand over the relationship or should never hand over the relationship related to payments. It’s our relationship. It’s our customers. Back to we need partners and we want partners. My input to other Csuite executives that are learning about payments is own your customers. Other people will try and take them.
(11:36):
Payments companies will try to take your customers and give you pocket change. Don’t accept that. These are your customers. Own them. And then think about each elements of the payments process with that build versus buy mentality and decision-making approach that you use for other elements of you business. I’d say too, Stripe makes it easy to integrate payments, like we talked about before, but they’re the top of the list and resting control of the customer away from SaaS companies and giving them almost nothing.
(12:06):
Don’t fall for that. In fact, they’ll give you just a little bit more if you ask, but you’re never going to be able to make a significant profit center without investing more time and attention and learning and picking a partner that’s maybe not the first one that you consider.
Todd Ablowitz (12:24):
We always look at it, software companies are these beautiful creatures. They create this innovation. They figure out how to get it to move forward, especially SaaS, getting it to move forward on the daily, and then getting a distribution and generally a high net revenue retention and a growing business over time. It boggles my mind why software companies don’t all want to own their payments. I agree with you thoroughly. I wonder, when you think of this ownership, how has that translated for you into a better customer experience?
Doug Levy (12:59):
Well, when we think about payments as it applies to our customers, we can then think about how do we connect it seamlessly to the rest of what we do and how do we provide functionality that’s specifically needed by our customers? On that first element with our system, rental businesses are using our core platform, TapGoods PRO, to manage all aspects of their business, including customers and inventory and scheduling and also assembling orders.
(13:29):
It’s a natural part of the order process for them to create a proposal, a draft invoice, send it out, have that be accepted by the customer, have the customer sign an agreement and pay. And that whole workflow just happens directly within the platform, including the customer receiving an agreement to sign and paying a deposit or issuing a final payment. Everything’s just incorporated into the software and so it’s very easy for the customer to manage the payments within the platform.
(14:01):
And then in terms of developing functionality that’s specific to the customers that you’re serving, I’ll just give a couple of examples for our customer, though it’s clearly very different depending on the industry in rentals. In event rentals, it’s very common that there’s a deposit that’s paid at the time an order is placed and inventory secured, and then a final payment made at the time that the order is delivered. Well, without a smart payment system that’s designed for this specific use case, you have businesses chasing checks.
(14:36):
It’s painful for both sides, both the payer and the recipient of those payments. What we’ve done with our payment system is just integrate that methodology where you collect the deposit and then a customer receives notification a few days before the final payment is due, and then that payment automatically happens. They’re communicated with throughout the process without either the rental business or the renter having to think about it.
(14:59):
For larger inventory that’s out for longer durations, like an AV or tool and equipment, that inventory can be charged periodically, every seven days or every 28 days is common in tool and construction, and that all happens in an automated way. It’s that combination of things where we’ve integrated payments into the cycle of how our software works and operates and developing specific payments functionality within the system as well.
Todd Ablowitz (15:30):
Most people hear about this and they think, okay, you did what Square did or what Shopify did or Toast and built a payment facilitator or what they call a PayFac, but you didn’t do it that way. How’d you do it?
Doug Levy (15:46):
When you think about the elements of what you want to do versus what you want to partner and have somebody else do, one of the elements associated with that is the degree to which you want to take risk and the degree to which you want to invest in building capabilities to become a full PayFac. I think for a lot of companies, like ours, it didn’t make sense to become a full PayFac at this point in our cycle. It might later.
(16:13):
But what we’ve decided to do now is really go call it several steps beyond Stripe in terms of the energy and effort that we’re putting into the process, but pick a partner that would manage the underwriting for us and accept that chargeback risk and enable us to get to work much faster than if we were starting and developing our own PayFac credentials right now. The PayFac as a service model that Infinicept offers called LaunchPay was a perfect fit for us, and over time we’ll continue to grow with that, and at some point, with Infinicept’s help I’m sure, may become a PayFac.
Todd Ablowitz (16:53):
Well, that’s really something important to us is that every software company should have that choice to go through their journey at the right time. You said it very well, the reason we launched it. How are the results looking so far? What’s happening or how is it affecting your business?
Doug Levy (17:09):
I mean, one way to think about payments in general is to what degree is it adding revenue and is it valuable for your customers? I think we have about 99% of our customers using our payments infrastructure, so almost all. And then we’re earning about 20% of our revenue today from payments. That’s pretty significant. I think over time we’ll continue to grow that 20% and having the right partners in play is a key element of that.
Todd Ablowitz (17:39):
Moving on for a second, you just talked about how 99% of your customers are using payments. I think a lot about go-to-market. Let’s talk about go-to-market, how payments affects software go-to-market, the different things, the pricing and positioning and distribution or placement, all the Ps. How do you think about your payments offering and distributing that to the rental industry?
Doug Levy (18:02):
I mean, what I’ve found is that whenever there’s friction, there’s benefit in reducing that friction. To whatever degree payments are separate from a core SaaS infrastructure like an ERP or point of sale system, then it just creates friction. To whatever degree they’re integrated and where the information about dollars flowing back and forth happens alongside the actual payment, it just reduces the friction.
(18:30):
We think a lot in terms of how do we see and understand where there’s friction in a process and reducing it. Bringing payments is just a seamless part of our flow, helps reduce the friction. It’s part of why we have so much adoption.
Todd Ablowitz (18:43):
That’s a great tee up. What’s next?
Doug Levy (18:46):
Yeah, yeah, yeah. What’s next is continuing to build our expertise. I mentioned you could think about what percentage of your revenue comes from payments, and that’s a great way to consider the degree to which you understand and have established mastery. Another is thinking about all the money that’s flowing through your system and how many basis points you’re keeping.
(19:10):
I’d say that by and large, beginners, and I’d say maybe beginners are capturing zero, but then as you build some volume and you’re working with Stripe or other players like that, you might get to 20, 25, 30 bips, basis points, that you’re keeping. As you mature, you might be able to get that to a hundred bips. That’s about where we are right now. The pros are thinking about a variety of financial service products to integrate and adding value to their merchants in unique ways and pricing smartly and making 200 bips or more.
(19:44):
One way you could think about where you are on that journey is how many basis points are you keeping that flow through your platform? 30 if you’re a beginner, 100 if you’re intermediate, 200 or more if you’re really a pro. More in that middle segment right now, working to become more of a pro. The way that we’re considering that, the way we’re thinking about it is just looking for friction. Where are merchants, our customers, experiencing friction? Where are they disappointed, or where are they having to put more energy and manual effort in?
(20:14):
And how can we help them to automate processes, make things smoother and easier, decrease their risk, get their money faster and win? I think in doing that, we’ll be able to continue to elevate the degree to which payments is a core element of what we offer our customers and how we generate revenue and profit.
Todd Ablowitz (20:36):
Let me just make sure I repeat this back, so I want to make sure I heard you right. You’re getting 100 basis points and you’re not a PayFac and you’re not taking any risk.
Doug Levy (20:46):
You got it right. Yes, that is correct.
Todd Ablowitz (20:49):
That’s pretty cool. You mentioned what’s coming next. You hinted on financial services and other things. Can you give a preview of some of the kinds of things you’re starting to think about or investigate?
Doug Levy (21:01):
Yeah, absolutely. I mean, one is lending, right, and just how to incorporate lending into the process, be it buy now, pay later, be it more business loans, or something that’s more akin to factoring. How do we add value for our customers and their customers through lending offerings that we provide? Insurance is another area to consider as well. Those are the kinds of things that we’re thinking about and how to best incorporate them. ACH is also a big positive.
(21:29):
One area that we’re seeing a lot of opportunity is that in our industry, in rentals… a lot of business is still conducted via check. Just migrating check over to an electronic channel has benefit for everybody. Our customers don’t want to wait for a check in the mail or go drive and pick up a check. That’s not beneficial for them. It’s worth a little bit of a fee to be able to control the flow of money and get their payments much more quickly.
Todd Ablowitz (21:58):
Well, we still see that around the world, something like half of payments are still on paper. I’m bullish on this industry, electronic payments. I think our kids will have full careers in them if they want to. TapGoods is a great example of a company driving it forward. What a great conversation, Doug.
Doug Levy (22:17):
Awesome. Enjoyed it, Todd.
Todd Ablowitz (22:19):
Yeah, it was fun. Thank you so much to Doug Levy for joining us today. What a show. This one might be my all time favorite. The trillion dollar rental industry is really cool. And as we said, nothing happens without payments. As always, many thanks to our awesome listeners for tuning into the It Pays to Know podcast once again. To hear more from us, go to infinicept.com where you’ll also be able to learn more about our PayOps platform and how we get payments going your way.
(22:47):
We especially want to highlight our newest product LaunchPay, which helps software companies get the PayFac experience with all the transparency and openness of becoming a full PayFac, but without the expensive lift. As a founding member of the Embedded Payments Bill of Rights, we’re 100% committed to doing payments right. For Infinicept, this is Todd Ablowitz. Thanks again for tuning in, and we’ll pay you another visit next time.