Senior Advisor & Director, PAYONEER GLBL INC
Building a $B Fintech Company- Scott Galit (Payoneer)
... our TAM and our global coverage were the same as they were in 2011 Right So we weren't addressing any larger TAM than we ...
About Scott Galit
Scott Galit, Senior Advisor and Director at Payoneer Global, has spoken about the company's growth strategy and the challenges of building a fintech business. In a 2018 talk, he described fintech as having "more friction" than other businesses due to risk, regulation, and compliance, and said that Payoneer's total addressable market (TAM) and global coverage remained the same from 2011 to its 2021 IPO, but that the company expanded its serviceable addressable market (SAM) by adding products and market segments. Galit stated that by the time of the IPO, Payoneer had expanded its SAM to an estimated $3 trillion, providing "a credible path as a public company to a billion dollars of revenue." In a 2022 interview, Galit discussed Payoneer's role in the digitalization of global commerce, noting partnerships with companies like Amazon, Google, and Airbnb, as well as banks integrating Payoneer's payment capabilities. He said the company was "exploring" cryptocurrency but proceeding carefully due to varying global regulatory comfort, and mentioned collaboration on a blockchain infrastructure for central bank digital currencies called the Regulated Liability Network. During a 2020 panel on COVID-19's impact, Galit said Payoneer began dealing with the pandemic in January with its teams in China and Hong Kong, and that the company adjusted its working capital platform because machine learning models could not be relied upon during "great crisis and uncertainty."
Transcript (20 segments)
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Scott Galit0:00
So the first basic concept of the physics of fintech is one of the basic concepts of physics, which is friction. Friction is the force that resists motion. That's kind of technical, maybe not so useful as a concept. So maybe this will be a little bit easier to relate to: the ratio of output to input is reduced because of friction. So businesses with more friction will generate lower output—think fewer products and slower growth—for the same amount of effort and investment than other businesses with lower friction.
Now, all businesses have friction. There's internal friction, things like collaboration across functions, evolving competition, evolving customer demands and expectations. And businesses that either naturally have less friction or that manage their business to reduce friction are able to maximize their ratio of output to input.
But fintech businesses have more friction. Think risk, regulation, compliance, a balance sheet, and kind of lending considerations. Each of these creates an additional dimension on a business that a fintech company has to manage, has to staff, has to actually incorporate into all of its decision-making, its workflows, its processes, and its investments. Each of those functions creates extra friction, which creates lower output for every input.
And it really translates into a lot of extra friction for a lot of fintech companies. There are more third-party dependencies, more functions and teams, more internal processes, more redundancy requirements because so much of fintech gets into mission-critical services. And there are more steps to just about everything that a fintech company needs to do. So more friction makes fintech businesses slower and more expensive to build than other businesses.
So now, the physics of fintech businesses isn't just different because of friction. Another aspect of fintech that tends to be different is the shape of the market. Every business has a gap between its TAM and its SAM, but the TAM-SAM gap for fintech businesses tends to be particularly wide. So why is that the case? I'm just going to give you a couple of illustrations to try to again make this a little bit more tangible.
Let's look at a business. A business has a core account somewhere and they have typically financial operations that are wide and varied in nature. They have accounts payable systems and processes, accounts receivable and billing systems and processes, approval processes, an ERP system, reconciliation processes, financial reporting. So lots and lots of processes that wrap around the financial operations of a business.
This connects to a massive set of organizational processes and a whole diversity of systems. That means these businesses aren't just complex, they aren't uniform. So when you look across different businesses, if any one of these dimensions is varied in terms of the systems they use, the processes used, that essentially creates kind of a micro-market segment. So what seems like a TAM and an opportunity to go sell in a uniform way into an addressable market, when you start getting into the specifics of how financial operations are managed, there's so much nuance and so much variability that it's no longer a uniform market that you can efficiently sell into.
And that breaks your TAM into a lot of SAMs, each one of which might require different go-to-market, different product investments, and other considerations. So again, continuing to try to make this more tangible, connect it back to some of the lessons we learned at Payoneer. So at Payoneer, in my first year as CEO in 2011, we positioned the company as a cross-border B2B payments company that was serving a $50 trillion TAM from a volume perspective, and we had the ability to settle the whole world over 190 countries.
But in practice, we had a very, very niche and narrow SAM. We served marketplace sellers of services—think a provider of computer programming services selling services on Upwork—and we were really only relevant for a small number of emerging markets countries and only for individuals. So our real SAM was probably more like $10 billion of volume opportunity, and that's probably being generous. So we knew that we needed more room to grow. We knew that the addressable market from a TAM perspective was massive, but the products and go-to-market capabilities that we had couldn't access the majority of it.
So for us, accessing more SAM was existential for our business to be able to continue to grow. So our 5-year plan, not surprisingly, included significant investments to expand our SAM. So by 2016, we had meaningfully expanded our SAM. Our TAM was the same $50 trillion of addressable volume opportunity of cross-border B2B and still 190 countries, but we had now the ability to serve companies in addition to individuals. We expanded to serve goods exporters that were selling on marketplaces. We added more accounts payable capabilities and early payments products. And so we estimated that our SAM had expanded to an addressable opportunity of about $250 billion—again, maybe still being generous about the size of that market.
And so we went through the same exercise in 2016, and by the time we went public in 2021, our market, our TAM and our global coverage were the same as they were in 2011. So we weren't addressing any larger TAM than we had been from the very beginning. But we had added meaningful additional products and market segments that expanded our SAM to an estimated $3 trillion. And as a result, we were able to show a credible path as a public company to a billion dollars of revenue.
And so after 10 years of relentless investment and focus on SAM expansion, we were still able to really serve less than 10% of the actual global market for cross-border B2B. So again, this kind of disaggregation of markets into the actual market segments that you're truly able to serve is one of the unique challenges in fintech. Every business of every kind has something like that, but it is exaggerated significantly in fintech.
So now that we understand a little bit about the physics of a business in fintech and some of the unique complexity of fintech, I think it actually really drives a different way of thinking as a fintech entrepreneur. It kind of forces you to think about long-term planning and management a bit differently. And as a fintech leader, you really have extra burdens to carry than what a typical entrepreneur even has, making an already hard job even harder.
So what I found was that it was important to kind of think about a conceptual framework, think about some of the principles that I would use for how I would make decisions and how we would lead the company and kind of defining the essence of the business. And for us at Payoneer, what we used to talk about a fair amount was kind of building a hundred-year company. So kind of this idea of building a business, a culture that would endure and last well beyond the tenure of the folks that were there at the time.
And so there's a Japanese concept named Ikigai, which helped me think about the approach to take to lead the company and how to frame the business and frame the decision-making. And so the concepts of Ikigai are actually kind of fairly straightforward, and they're kind of adapted from something that's really connected to how to live a meaningful life as an individual. So if you actually look up Ikigai, you can kind of read more about it. And so in that context for creating an enduring business, it's how to create a meaningful and enduring business.
And so Ikigai exists as this intersection of what the world needs, what you love, what you're good at, and what you can monetize. And so I regularly found myself framing our strategy in a way to balance a sense of purpose and the opportunity for profit over the long term. And so fintech, again, with all of these challenges and being as hard as it is, when you know you're doing something important that's creating real enduring value for customers, where you can really create value also for the company, was always an essential part of how we tried to balance the way we created strategy and the way we communicated internally in the company.
And so again, this notion that purpose without profit or profit without purpose, neither one is likely to be enduring over any long period of time. And so kind of tying it all together to build a big, enduring fintech company that delivers value for a long time to come and at scale, there are important lessons to keep in mind.
So first would be: understand the physics of your business and really understand the impact that has on your ability to move quickly and the amount of investment it takes. Obsess about the shape of the market and the real SAM for whatever it is that you're offering. Strategically address friction. I think because of some of those challenges, you really have to include speed and kind of this notion of reducing friction to maximize output is really, really important that you think about that strategically, which requires you to really think, plan and operate as a CEO across multiple time horizons at once, which is one of the hardest challenges in terms of getting into both planning and resource allocation as an executive.
And then nurture and maintain to create the right framework for sustained and enduring growth and success. So anyway, good luck to all of you, and hopefully some of you will build the next billion-dollar fintech company. So thanks.
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Unknown10:47
[Applause]