Viola's FinTech Forum with Payoneer CEO Scott Galit

I don't know if you've all heard the phrase the Fourth Industrial Revolution, but there's kind of this growing idea out there about the hyper-connectivity, the intelligence behind the connectivity, and what that's doing to change actually very fundamental ways the way the world works. Similarly to how previous industrial revolutions have transformed people's lives as well as commerce. And for us, what we've kind of identified—and I really have to give Yuval Tal, the founder of Payoneer, a lot of credit—I mean, Yuval truly was visionary. He saw a lot of these trends 13, 14 years ago when he founded Payoneer. So there are kind of four mega trends that we've paid attention to and that have really informed our worldview. So one is that with technology and the internet, barriers come down. The friction that you sustain in the way of people and businesses in different places around the world communicating, interacting, and transacting are all eroded, in some cases extremely quickly. And you're left with a world that actually has far more ability to interact, communicate, and transact. And second, and somewhat related to that, is that parts of the world that used to be very disconnected, very far apart—not just geographically but in the way they were able to communicate, interact, and transact—now it's kind of like they're all on the same operating system for the first time. So kind of think about it as there's an iPhone layer now sitting on top of the entire world that every country is now part of. It's kind of this layer that sits on top of whatever legacy infrastructure was there that all of a sudden has created this interoperable environment that everybody can play in. And so not only is the friction that stood in the way across borders coming down, everybody is truly—whether you're in the emerging markets, developed world, west or the east—you're now essentially operating in an environment where you're all connected together in many ways for the first time. A third, and again kind of powerful and transformational trend that we see, is the democratization of access and opportunity. That kind of one of the fundamental ideas here is that the gap between talent and market has never been smaller. It doesn't matter now where you are in the world, it doesn't matter how small you are. If you are an individual, a small business owner, if you have something of value that you can create—whether it's an idea, whether it's a service you can provide, whether it's a good that you can create—you have something of value that is unique and different that anyone in the world can find value in. You now actually have a path to market that never existed before. And part of the reason for that is again in this kind of global, interconnected, technology-driven world that we live in, there's the emergence of new marketplaces and platforms, kind of these new commercial intermediaries for the digital world. So these are the new matchmakers of buyers and sellers, these are the new pathways to access unlimited supply and demand all over the world. And these really are redrawing supply chains and redrawing the way products and services reach the market and redrawing the way people engage and buy. And so what at the end of the day what we see happening with all of that is this kind of massive empowerment, again, democratization of access and opportunity. And in many ways that's what technology does kind of across almost everything it touches. And so again, this borderless, interconnected world creating opportunity for people and small businesses.

You know, it's important to really understand whatever your idea is, whatever your business is, whatever you're doing, it's important to understand the difference between whether you're part of a revolution or whether you're part of an evolution. So I was just in Korea, right? It was really interesting. The people in Korea were so jealous of the mobile payment system in China. You could feel it when you're talking to them. They felt so inadequate that China was so far ahead of them. And they were asking, why is China so far ahead of us in mobile payments? But China was ahead of Korea in mobile payments because e-commerce developed in China, the infrastructure that could support people buying online sucked. It didn't really work. And so Alibaba, who wanted to sell stuff to all these people that wanted to buy, had a problem to solve and they created a payment system to address that. Korea, I thought, had credit cards. Credit cards worked online just fine and it worked just fine plugged into whatever mobile phone you're trying to buy from. So the friction that existed in the case of Alibaba in China, it didn't exist in the case of Korea. So you could be just as brilliant a person sitting in Korea as the person who was sitting in China and came up with the idea of building a mobile payment system, and you could have done just as brilliant a job in Korea as the person had done in China designing and building a payment system. You have had radically different outcomes because in one case you were creating an incrementally better solution than something that worked just fine, and in the other case you were solving a fundamental problem that was standing in the way of people participating in a revolutionary change that existed. And eBay and PayPal is another good example. PayPal exists today because eBay existed. And eBay fundamentally democratized access to becoming an online merchant for any individual in the United States at the time that wanted to sell something. The problem is they couldn't get paid, right? Nobody would give you a merchant account online to get paid by credit card. PayPal actually had a system that essentially solved that problem. So PayPal grew because people wanted to sell online through eBay and they needed a way to get paid.

Part of what excited me about Payoneer before I joined, after I joined, and part of what has benefited us all along the way is that we didn't have to do anything revolutionary. The revolution that was happening was that there were digital marketplaces and platforms all over the world that were creating new opportunities for people and small businesses all over the world to sell things all over the world. And that created a whole bunch of payment friction. And we were smart enough and also lucky enough to actually have been at the right place at the right time with something that actually solved a fundamental problem that stood between people and their ability to actually participate in that revolutionary change. So it's really, really important to be clear-headed and clear-eyed about what you're trying to accomplish because if you're trying to make something incrementally better, your customer acquisition costs, your time to critical mass, and ultimately the likelihood of success are all going to be radically different than if you're enabling some change that's bigger than whatever it is that you're creating. The trust in people that you know, people that are like you, people that you can kind of actually relate to in some way, actually seems to be more powerful than ever. And in some ways it actually seems to be the primary way people are actually navigating their way through all the noise that exists. And so again, not surprisingly, reputation, the recommendation of others, referrals become an incredibly powerful way to build trust. And actually along with that, what we have found is that in the online world, if you have some people that trust you, you can build a brand and build trust with others very quickly. Again, I mean, I find it shocking to me. I mean, as Payoneer—and again, we're now 13 plus years old—but at any given point in time we have hundreds of millions of dollars of customer money entrusted to us. And very few of those people that entrust us with that money have ever sat across a table from any of us. So again, we've been around for a while, but again there were some things along the way that helped early on. Like our brand sat next to the brand of a marketplace that chose us. So if you were someone working with a marketplace, kind of like, alright, that marketplace probably is smart and they probably figured something out. And early on, early days, our brand was next to the marketplace brand, which I think also helped. But after that, it's really been based on referrals. And again, the next thing that you have to take away from it is you can lose trust really, really, really fast. So these days, the time it takes to go from being trusted to being essentially, you know, irrelevant and untrusted can be a matter of minutes. And that could be cyber, it can be bad policies and bad decisions, it can be something that suddenly doesn't seem transparent and is opaque. But understand that you're in the trust business and it's fragile.

We started to see kind of a pendulum swing back away from the borderless world and the frictionless world probably five years ago or so. We started to see patterns emerging around the world with regulators and government authorities starting to try to kind of reassert their control over what felt like a completely uncontrolled change and how the world was working around them. And there were a few kind of recurring themes. So what you start to see is privacy is actually now one of the top things that almost any government now feels that they have both an obligation and a right to protect the privacy of the citizens in their country. Probably not shocking to anybody. Taxes, and we're still early days in what we think is again kind of a decade or a couple of decades of evolution and change in the way governments think about the notion of jurisdiction and how to tax activity. Consumer protection and safety of funds, obviously anti-money laundering controls, ability to implement monetary policy and not lose control, and cybersecurity. So again, all things that we see emerging as important and where different countries and different places around the world actually can take different approaches. There's a big difference between being global and being local everywhere. For most of our history we actually were global but not really local anywhere. But as you really start to get into it more, you really start to understand just how significant the differences are in different places. And again, it can even be, if you want to interact with almost anybody in China and your platform isn't good at actually WeChat in some way to reach out, you're probably going to have some problems. So again, there's so many kind of mundane, basic things before you even get to all the regulatory challenges that come along with being in different markets. In FinTech, what we found is again kind of systematically there is an overemphasis on the tech and an underemphasis on the financial part. And it's not surprising, right? Because where is innovation going to come from? Where is digital disruption going to come from? It's far more likely to come from people coming out of the tech industry than it is for people coming out of financial services and kind of more traditional and legacy providers. But at the end of the day, you are in some way, shape, or form in the financial services space and in some way, shape, or form you are going to have to touch important things like the protection of money, protection of data, regulatory compliance, other kinds of issues that are just fundamentally different than what most tech companies have to deal with. These are things that are really, really, really important lessons to learn before as much as possible because the penalties for non-compliance are really too high.

Our first step in terms of physically starting to localize—so we had done localizing of language and things like that—but the first step in terms of physically localizing was actually arranging for us to have brand ambassadors in countries around the world. And think of these as kind of like super customers for us, like they were good customers, had been with us for a while, and there were folks that we thought others in the market would aspire to be like. And so we brought them on and asked them to essentially help us voice our message to the market, voice the market to Payoneer, and help us to kind of do a bit more locally. We then went to California and China, which California, Silicon Valley being a very important market for us with marketplaces and platforms, and China actually being a very important market for us in terms of sellers that were selling goods around the world. You know, for us, where things started, it really was we started with enterprise clients that would wire us money in bulk, they'd send us instructions through an API, and they'd actually make payments to a freelancer on the other side. And for almost half of the company's existence, that's basically what we did. And so over the years, basically what we've been doing is kind of again putting one foot in front of the other, listening to the opportunities our customers were trying to pursue, the friction that they felt, and trying to figure out ways to address that and solve for that. And so step by step we've been able to leverage that into a pretty amazing global infrastructure. We would not have been able to build relationships with all these global banks if we hadn't already established relationships with the marketplaces and platforms, gotten volume and flow, learned how to do KYC, which got us the ability to actually go explain to a regulator what we were doing, get licensed and things like that. We have two main types of customers. One is we work with lots of marketplaces and platforms, and I kind of implied that in the beginning when I talked about some of the disruptive change happening in the world that really how we've benefited by not having to be all that brilliant. We actually opened up our platform, we created a product, and all of a sudden folks that were selling on Airbnb started to use us to get paid. We didn't do anything brilliant there. We were smart enough to open it up and do it in a compliant way, which wasn't that easy to do. And then we had people that were smart enough to recognize that Airbnb was making payments through us and realized that it probably meant they had a payment problem. And so we went to Airbnb and said, we think you have a payment problem, and they said, you're right. And that was the beginning of a relationship that has continued to grow, develop, and evolve over time as we've helped them solve their problems and challenges of being again a hyper-global, frictionless platform. The other set of customers are SMEs. And so we work with SMEs and professionals all over the world. And this is actually what gets us most excited. So this is where we really feel the impact that we are having on real people and their lives, their ability to generate more jobs in their home market, or income, you know, more of a legacy for their family. And it's something that we are super excited about.

When we first started with those brand ambassadors, we created a new engagement model. Again, we kind of recognized that we were in the empowerment business, not in the payment business. We recognized that we were there to help people participate in this new frictionless, digital, global economy where there were more opportunities regardless where you came from, regardless of how small you are. But they needed help, they needed partners, they needed someone who could actually help them navigate that. And so we started with these events. And so again, we hosted the first Unbound Commerce event in Delhi. You know, there were something like six or seven hundred merchants and manufacturers that came. We brought partners, we brought like Etsy from the US, most of the VIP dinner with them and a bunch of manufacturers who were all trying to figure out how do I get into the US market and what can you do for me. And Etsy's just trying to figure out what can I source from India. And we had Amazon speak, we had banks that were there, Citi was there speaking, we had government officials, we had tax advisors, we had marketing companies. So it was an event that people came. It wasn't a Payoneer commercial, it wasn't payments. It was about the world is changing and what can I do to participate in it. And we host events like that again all over the world, whether it be in Kiev, Tokyo, or in Islamabad. And again, fundamentally it's because we believe that in this new digital world there's a whole new generation of businesses that are emerging that we really feel a responsibility to help them grow. And we believe as they grow and as we continue to help them solve their problems and capture the opportunities that are out there, that will work for us.

I wouldn't start the Payoneer business model from scratch. So if you know, kind of a business model junkie, someone came to me with, you know, written out on a piece of paper, you know, I'm going to start the Payoneer business model, I would think they were crazy and I would not pursue it then. And the reason is that again, we didn't get here by being brilliant. We've all had a brilliant insight at the beginning, and then I think we were a little good and a fair amount lucky. And then we had a bunch of people that were smart enough and good enough to understand that and understand how to actually make some good decisions after it to kind of keep it going. And so it took us working with oDesk as a marketplace in order to realize that they were actually going to have freelancers in crazy places around the world like Bangladesh, Pakistan, Ukraine, and Argentina and stuff like that. We didn't set out to build a business in those markets. We set out to help them make some payments. I don't think oDesk had an idea that their marketplace was going to be that global. They just had some payment problems and they all of a sudden had people all over the place. So we stuck the Payoneer brand on the product. And so when that freelancer in Bangladesh and Pakistan decided to use Payoneer to get paid, and it wasn't because it was the best option, it was really the only way for them to get paid if they wanted to participate on oDesk. They weren't just selling on oDesk, they were selling on Elance. So they got in touch with Elance and said, hey Elance, can you add Payoneer? And the new Payoneer existed because we were lucky enough, again I don't think smart enough, lucky enough to put the brand Payoneer on there. So they actually knew they were working with Payoneer. So then they asked Elance, that brought more service providers in more places, kind of the beginnings of these network effects. And our business has been kind of this growth of network effects over time. And we've cultivated it, but really again there was nothing that we could have done to replace that starting point. So along the way we cultivated these kind of layers of value, each one of which really again took what came before. So the brands really started to develop because we worked with brands that other people were working with and trusted. And then we've again done a lot to protect it, nurture it, and cultivate it. Those network effects, we couldn't have started those network effects if there weren't networks and activity that we were lucky enough to stumble our way into. But again, we've cultivated that after we did that. We knew how to do KYC on people in random places around the world that no one else knew how to do. And we had a critical mass effect that built a really, really unique KYC infrastructure that nobody else has really had. And so we've been able to leverage that. And we've leveraged that in regulatory environments and with our partners. Because we had customers and had volume, we were able to not just get banks to work with us, we were able to actually get pretty attractive pricing with banks. And that makes a difference if you're going and trying to sell a company like Airbnb on payment flow. You know, they don't just want to know that you have coverage, they actually care about how much it costs. And you can't get low prices if you don't have the flow. And we couldn't have gotten the flow without the network effects.