Caleb Avery, Founder & CEO of Tilled on building a PayFac-as-a-Service

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The payments processing space has seen a huge amount of innovation in the past decade, maybe more than any other area of fintech. This innovation has presented opportunities for non-fintech companies to earn a new revenue stream via payments processing, which in turn has created a new sub-niche for fintech companies.

Caleb Avery, Founder & CEO of Tilled
Caleb Avery, Founder & CEO of Tilled

My next guest on the Fintech One-on-One podcast is Caleb Avery, the CEO and Founder of Tilled. They provide PayFac-as-a-Service to software companies looking to process payments for their customers. Basically, it is a simpler and quicker way for these software companies (called ISVs) to get set up as master merchants and generate payments revenue. Unsure how this all works? We explain in great detail in this interview.

In this podcast you will learn:

  • What attracted Caleb to the payments processing space very early on.
  • The founding story of Tilled.
  • The difference between a card-issuing bank and a merchant-acquiring bank.
  • The definition of a payments processor.
  • What an ISO (Independent Sales Organization) does.
  • What an ISV (Independent Software Vendor) is.
  • The definition of a payments facilitator (PayFac).
  • Who the major PayFacs are today.
  • What PayFac-as-a-Service is and why Tilled went all in on this idea.
  • The scale of ISV that is the sweet spot for Tilled.
  • Why ISOs work with Tilled rather than going direct to ISVs.
  • The three key components of Tilled’s software.
  • How they are able to compete head to head with Stripe Connect.
  • The different types of support they can provide for the ISVs.
  • How their pricing model works.
  • How the typical credit card fees are broken up between all parties.
  • Caleb’s views on the recent ruling between Visa and Mastercard and the Department of Justice.
  • Where embedded payments is going and his vision for Tilled.

Read a transcription of our conversation below.


Peter Renton  00:01

Welcome to the Fintech One-on-One podcast. This is Peter Renton, Chairman and co-founder of Fintech Nexus. I’ve been doing this show since 2013, which makes this the longest running one-on-one interview show in all of fintech. Thank you so much for joining me on this journey.

Peter Renton  00:27

Before we get started, I want to remind you about our comprehensive news service. Fintech Nexus News not only covers the biggest fintech news stories, our daily newsletter delivers the most important fintech stories into your inbox every morning, with special commentary on the top story of the day. Stay on top of fintech news by subscribing at news dot fintech

Peter Renton  00:57

Today on the show, I’m delighted to welcome Caleb Avery. He is the CEO and founder of Tilled. Now Tilled is a super interesting company, they’re in the payment space, and they provide what is, what they call payfac as a service. Now, if you have no idea what that means, don’t worry, we actually go through, the first half of this interview is basically a payments 101 tutorial, where we go through all the different, the language, and the acronyms that is used in the payments space. So by the end of this interview, you will understand exactly what a payment facilitator is or a payfac. And what payfac as a service actually means. And so we talk obviously, about what Tilled does, we also talk about how they are able to compete with Stripe, the big 800 pound gorilla in the space. We also talk about the Visa and MasterCard Department of Justice settlement that just was in the news recently, Caleb’s got some very interesting things to say there. And much more. It was a fascinating discussion. Hope you enjoy the show.

Peter Renton  02:05

Welcome to the podcast. Caleb.

Caleb Avery  02:07

Yeah, thanks for having me on today.

Peter Renton  02:08

My pleasure. So let’s kick it off by getting a little background about yourself. Just hit on some of the high points of what you’ve done in your career to date.

Caleb Avery  02:18

Yeah, sure. So my name is Caleb Avery, I’m the Founder/CEO here at Tilled, and I started my career in the payments space at 19 years old, going door to door selling payment processing to small business owners. Probably not what every, you know, sophomore in college, was doing it at 19. But thought that was interesting to me and, you know, scaled up that first ISO and between that business and Tilled. I did a lot of angel investing and consulting for vertical software businesses. And you know, that was really the experience that gave me the lens into the problems for a lot of these ISVs and helped drive me, you know, towards starting Tilled.

Peter Renton  02:56

So it sounds like you had the payment processing bug very early on, what was it that attracted you?

Caleb Avery  03:02

Yeah, so I think, you know, thing, one, residual income is definitely something that was pretty appealing to me at the time and remains, you know, interesting today, but a lot of it started with just going out and talking to small business owners to understand, you know, the pain points that they were feeling. And what was immediately obvious was that a lot of these small businesses hated the credit card processors that they were working with. They didn’t like the fees, they didn’t like the support, they didn’t like the equipment, and so the fact that they were ready and willing to talk to a 19 year old and trust them, you know, with their livelihood, showed me that there was a pretty big gap, you know, in that market.

Peter Renton  03:38

When you were 19, were you working for another company? Or were you just starting up something from scratch?

Caleb Avery  03:43

We started up a retail ISO and I think at the time we started under Priority Payments, and later Pivotal and we had numerous relationships, you know, over the years, but, you know, hung up our own banner and just started out, going out door to door.

Peter Renton  03:58

Good for you. Well as a, I’ve been an entrepreneur for too many years. 37 years, I think, I’ve taken credit card payments the whole way through. It’s always a painful thing. And you always feel like you’re getting ripped off. Anyway, tell us about Tilled, how did you, what was the impetus to found this company?

Caleb Avery  04:18

Yeah, so when I when I moved to Boulder about nine years ago, I was starting to do angel investing and started getting connected with different investors, CFOs, founders within the the ecosystem, and what I started to realize was businesses of all sizes and scales, startups, first getting started, organizations with hundreds of millions in payments, organizations doing billions of dollars in payments. A lot of them were using Stripe, Square, Braintree, and they were making $0 in revenue on all these payments flowing through their platform. And you know, fast forward nine years later, you know, if you’re doing 500 million a year in payments, and you haven’t yet figured out payment monetization, you’re in the minority, but nine years ago like that was the common situation that so many of these these organizations found themselves in. And so for me, it was this period of several years, where I saw the same problem dozens of times where these software companies wanted to figure out how to go about monetizing their payments. But when they really looked at the existing landscape of options with gateways like NMI or, working with the traditional processors, the Tsys’ and Fiservs of the world, that legacy technology and the manual PDF boarding process wasn’t really what, you know, these software companies wanted. And so for me, the the actual like driving moment for me behind Tilled was working with a software company, doing about a billion dollars of volume, that thought they wanted to be a payfac. And for me, that was really my first introduction, you know, to the payfac model about six years ago. And the more I learned about the model, the more I realized why, you know, the average vertical software company was really never going to be able to take advantage of going and becoming, you know, a registered payfac themselves. And so that’s what drove me to create what became Tilled. What became payfac as a service was this drive to create the opportunity for the average vertical software company to leverage the benefits of the payfac model, but to launch in one week.

Peter Renton  06:16

Okay, interesting. Well, before we dive deeper into all of that, I want to actually go and do a little payments 101 lesson or payments processing 101? Because I know there’s a there’s a lot of terminology in the payments space that I know, I didn’t know, until fairly recently, and a lot of my listeners probably don’t know. So we’re gonna, we’re gonna start at the very basics, right? So maybe you could start and explain what is a card issuer or a card issuing bank versus a merchant acquiring bank? Can you explain the difference between those two things?

Caleb Avery  06:52

Yeah, so fundamentally, on the card issuing side, that is the bank that’s issued the credit or debit card to the consumer. And I think oftentimes, the card issuers get mixed up with the card networks. And so people are thinking that, you know, Visa, MasterCard, you know, are the the issuers on the card when in reality, it’s the bank, you know, the consumer’s working with. So it’s Citi or Chase bank that’s operating on the card issuing side, working with the consumer to give them either the line of credit through the credit card, or the debit card associated with their bank account. And then on the merchant acquiring side, the term acquirer oftentimes gets intermixed between the acquiring bank, which is the financial institution that’s registered with the card brands to allow small business owners to accept credit card payments. And then the processors are fundamentally the organizations that are processing, you know, those transactions and have the connections with the acquiring banks and the card schemes. And so there’s all these different players that get intermixed together, but those card issuers are on the consumer side, whereas the acquiring banks are really on the merchant side of the equation.

Peter Renton  08:04

So what is the payments processor then?

Caleb Avery  08:06

Yeah, so the payment processor would be the role that like a Tsys, or a Fiserv play, that have the technology that that merchant is using, and they facilitate the funds movement between the different parties in the equation. And so you know, at Tsys is leveraging the licenses from a merchant acquiring bank like a Synovus. And that combination of the processor and the merchant acquirer is really what the small business owner needs to be able to accept credit card payments. And nowadays, the small business owners typically don’t realize that there’s two players serving that function, because a lot of the processors and ISOs have essentially bundled those services together, and are kind of the single party that the small business has to work with in order to accept payments.

Peter Renton  08:53

Right. Got it. Okay. And you said this acronym many times ISO, that’s I S O, right. So what is an ISO exactly?

Caleb Avery  09:02

Yeah, so an ISO is an independent sales organization. That’s where I started my career. And fundamentally, at its core, an ISO is a distribution channel, a distribution model for these acquirers, and these processors, and so, you know, for dozens of years, the ISOs have typically been, you know, the feet on the street, or the call centers, going out and helping sign up small business owners to leverage the technology and the relationships of the acquirers and the processors.

Peter Renton  09:36

Okay, and what about an ISV? How do you define that?

Caleb Avery  09:42

Yeah, the payment space is just mired in all of these you know, acronyms and jargon and I think it’s made intentionally, you know, complicated to scare folks. But the ISV acronym is for an independent software vendor and fundamentally the the ISVs are typically verticalized software solutions that do far more than just payments. And so, you know, it could be a dental practice management software, a gym management software, a property management software or restaurant point of sale solution. And so they’re coming in and providing access to a variety of different services to these small business owners, and more typically, nowadays, payments is embedded or integrated into these ISV solutions.

Peter Renton  10:27

Right, right. Okay, and then payments facilitator or payfac? What are they? And how did they come about?

Caleb Avery  10:35

Yeah, so when I think about the payfac model, and how that differs from the traditional ISO model, a lot of it comes down to the card brand rules and regulations. So Visa, MasterCard, Discover, AmEx, get together and really establish the guidelines and the rules for the process that a small business owner has to go through to accept credit card payments at their business. And under that traditional ISO model, every merchant is getting their own merchant account, their own merchant ID, and they go through a very thorough vetting process to get that account created. Whereas the payfac model, which was really made popular by Stripe, Square, Braintree, PayPal, Toasts of the world, that have gone through a very extensive vetting process with the banks, acquirers, card brands to get registered as what’s called a master merchant. And so once that payfac is registered as a master merchant, they’re assuming all of the liability for those SMBs that they board as sub merchants under their business. And so one of the primary advantages of that payfac model is streamlining that onboarding process for a small business owner to sign up and start accepting payments really, as quickly as instantly, you know, after submitting that application, two minutes later, you know, they could be processing payments under that payfac.

Peter Renton  11:54

Okay, so that’s different, like when you were 19 years old, knocking on doors, there were no such things as payfacs, right, and so they would have to go and sign up with the payments processor that you were connected with on the merchant acquirer. But now, like there’s another layer that’s been introduced, it seems.

Caleb Avery  12:15

Yeah, absolutely. And I think the payfac model, you know, originally when you know, Stripe and Square, were first starting out, was really more of a merchant direct play, how can we go acquire merchants and get, you know, merchants processing payments as quickly as possible, and where, you know, especially stripe has morphed their business is really to be the payments infrastructure layer for the ISVs. And so a huge part of the Stripe and Braintree business nowadays is them signing up these ISVs and allowing the ISVs to leverage, you know, the technology, and that boarding experience that Stripe has created.

Peter Renton  12:55

Right, right. Okay. And then finally, in our payments 101 lesson here, and if you’re watching us on YouTube, you’ll be able to see the sign that’s behind Caleb there. So he’s got a logo of Tilled, this nice neon sign, actually, and then underneath it says “payfac as a service”. So you’ve gone all in on this term, explain what it is exactly.

Caleb Avery  12:56

Yeah, once you start buying neon signs, you’re kind of committed to the term. But for me, when I think about payfac as a service, it’s this idea of a turnkey white labeled, payments infrastructure model that allows ISVs to embed and ultimately monetize the payments that are flowing through their platform. And so traditionally, if one of these ISVs wanted to go become, you know, a registered payfac themselves, that could be a, you know, six month, couple $100,000 process for that ISV. Whereas with Tilled, our average ISV partner is integrating to Tilled in about nine days. And so we’re creating this incredibly rapid path for software companies to come integrate to our APIs, leverage our white labeled solutions, and start generating revenue on every payment flowing through their platform.

Peter Renton  14:10

Gotcha. So someone like Toast is already got all that set up, like I mean, I go to a restaurant, I see the Toast, sortof terminal, and they’ve gone through this process a long time ago, they don’t need your service, right. But then what you’re talking about is someone who is, who has vertical software, and obviously, there’s new vertical software companies coming on board all the time. But what you’re saying is those who don’t have the six, they don’t want to go through the six month process, Tilled exists to basically speed the process up so they can get on board quickly.

Caleb Avery  14:41

Absolutely. You know, if you’re doing $40 billion a year in payments, like Toast is doing you can afford to, you know, go through that process. Most of our clients are in that 50 million a year to 2 billion a year, you know, range of payment volume. And at that scale, it’s really difficult to justify the time, the money, the expense, the expertise required to go become a payfac yourself.

Peter Renton  15:05

Okay. Okay, so is that Tilled’s like primary business now? Is this what you are, a payfac as a service company, or do you have other other things that you do?

Caleb Avery  15:14

Yeah. So the vast majority of of what we do really is that you know, Tilled to ISV model. Occasionally, we work with larger direct merchants. But that’s certainly a small part of what we do. But increasingly, we’re starting to get interest from larger strategics that are wanting to white label the entire, you know, Tilled technology set. And so I had somebody pitch it to me a couple of weeks ago as Tilled Stripe-ifying the legacy processors. And so that is increasingly becoming, you know, an interesting part of the business. But that’s still an earlier model.

Peter Renton  15:53

Right. Right. So then, do you deal with the ISOs? These people that still go and knock on, knock on doors? For those people, the ISOs, or ISOs I know you call them, I should get the lingo, right. Are you working with them? Does an ISO want to bypass Tilled and go straight to the processor, and what’s your relationship there?

Caleb Avery  16:18

Yeah, so we do work with ISOs. Over 50% of our ISV, just use all the acronyms, 50% of our ISV deals come from our ISO referral partners. And so we have about 180 different ISOs and payments consultants that go out there and you know, outbound go find ISV opportunities, that’re looking for better technology, better support, better monetization experience, and those ISOs bring those deals to Tilled. And the question is, why do they bring, you know, those deals to me, when every one of these ISOs already has a direct deal, you know, with one of the processors that they get far more revenue, you know, on those deals than then bringing them to Tilled. The reality is, if you’re an ISO, and you want to go bring, you know, an ISV that you’ve sourced, they’re ready to sign up, they don’t like Stripe, they want a new solution. If that ISV tries to go partner, you know, with one of the the legacy processors, they’re going through a very painful, you know, could be a nine plus month integration, for them to get integrated to the gateways, you know, at these legacy institutions. And so they’re bringing those deals to Tilled because we provide them better technology, we’re providing a revenue stream, you know, to these software platforms, and then we’re providing them white glove support, so that they can help get their partners up and running. And then those ISOs, you know, make a nice, you know, ongoing residual stream from bringing that relationship to Tilled.

Peter Renton  17:49

Right. So I’m just trying to understand exactly what your software is doing in that situation you’ve just described, is it just the fact that you have these connections into the payments processors that make it easier? I mean, what are some of the components inside your software that people use?

Caleb Avery  18:09

Yeah. So if you kind of break down Tilled into its simplest form, there’s three key components of what we do. There’s the onboarding process, there’s the payment processing component, and there’s reporting from a technology perspective. From an onboarding perspective, we are giving an ISV a white labeled, merchant, digital application for them to be able to onboard all of these merchants onto their platform. And then we handle the complexity of underwriting KYC, KYB, creating the accounts and getting them provisioned and ready to start processing payments. And so we’re handling not only the technology side with the digital application, the white label tools, we’re also handling all of the back office components for those merchants. And then on the payment processing side, our gateway’s connected into multiple processors, we’ve got card present , card not present capabilities, we can process ACH payments, EFT payments. In Canada, we can do level two, level three payments, we’ve got all the capabilities that you need from a gateway perspective, through the payment processing component. And then from a reporting perspective, we give both the ISV a reporting experience so they can see all of their merchants, all of the payments, all of the deposits, all of the fees, across their portfolio, and then each one of their merchants has a white labeled version of that same console so that that merchant can log into a console and look at payments, deposits, fees, run transactions, etc.

Peter Renton  19:42

Okay. Okay, so I want to talk about Stripe for a minute because they are, they’ve revolutionized payments, let’s face it. You know, they’re the 800 pound gorilla in the space. I believe they have some an offering that is competitive to yours called Stripe Connect, maybe you can tell us a little bit about how you can compete with a company the size of Stripe. And what is it you’re bringing that they don’t have?

Caleb Avery  20:12

Yeah, so Stripe, you know, they only process about a trillion dollars a year, right in payments. So it’s not, it’s not that impressive. I don’t know why everybody’s talking about Stripe. But yeah, I mean, fundamentally, we compete head to head against Stripe Connect all the time, over half of our customers come to us from Stripe. If we’re going into an RFP Stripe’s got a 90% chance of being, you know, in that RFP, and they’re definitely the company that we hear and see about all the time. And when I think about the Stripe Connect product offering, there’s kind of two elements of that Stripe Connect offering, there’s Stripe Connect Express, and Stripe Connect Custom. And the Stripe Connect Express solution is the turnkey solution that most everybody thinks about when they think of the Stripe Connect offering that, you know, startups are plugging in seven lines of code, you know, three days, you’re up and running, you know, on payments, but it’s powered by Stripe, their brand is all over, you know that offering. On the other end of the spectrum, you’ve got the Stripe Custom Connect, which is, there’s a lot of optionality, but it’s a very expensive integration process. And so you could spend six, nine, 12 months building out a custom, you know, integration into that offering, and most software companies don’t want to do that. And so how do we compete, you know, against this very robust, very established solution. Thing one is the revenue side. I think a lot of people think of Stripe as the kind of premium, you know, solution in the in the market, and they charge a pretty penny for it. And so, you know, 2.9% and 30 cents is the kind of standard model. But the reality is, what we’ve been seeing is that Stripe still isn’t negotiating all that much, you know, on pricing with a lot of ISVs even doing, you know, $100, 200 million in payments volume. And so we’re providing those ISVs a greater ability to monetize every dollar flowing through their platform. Thing two is really the branding component where a lot of the ISVs that come to us are on Stripe Connect Express. They’re using a powered by Stripe experience, and they want their brands to be front and center to their merchants. And so at Tilled, we provide a turnkey solution where you know, in one minute, you can go in and add your logo, your primary and secondary colors, you can customize your subdomain, your email preferences, your contact info, and then the entire merchant experience, onboarding, consoles, dispute management, transactional emails, that entire experience is branded for your software solution, and you didn’t have to build any of that. And then the third component is really the support piece. And there’s two components that I think, you know, as Stripe’s gotten closer to going public, the overall support experience, you know, is not, you know, where it was when they first started. But almost the more important piece of this is the go to market support element. And so for a lot of the ISVs that we work with, they’re really wanting to grow that merchant base, they’re wanting to grow their payment revenue stream. And so they’re coming to us to say, hey, how should we price this? How should we message it? How should we set up, you know, the onboarding? How should we set up, you know, the website to talk about payments? Can you tell us how we sell against, you know, Stripe, how do we sell against the traditional processors, because merchants have a choice. To your point, you know, merchants all have plenty of choices, and sometimes they’re getting, you know, offers on a daily basis. And so how does that ISV compete, you know, in this category, and we really work side by side with our partners to help them understand how to sell more, you know, payment volume, how to help drive that activation and the attach rates in their portfolio? And that’s something that you know, our partners find really valuable.

Peter Renton  23:51

So are you, do you get involved at all when your partners are onboarding want, like, every company now, unless you’re a total startup just getting going, they have an existing credit card relationship, oftentimes. So like the ISV customers, new customers coming on board, do you help them sell and get them kind of onboard with their customers? Or what do you provide there?

Caleb Avery  24:17

Yeah, at times we do. I think it really depends on what that individual ISV partner needs. Sometimes they need help analyzing statements, so hey, we we’ve got, you know, 20 customer, a 20 location deal, here’s their statements, can you help us figure out what their current pricing is, how to price it and put together a proposal for them? Great, we can do that. A lot of times, it’s more marketing support. And so let’s say you know, we bring on a customer that has, you know, 500 existing merchants that they want to convert from Stripe over to Tilled, we can help them design a marketing campaign, coupled with an in app messaging campaign, to help drive those merchants from, you know, the prior solution, you know, over to Tilled. And then sometimes it’s just training, the existing, you know, sales or customer success team just needs to understand a little bit more about how payments works, how Tilled works. And so we’ll go in and do training, you know, for clients. And so you know, it’s not a one size fits all playbook, it really depends on, you know, what a partner needs to be successful.

Peter Renton  25:19

So how does your pricing work? I mean, are you a SaaS product? Do you? I mean, I presume you’ve got some sort of volume, type per transaction pricing, how does it work?

Caleb Avery  25:29

Yeah, so our pricing model is a combination of a SaaS fee and a revenue share, model. And so at the base, there’s a $2,500 monthly SaaS fee to have access to the platform. And then any revenue, you’re earning in excess of that SaaS fee, we’re sharing 75% of that revenue stream with the software partner. And so they’re earning the lion’s share of the revenue on every dollar that’s processed through the platform. And we allow our partners to really set the downstream merchant pricing. And so if you want to do flat rate pricing at 2.9%, and 30 cents and match Stripe, that’s great. If you want to come in at 2.8% and 10 cents to undercut Stripe, that’s great, too. We also have a lot of partners that do interchange plus pricing as well. And so we put the ISV in control of the pricing to their merchants, and then you know, we’re giving them 75% of the upside between what they charge their merchants and what that actual cost of processing is.

Peter Renton  26:25

Right. So there’s one other question I want to ask. This 2.9% and 30 cents, we’ve seen that around for a long time, I want to talk about the the 2.9%. Do you have off the top of your head, the breakdown of where that 2.9% goes, you know, issuing bank, the acquiring bank, the Visa and MasterCard, or Amex, Discover, How is that kind of sliced up?

Caleb Avery  26:52

Yeah. So when you think about the the 2.9% and 30 cents, the first split is really, you know, what’s the interchange revenue versus the acquiring revenue. And typically on you know, let’s, let’s take the 2.9%. It’s in our world about 2.2% is typically the interchange costs, which we can kind of break out in a second. And then there’s typically you know, 70, or 80 basis points of margin that’s the acquirer margin, which is kind of the Tilled, plus the ISV, plus the the processor, you know, side of the the margin equation. And then when you look at the 2.2% that makes up the actual, you know, interchange costs, the card brands and this is, this is a bit of a misnomer, where, when you think about the overall breakout of interchange, there’s interchange, dues, and assessments as kind of a couple of the categories. The interchange is really primarily the revenue that’s going to the issuers, so that’s kind of the issuing bank side of the revenue stream that really drives the consumer rewards. And that makes up, in a credit card transaction, the bulk of that interchange revenue. The actual card brands, I think MasterCard, just announced that they raised their assessments from 13 basis points to 14 basis points, and that’s the primary, you know, revenue driver for the card brands. And so, on that interchange, issuer side is getting the vast majority of the revenue stream on the interchange, card schemes are getting a relatively small take, acquiring bank is getting a relatively small take, the processors, payfacs, ISVs, are getting, you know, a decent chunk of change. And that’s kind of broadly speaking how you’d break up that that 2.9%

Peter Renton  28:54

Right, right. Okay. Okay, I would love to get your perspective on this recent news about the Department of Justice having a settlement with Visa and MasterCard that has been going on for almost 20 years. And the thing I like, I’m a credit card points junkie, I’m very much focused on my Chase Sapphire Reserve and maximizing my points depending on what type of merchant I am doing business with. And what I was struck to read that now my Chase Sapphire Reserve might end up with a higher price than someone paying with a just say, a Visa debit card, for example, we’re at right now that I don’t think that’s allowed. How’s this all gonna play out?

Caleb Avery  29:41

Yeah, so there were two key components to that ruling. One was on the interchange fees side and so the ruling was that they agreed to reduce the interchange fees by four basis points for a period of at least four basis points for a period of three years which kind of per the prior conversation, the card brands, despite negotiating these fees, aren’t actually the ones capturing the margin, on the interchange fees.

Peter Renton  30:09

Right. It’s the issuing banks, right?

Caleb Avery  30:10

So they, you know, kindly agreed to reduce the revenue for, you know, their issuing partners. And then, you know, a week later announced that they’re increasing their assessments. And so I think that that was a bit of a marketing ploy, in my opinion. I also think that the two possible outcomes are that consumer rewards are going to get squeezed because there’s less revenue, or they’re going to introduce, you know, higher fees on the credit cards, or they’re going to introduce new interchange categories. And so I’m not convinced that there’s all that much that’s going to change based on the first part of the ruling. The second part is much more interesting to me. So the second part of the ruling is where they start to talk about surcharging, card steering, and this idea that, you know, the merchant now has the flexibility to charge different prices, depending on which card you as the consumer, bring to the table. And I think, you know, for those of us in the payments space, we’ve known for a long time that that Chase Sapphire Rewards card costs that merchant way more to process than if you were to use you know, your Bank of America debit card, but previously, merchants have had no choice. If it’s a Visa, they had to honor, you know, that card, and they couldn’t discriminate between different, you know, Visa transactions. And so for me, there’s a lot of really interesting possibilities of what come out of this ruling. I think the challenge is going to be, practically speaking, what do you want that checkout experience to look like for the consumer? As a small business owner, are you really going to, you know, look at you and say, you know, oh Peter, I see that Chase Sapphire Reward card, that’s going to be three and a half percent, you know, for you to use that. What other cards do you have in your wallet? Like that’s an awkward interaction, you know, at that point of checkout, but the small business owners now have the flexibility to do it. And I think it’ll be incumbent upon the processors, technology providers, you know, like ourselves to try and make that an elegant experience, that isn’t going to turn off consumers.

Peter Renton  32:10

I’m just wondering, if we’re gonna get to a point, like, you just go, and when you’re going out in your local area, right, you will go, there’s all these different sales tax districts, right, and you never know what the final cost is going to be, you know, when you buy something, you, you just sort of accept that there’s going to be between, you know, in Denver, Colorado, it’s, you know, 7%, 8%, something along those lines is what sales tax is going to be. I’m just wondering if we’re going to get to a point where there’s a credit card fee, where you have a price, and then if you’re using a debit card, the card fee is going to be included in this as a, you know, a mysterious line item in the checkout. And the debit card, you know, will be, say, three quarters of a percent or like, well, what are you 1%, and then the Chase Sapphire is going to be at, you know, three and a half percent. Am I off base there? I’ve got no expertise in this area, I just was wondering what you think?

Caleb Avery  33:01

I have a really hard time imagining that that, you know, world is going to exist, I think if you look at it from a consumer behavior perspective, you and I, I think are both, you know, points junkies, and so, you know, I’m looking at this and saying, Hey, my Citi, you know, Bank credit card gives me 2% flat cash back, if anyone is charging me more than 2% to use that card, I’m never gonna pay, you know, with that card again. And so I think if you if you imagine that world existing, that’s going to be detrimental to the entire credit card rewards, you know, scheme program, because it takes away the incentive for you as a consumer, you know, to do that, I also tend to believe that that’s just going to be an awkward checkout experience, you know, for a consumer at the point of sale. And so I think for me, I do think that there’s a growing trend towards, you know, surcharging, you know, within the merchant environment. And I think it’ll be really interesting to see as the card brands continue to come out with more rules and guidelines and regulations, you know, on this, how it actually gets adopted, you know, in the industry.

Peter Renton  34:11

Okay, well, looking to the future. I mean, we’ve really been talking about embedded payments for most of this, most of this conversation. So would love to kind of get your take on what you think the future is for embedded payments, and maybe you can combine that answer with what is your vision for Tilled?

Caleb Avery  34:31

Yeah, when I look at, you know, where the embedded, and I’ll change it to fintech, you know, space is going, I think for a lot of ISVs, payments is really the beachhead when they start thinking about the value that they can bring to small businesses from an embedded fintech perspective. And so, you know, my vision for Tilled aligns coincidentally with where I think you know, the ISV space is going. I know that’s surprising, but I certainly feel like you know, if you fast forward 5, 10 years from now, ISVs are in prime position to offer additional, you know fintech solutions to the small business owners that they serve. So does that restaurant need access to capital, payroll solutions? Do they need access to insurance, there’s all sorts of additional, you know, solutions that these small business owners need to run their business. And I think us as the the incumbent payment provider, you know, being Tilled, are in a really unique position to help arm our ISVs with these capabilities to sell into their merchants. And one of the biggest reasons why, you know, I feel that way is that 90 plus percent of our ISV partners leverage our Tilled consoles. And so we already control the login experience, the eyeballs, the place that those small business owners go to manage their payments business. And so that’s a very logical place to introduce that offer for lending or those additional product offerings. And it’s a value add service to those small business owners that need those solutions. And it’s an additional revenue stream, you know, for our ISV partners. And so I feel like that’s, you know, one of the trends that I see, you know, evolving over the coming years and then the second is really the idea of like iPhone, Android, tap to phone capabilities. I think for a long time, card present hardware has just been prohibitively expensive. And the idea that, you know, you can use your iPhone to accept, you know, tap transactions is just incredibly, incredibly fascinating to me, and I’m very excited to see you know, what the adoption of that technology looks like in the years to come.

Peter Renton  36:58

Right, right. Yes, we haven’t even begun to kind of go down that path. There’s going to be all sorts of interesting developments there, I’m sure, so. Anyway Caleb, really fascinating chatting with you, thank you for giving us the payments lesson there, I appreciate that. And best of luck to you.

Caleb Avery  37:14

Yeah, thanks so much for having me on the show today. And if anybody wants to follow along on the Tilled journey, LinkedIn is a great place to follow me, Caleb Avery, and then the Tilled website is a great place if you want to learn more about Tilled. But thanks so much for the opportunity. And thanks for having me on the show.

Peter Renton  37:30

Sure. And we’ll be sure to link to link to those as well. So thanks again.

Peter Renton  37:35

Well I hope you enjoyed the show. Thank you so much for listening. Please go ahead and give the show a review on the podcast platform of your choice and go tell your friends and colleagues about it. Anyway, on that note, I will sign off. I very much appreciate you listening, and I’ll catch you next time. Bye.