SHOW 106 – UNICORN INTERVIEWS – ARIK SHTILMAN – RAPYD
Show Notes:
Arik began by explaining that Rapyd is a Fintech as a service platform. He said that they’re not a typical payments company but are a company that provides infrastructure for Fintechs to build on top of, with a variety of financial applications, that might include payment collection..
Rapyd has four product lines from their cloud platform;
- Rapyd Collect – the ability to collect payments in more than 1000 different payment methods.
- Rapyd Disburse – the ability to disburse money in any way that somebody might want to get paid, not only bank transfers, but also cash.
- Rapyd Wallet – Arik referred to this as their ‘secret sauce’. It’s a type of white-label version of PayPal, allowing other companies to issue wallets for consumers or businesses.
- Rapyd Issuing – card issuing for Visa and MasterCard on top of their wallet.
Arik added that this platform took an approach that is similar to Amazon’s AWS services, which is simply different services that are exposed as an API, completely global, across more than 100 countries. Rapyd allows other companies to come on top of them and build applications and provide better financial services to their consumers.
ITNavigator and learning from mistakes
The company that Arik founded and then sold in 2013 was ITNavigator, a cloud computing company, he said that it was actually a bootstrap start-up that started in 2003. So, in 2003, Arik started this company together with three other co-founders, built completely from scratch with no external money, no other backers or investors, and sold it after 10 years, to a buyout from Santa Clara. After selling this company, Arik said that they were sure that they want to set up another company because they wanted to take all the mistakes made in the previous company and fix them, do something differently – what he called ‘the right way’. He continued by saying that when you have a first time and do something new, you learn so many things in the process and you make so many mistakes, but these are such valuable mistakes. So, when he started Rapyd, he knew that it was best not to make the same mistakes, he was going to build a very big and significant company. Arik said that their goal was to become a multibillion-dollar company and he thinks that they are on the right path to achieve it. And actually, following the last financing round, they have crossed the billion-dollar mark. But the long-term vision is a much bigger company.
Arik agreed that recognizing your own mistakes is a big strength, and he added that often the first thing he asks in job interviews is what mistakes have you made in the past and how will you not continue to make them. He said that it’s very easy to hire people that were always successful, they’ve been amazing here and amazing there, but he wants people that have already made mistakes. So that when they come and work with him, they know exactly what type of turn they need to take when they get to the crossroad. He said that people tend to hide their mistakes, but mistakes are super valuable and actually a good company is a company that knows how to quickly fix mistakes. Everybody makes them, but to be able to fix it very quickly is what is valuable.
Arik highlighted two big mistakes he said that they had made in the past;
- Not taking any external funding. He said that they built the bootstrap start-up company and owned 100 percent of it, but the reality is, as Arik put it, even a kid knows that one hundred percent of one hundred million and 50 percent of a billion is not the same. He added that if you don’t take external money, and VC money, it’s very complicated to scale a company to a very large size. They were not mature enough to understand that sometimes investors might be a good thing; the right match of investor and the right money.
- Not hiring people that are smarter than you. Arik explained that this is another typical mistake that you do, because you’re trying to hire people that just do what you say. However, later on, you understand that sometimes you make mistakes as there was nobody confronting or telling you, you’re wrong here you’re wrong there, let’s do it differently.
These were things that were clear to Arik to do differently with his next company.
Lockdown in Israel
When asked about the current situation involving lockdown in Israel, Arik said that where he was, the beaches are open, the restaurants are open, the coffee shops are open, and kids are back to school. He said that the situation in Israel is extremely good, explaining that it has been dramatically better than most of the world.
Pivoting Rapyd to Fintech as a service platform
Arik said that the original thing that they wanted to achieve after they sold ITNavigator, was to be like everybody else in 2015, wanting to be like Uber. He said that it was the thing to do and going into a consumer-facing thing was something that was very appealing, especially, from an ego perspective. However, Arik said that this was a huge mistake because they didn’t understand anything about consumer-facing applications, but they understood, extremely well, businesses. They decided to go and build a consumer-facing wallet, even though they had no background in financial services and no background in consumer. He said that it was a very bad combination of things to try and build a company with. They started their consumer facing wallet, they started to research, to build the tech, to make the business relationship with it relevant and suddenly, after seven months into this process and investing several millions of dollars of their own pocket, they understood that, in payments there are no platforms. Arik continued, every single company that wants to start something that is fintech-related has to build everything from scratch; you build your own wallet ledger, you build the KYC integration, you need to get regulated and you need to get a license in every country that you operate in. You need to have a card acquirer, a bank account, bank accounts capabilities, sanctions screening, AML compliance. He explained that whilst it was a good idea, they found that 90 percent of their time, effort and money was being spent doing things that are not related to the core idea, just building infrastructure. Only 10 percent of the time and money was left to the core of the idea. Arik said they believed that it can’t be true that there are no platforms, they looked at AWS [and others], and said, okay there has to be a platform, but there were no platforms at all. They decided that then was the time to pivot, because if there were no platforms, they needed to build the platform. They pivoted because they understood that they could build infrastructure, giving other companies the ability to build in one month what it could have taken them two or three years to build.
Arik believes that it’s important to understand the world of payments outside of the UK, the US and Israel, it’s not really card orientated. He said that if you look at the ways that people pay, even in Europe; in the Netherlands, for example, you have people paying with bank transfers, in Germany, you have SOFORT, in Latin America it’s a lot of cash, Asia-Pacific it’s a lot of wallets, in India it’s UPI, which is a real-time payment network that was invented by the government. So, the world is evolving and what is happening, is that basically, the brands are trying to become the payment methods, for example, Apple Pay, Google Pay, Amazon Pay, and therefore the card schemes and the banks become irrelevant. They become infrastructure players. And that leads into a world of very large variety of payment methods. He explained that today in the world there are almost two thousand different ways to pay and Rapyd supports, more than 1086 different ways to pay. The reality is that people are actually using all these different payment methods and he thinks that over time it’s only going to continue and evolve because of the fact that almost everybody wants to become a payment method or a wallet one way or another. It’s not going to stop. He added that people are less likely to have plastic and therefore, companies such as Visa or MasterCard, will need to switch to infrastructure, maybe something that is an SDK that can run on a mobile phone and they only provide the infrastructure behind the scenes. He said that the world is going into mobile payments, which is brand-controlled payment methods.
Rapyd launches as full-stack company in UK
Arik said that Rapyd defined a set of 20 countries that they call ‘strategic countries’, that they want to have full-stack capabilities of Rapyd’s four products (highlighted above), which means that in UK, for example, they want to be able to support card acquiring, cash collection at cash points, bank transfers, BACS with fast payments as bank transfers and being able to push money to cards, etc. and to issue cards or Visa and MasterCard. So, when somebody in the UK. actually wants to build something, they have everything at Rapyd and there is no reason why they need to go to a different provider in order to build something in the UK. Arik said that this is super exciting because they are becoming the truly single API and the single provider for other Fintechs to build on top of.
Journey to becoming a Unicorn
In 2019, Rapyd had a number of funding rounds – $40m Series B, $100m Series C, and then in December a further $20m, which, according to Techcrunch at the time, valued the business at $1.2bn
Arik said that from day one when they started this company, they didn’t treat it as a start-up company or as a company that is small that might become big. He said that they always knew that it’s going to be a big company because they knew what they’re doing because of past experience. He believes that one of the reasons why at the beginning when they were fundraising their seed round, a lot of investors were afraid of investing in Rapyd because they thought that they are not focused because they’re trying to build something that is way too big and they need to start smaller. However, Arik explained that they didn’t agree with this approach, which was a very good decision from their end, because at the end of the day, it is what allowed them to scale. He thinks that valuations, at this stage of the company, are more important to the press and to recruitment of employees. But, he added that they are less effective to the day to day operations because if you’re a 500 million company or two-billion-dollar company, from Arik’s perspective, it’s very nice, but it’s paper money, it’s not real money, it’s not liquidated and it’s not a publicly-traded company. He said that there is some element of pressure because the investors that are putting money into a unicorn or into a multi-billion dollar company, are expecting you to continue and go in the same pace that you grew up until now, which causes some pressure, but Arik explained that the reality is that before they did this [latest] round, they looked at the valuation and though maybe it was too high, or even too low, especially because they knew that in the future they might need another round. They did an analysis to understand if the round that they were doing now might have negative impacts on them raising money in the future if needed. He said that though the analysis, it was clear that one point two billion is legitimate because they have the ability to continue growing at the same pace over the next two, three years, which will lead them, to another 2.5, three billion valuation, which is the type of expectation that the market will have for a company like Rapyd.
Arik explained that the philosophy at Rapyd comes from two things. First of all, the global play that they have. A lot of companies are very strong in a specific country or specific region, but Rapyd are not trying to sell their capabilities as A-Pac specialist or LATAM specialist or UK specialist, for example. They are a global company, with offices in Singapore, UK, US, Israel, Sao Paulo in Brazil, in Mexico City, in Taipei, Taiwan. They give you global coverage. He went to on to explain that it’s not that they are connected with somebody that is connected to somebody, a chain of companies that somehow lead you all the way to the consumer. Arik said that they are there, they are local. Rapyd understands the local markets and provide you the local experience. This is one very big differentiator. Secondly, the fact that they are not only a card acquirer, is also a very big difference. He said that being a card acquirer is very nice, but today companies are looking for much more than collecting payments from a card. Arik thinks the fact that they provide such a broad range of services of collection and disbursement, effects and issuing, has really become appealing to a lot of businesses. This is because most of the businesses, don’t need only payment collection. So, the fact that they can actually come to one place that can handle everything for them is like going to Amazon and AWS and not thinking about the data set, the electricity, the air conditioner, that exist behind the scenes of servers. That’s exactly the same experience that people get when they come to Rapyd. They don’t care about the regulator in Indonesia versus Mexico or the compliance in Malaysia. Rapyd takes the responsibility. He said the company does their application, connects to Rapyd’s API and they do the heavy lifting for them.
Arik stated that being a global company can lead to a lot of challenges, both internally and externally. Internal challenges lie in the communication between the different teams within in the company. He said that there’s a completely different culture between Israelis, Europeans, Americans and Asians and a lot of the time things get lost in translation. He said that he often finds himself as a united nation of the company, in the middle trying to solve disputes that actually don’t exist because it’s only a word that was used in the wrong way in an email that somebody interpreted one way or another. So, internally there are a lot of challenges. They are trying to educate people on how to communicate better with different people; the email in Mexico is not like the email in Singapore, for example. Externally, Arik explained, it also brings a lot of challenges that are marketing-related because convincing and acquiring customers in APAC, versus Europe, versus the US, versus LATAM is a completely different story. The language is different, the requirements are different, so it really brings a lot of complexity. He said that they are trying to bring one strategy that is translated locally, in every single region that they operate in. But, it’s part of a growing global business challenges.
Internal Communications
Rapyd has grown from 30 to 250 employees in the last 12-18months.
When asked about how he may have had to adapt as Rapyd became a global company, Arik said that the day you enter an elevator and you don’t recognize who is in there with you, or the day you don’t know every employee by name is the turning point. He said that for some CEO’s this may give a sense of panic or loss of control because you don’t know what these people do, but this is where maturity kicks in. If you know how to delegate responsibility and how to manage things on a little bit of a bigger scale rather than just a walk the hallway knowing everybody, that that is super important. He said the difference from 50 people to 100 people is like 50 to 1000 – it’s significantly different. For a lot of people, it is very hard to track different sets of KPIs and OKRs, you’ve got to manage on a company-wide perspective to understand who is actually good and who is not as good as you think. He emphasized that it is about, performance, performance and performance and statistics starts to play in how you measure people.
Arik said that he is super involved in the company and he still does code reviews to developers, he will still go and check specs of product managers and look at landing pages that the marketing team is doing. He added that he spends some of his time in the week picking one department over another and trying to understand exactly what is going on and talking to people directly, without talking to the manager, to make sure he really understands what is going on. He said that in Israel, they always compare everything to the military, so you have a big group of people that need to walk in one direction, but if you want to turn to the other direction if you tell one person at a time up until you get to the last one, it will take a while. So, it’s very important to talk to everybody and to understand what is going on so that if the ship is going in the wrong direction, you can turn it around very quickly. Arik explained that this does happen, almost on a monthly basis he might suddenly, stumble into something that says, oh, my God, why are we doing it? We shouldn’t do that. And it needs to be stopped. If he sees a team that is underperforming, he will drill down and look at the team members and talk to the manager and understand what is wrong. Maybe people are in the wrong position. Maybe they hired the wrong people. Maybe they were trying to build something that shouldn’t be built. That is why the teams are performing.
Challenge of COVID-19
Arik explained how the impact of COVID-19 provided one big challenge. He said that when they got into 2020, from a strategy perspective, from the marketing and customer acquisition perspective was build 70 percent in the traditional B2B sales process and marketing, which means conferences, events, face to face meetings, always ‘knocking on the door’ type of relationships. And 30 percent was online. However, at the beginning of March when COVID became a big thing in Italy and it was clear it was going to become global, they had to completely change their strategy and shift to 90 to 100 percent digital. The product had to change, the marketing changed, the sales approach had to change. He said that added more capabilities to the product that are self-service orientated and onboarding online without any human interaction. The marketing team had to build a completely different approach of acquiring customers, the sales team implemented new internal sales tools, to communicate better with online tools like LinkedIn. So, it was really a massive change to the story from the customer acquisition perspective that had to be done in three weeks. Arik explained how the new strategy came out at the beginning of March but had to start to be executed by the beginning of April. So, it was a massive effort across the entire company, and everybody had to be synced which is complicated with so many departments. But it was successful.
Arik went on to explain that COVID itself only did good to Rapyd as a company as it made them more mature and more focused about what they wanted to do. He added that it’s also good from an online payments perspective. He added that 9/11 changed the way that people did disaster recovery, including data centers, replication of data, distributing employees. He believes that COVID did to online commerce what 9/11 did to disaster recovery. Basically, online commerce is the output of COVID.
Arik said that he was very clear in his message. He said that he had a town hall in the middle of March where he told everybody that this thing is going to be big, it’s going to last at least until September or October, it’s going to be completely dusty, you’re not going to see what is actually next to you because of all the debris that is going around. He said that they’re not going to use it as an excuse. He said he didn’t want to hear anybody saying that they missed the KPI because of Corona because that is “b*llsh*t”. Arik said that the reality is, it is an opportunity. He thinks that his assumptions about how big it is and how long would it last up until now were accurate as much as he hoped they wouldn’t be. He added that at Rapyd, they communicated every two weeks, they had a session with employees, a face to face (on a video) and they also had weekly updates that were running between the different offices. They also ran an employee-wide survey just a week ago in which they scored 4.8 out of 5 in communication.
External Communication around COVID-19
Arik continued by saying that, to be brutally honest, he is getting paid by his shareholders to run a commercial company and not a non-profit organization and therefore he needs to maximize this thing to the best of his company and his shareholders. He said that this is why they did an acquisition, they acquired a company just a couple of months ago, in the middle of the COVID crisis. They found an opportunity and they executed on it. Arik added that they have all the respect to the fact that there are health issues, and stress issues, but from a leadership perspective, they need to get the most out of it for the company itself and for the shareholders. He believes that this is exactly what they’ve done. He noted that some may say that they have been a bit too aggressive, but he added that if you look at history, the biggest companies emerge from things like that, from different types of crises, and from his perspective, it was a huge opportunity and they pressed the gas pedal all the way in to go as aggressive as they could, trying not to hurt or insult anybody in the process. He said that if somebody got hurt he apologizes upfront, it wasn’t intent, but they are a commercial company.
Arik said that putting fear in the heads of the people is something that you can do very quickly, scaring them is easy. Getting it out of their head is the complicated thing. So, from their perspective at Rapyd, what they see is that the growth of online commerce and the move to online commerce is going to speed up significantly. If people thought that the move from physical commerce to online commerce is going to bring an average of three percent, two percent per year, it’s going to be double because people are going to adopt it. He believes that every single business on planet earth, it doesn’t matter if it is a coffee shop or a big store, everybody would have to have an online strategy, they would have to have at least 25 to 50 percent of their business done online, otherwise, they won’t exist and that’s reality. Arik said that it’s going to do good for business and it’s going to grow dramatically.
For the travel industry, it’s going to be something that will take at least three to five years to recover, according to Arik, mainly because of the fact that people would be scared to travel. The fact that the number of airlines and hotels are going to shrink dramatically after this situation, travel is going to be much more expensive. It’s going to be very complicated to find an eight-pound ticket to fly somewhere. Unfortunately, is going to shrink and it’s not going to be as popular so the travel industry themselves have said it will take them three to five years to recover. It’s not a dramatically different world but we skipped 10 years ahead in the way that people do online business.
Arik said that the inability to travel has impacted his company, he added that they had bought a company over a Zoom call, doing the acquisition without actually checking if there is a physical office, that people actually exist. It’s a completely different way of doing business. He said that 50 percent of his time was travel, traveling all the time. For example, from January to the 10th March, he traveled 80 percent of the time, actually landing in Israel from Brazil one day before the complete lockdown.
Arik explained that less travel has meant that he is able to have more influence over what is going on in the product because they sit next to him and he doesn’t travel. However, he believes that with the safe side, there is a downside. For example, there are markets, such as Asia, where is very complicated to do business without a face to face meeting. So, you lose this human touch, which is challenging. There is an upside and downside for everything.
Arik added that this has been the biggest communication challenge by far. However, he also said that on top of this is the fact that some of the employees are quarantined in a 100 square meter apartment with two kids, that are not going to school. It’s creating a situation that is impossible to work. You cannot really work from home when you have two kids with you in the same house, they cannot go to school or to kindergarten, so the fact that you are trying to work, Arik said he respects it, but it’s challenging; a conversation, that might take one minute the hallway takes two hours and you need to do it three times a week just to get something across the finish line. He believes that it’s an unheard-of communication challenge, the biggest one ever. But, he doesn’t think that anybody would be able to resolve it. There is one thing that tech cannot resolve, and this is how much noise kids are doing at your house!
Communications Advice
Arik said that the best advice he can give people on communication is, first of all; deal only with things that you actually understand in. Trying to communicate about something that you don’t understand or have a clear understanding of how it works, is super challenging, especially when you don’t have a whiteboard that you can sketch what you want. He added that the cultural difference in the way that people communicate is super challenging, and therefore his advice there, is you need to understand the culture that you’re talking to before you communicate. For example, Arik said that he had three fireside chats with America’s, APAC and EMEA, one after the other. He had to adopt a different personality before going on every single one of the calls because it’s completely different talking to these different cultures in the way that you show respect, humbleness and being focused. Before you talk, you need to understand the difference, because the number one mistake that people make is that they think that if they know how to speak English well, they can communicate with anybody, but the fact that somebody on the other side speaks English, doesn’t mean he understands you. There is a big difference.
If he could go back in time and speak to his younger self, the number one thing that Arik would tell himself is, and he said is something that young people always hear from older people and they don’t listen, is that you need to listen to older people. He explained that when you’re young, you are a very fast thinker, but you don’t think all the way about the consequences. So, listening more and observing more what people tell you, even if you don’t agree, first of all, listen, think for one day, drink a very big glass of cold water and then make a decision. So, he would tell himself, listen to older people, even if you don’t agree, that’s the number one thing. And the second thing is respect everybody. He gave a story about his mother telling him, never talk about something in the elevator when you have people with you in the elevator because you never know who is standing next to you. So, before we talk, think who you are talking to.