Why online marketplaces pay out with Payaut
Ronald te Velde, Hans Croon
Payaut, a flexible solution for outgoing payments
Buitenveldert, a neighbourhood in Amsterdam South, is the location of a remarkable company. Payaut started with 0 clients two years ago and is now a fast-growing Fintech startup. Founder Ernst van Niekerk saw a gap in the market: as a result of the PSD2 regulations (1), online marketplaces and internet platforms would no longer be allowed to pay their sellers without a license as a payment institution. After all, the regulator set new, strict requirements. Marketplaces had to choose: either become a payment institution themselves or engage a licensed third party processor. For many online marketplaces, especially the smaller ones, that choice is no rocket science. Becoming a payment institution yourself requires a complex and time-consuming process. The alternative, looking for a licensed partner, who can handle the outgoing money flow, is then more attractive. There is a wide choice of payment service providers for the incoming payments flow from consumers. But the choice is limited for outgoing payments. PSPs such as Mollie and Buckaroo offer this service only in a limited form. Major PSPs such as Adyen and Stripe process the payout flow, provided that they also process the pay-in flow.
Unique selling point
As a product manager at Adyen, Ernst van Niekerk had developed a technical solution to split payouts for sellers on marketplaces. He sought and found investors for a new payment service that would take over the onboarding and payout to sellers of marketplaces. The solution that Payaut offers for the outgoing money flow can handle any payment service for the incoming money flow of buyers. As a result, platforms that let their buyers pay via Mollie (or Buckaroo, or any other PSP) do not have to switch to Adyen or Stripe. They can pay their sellers via Payaut. This appears to be a unique selling point.
We interviewed CEO and founder Ernst van Niekerk and CCO Pieter de Haas to find out what accounts for Payaut’s success.
Starting a startup during the pandemic
Building a new company in times like these must be a real challenge.
Ernst: “I am happy to say that despite the pandemic, Payaut is doing very well. The Payaut proposition proves to be successful with marketplaces that are looking for a reliable partner for the outgoing money flow. First and foremost, we are an IT company. But because we also process considerable cash flows, very high demands are placed on us – and rightly so.
COVID-19 meant a lot of working from home and a lot of video calling. We moved to a new office building on 1 March last year, which fortunately has enough space for a few changing employees. We are now sixteen. It is of course more difficult to build a company culture from a distance than when you’re working next to each other. As a team, I think we have succeeded in keeping the nest warm and to keep everyone involved with Payaut. But in addition to working together physically, we are also really looking forward to doing fun things together.”
Pieter’s first year as commercial director coincided with the pandemic. How did you manage to bring in new customers despite all those handicaps due to corona?
Pieter: “The payments industry is complex and I had to quickly gain insight into the market, value chain and technology in order to convince potential customers of our story. In this market, that means building up a lot of networks and relationships, which is simply more difficult via a wire. But there is also another side: because everything goes online, that saves me a lot of travel time. Of course you can also call your clients from your car, but from home you can spend that time much more efficiently and effectively. I now often speak to four customers in a day. In the New Normal we will certainly continue to make grateful use of virtual tools. In addition to physical meetings, because in the end nothing beats face to face contact.
B2B service provider
How do you reach potential customers? As a B2B service provider, do you, for example, also do online campaigns via platforms such as Google Ads or LinkedIn?
Pieter: “The market in which Payaut operates in the Netherlands is limited to about 250 market places and platforms. There are some very large players, behind them a middle group of smaller platforms that still generate about 10, 20 million euros in turnover and behind them a very long tail of small companies. I have spoken to all but about 40 of them. To introduce Payaut, we launched a fun guerrilla marketing campaign last year: we sent all marketplaces a coffee mug and invited ourselves for a virtual cup of coffee. In December we repeated that with a chocolate bar. Those campaigns led to many first contacts. We do have some experience with online advertising, but given the characteristics of our market, this is not a high priority.”
There are thousands of marketplaces and platforms in Europe looking for a similar solution. Can you tell us about Payaut’s growth strategy in other European countries?
Pieter: “The first country where we are now going to expand is Germany. We have been looking for a sales manager for the German market for a long time. This would have to be an experienced payments expert who would bring our services to the attention of German marketplaces. We found her and we are very happy with her. Now we are preparing a major campaign, targeting the list of 300 marketplaces we have defined in Germany. The key question in that campaign is why customers would switch to a Dutch start-up. You have to imagine that Paypal is by far the largest online payment method in Germany. We have just spoken with a major player that uses Adyen’s marketplace product. The Paypal payments are not integrated in this product, but run through a separate flow. For such a player, and also for the sellers who use that platform, it becomes quite complex. It is a great advantage for them if all outgoing payments go through one system, independent of the system with which they came in. We therefore think that we can remove a major pain point in Germany with our reconciliation machine.”
What do you see as Payaut’s central mission?
Ernst: “We want to offer the marketplace as much flexibility as possible to optimize everything for the consumer, so that he can pay with his favorite payment method. And the same is true at the back. We try to remove as many barriers as possible for sellers to sell through platforms. For example, by organizing the onboarding, the KYC part, as easily as possible.”
“We try to remove as many barriers as possible for sellers to sell through platforms. For example, by organizing the onboarding, the KYC part, as easily as possible.”
Ernst van Niekerk, CEO Payaut
Who would be your dream customer? Which marketplace must really have implemented Payaut in the next five years, making you even more proud than you already are?
Pieter: “We are of course honored with every new customer who wants to work with us. We currently provide KYC / onboarding and outgoing payments for 13 mid-market customers. In the Payments world, it takes a lot longer to conclude a contract than when you drive your car to the petrol station to fill up the tank. It takes weeks, sometimes months.
A Dutch giant like bol.com would be a dream customer for us, with which we can grow enormously in one fell swoop. As an international player, Bol uses several PSPs for incoming money flows. We can connect to all of them for the outgoing cash flows. They do not have their own payment license. There are good contacts, so who knows, we may be able to convince Bol of the flexibility we can offer them. That would be ideal. But parties such as TicketSwap, Zalando and booking.com would also be great customers for us.”
Besides size, how do you segment the market?
Pieter: “On the one hand, there are the marketplaces that already have their own payment license, or have already concluded a contract for outgoing payments. In that category you have to wait until the end of the contract date before it makes sense to start the conversation. We do, however, ensure that we remain in the picture of the stakeholders of those companies. In that way, we are a logical new partner when it becomes expedient.
On the other hand, there are the non-compliant marketplaces. They have a problem because they are in the money flow and have to get out of it because of PSD2. Take as an example a marketplace that uses Mollie for incoming payments. Mollie cannot always help them with the outgoing payments to the sellers. This way they quickly end up at Payaut, because we can actually always serve them. Major players such as Stripe and Adyen can also take care of the outgoing flows, but make it a condition that you also place the incoming flows with them. In the example, Mollie customers would then have to switch completely. Such a one-stop-shop solution can be attractive, but also means a lock-in: higher migration costs, greater dependence on one PSP and less flexibility.”
Flexibility is key
What examples can you give of marketplaces that value the flexibility that Payaut is offering?
Ernst: “We notice that high-turnover marketplaces increasingly value flexibility. They often work with different PSPs in the different markets where they operate. They are looking for a party that can handle all those flows, regardless of which PSP they come from. We see those platforms as our primary target group.”
Pieter: “Also think of platforms such as meal deliverers, who want to avoid having to deal with disruptions at peak times. Should their operational PSP fail between 5 and 7 on a Friday, they want to be able to switch directly to a backup system to continue the order flow. Then they have to work with a party like Payaut who can connect to both PSPs for outgoing payments.”
Are you considering also becoming active as a PSP on the pay-in side?
Ernst: “That is not really obvious. There is already plenty of choice for marketplaces and internet platforms, and we don’t think we could provide a better service than Adyen.”
The value of partnerships
Partnerships between companies in the value chain are very common in the payments industry. What is your view on the value of partnerships?
Pieter: “We are also very actively working on that. A good example is Buckaroo. Because Buckaroo is a relatively new player when it comes to marketplaces and often could not offer a solution itself, they work with us. This allowed them to prevent their customers from switching to Adyen or Stripe to become compliant with PSD2 legislation. Another example is Adyen, with whom we collaborate to help smaller marketplaces that do not fit well into Adyen’s portfolio to step out of the payment flow.
For the coming period, we want to focus more on partnerships with software suppliers such as Shopify, Mirakl and WooCommerce, who help marketplaces to set up their ecosystem, their website and payments integrations. To give an example: for marketplaces built with Mirakl, it is crucial that Payaut has developed a plugin for this.
Finally, there are the gateways such as Magnius and primer.io. Marketplaces that want to be able to connect to all PSPs in the world, without having to build separate integrations, can use such an aggregator. The gateway deals with the technology, but does not play a role in the money flow. We are also interested in entering into partnerships with such parties.”
“For the coming period, we want to focus more on partnerships with software suppliers such as Shopify, Mirakl and WooCommerce”
Pieter de Haas, CMO Payaut
Sustainable competitive advantage
Your proposition is quite unique in the market. There are competitors who offer something similar, but they are often primarily linked to Paypal or another payment system. Yet there is a great need for it. How sustainable is your competitive advantage?
Ernst: “The fact that there are still few parties such as Payaut that can respond to the need for flexibility is mainly due to the complexity of the product. In any case, it is difficult to obtain the status of a Payment Institution. The KYC check in particular is complicated, and you cannot afford to make mistakes.”
What do you see as your biggest challenge?
Pieter: “It is above all a challenge to find the very best developers. In that market we do encounter strong competition from Adyen, Mollie and other strong PSPs. It can take 5 months to find a great developer. And we only want the very best, because we cannot afford to make a mistake that can quickly cost hundreds of thousands of euros.”
What do you see as your next growth market?
Pieter: “Coincidentally, we are just doing market research. We are probably going to focus on France, Spain, Belgium and Italy. Of course, that depends on the outcome of the research. If we have found the right people in those countries to get the ball rolling, things can go quickly, because our product is so scalable.”
- See our previous articles on PSD2: Three years after the introduction, financial innovations are still scarce and Is the PSD2 glass half empty or half full?