Bob Kaufman, Founder & Chairman of the Board at ConnexPay | Episode 323

This episode of the Leaders in Payments podcast introduces listeners to Bob Kaufman, the visionary founder of ConnexPay. His narrative not only shed light on the inception and growth of his company but also on the broader trends shaping the future of B2B payments. ConnexPay stands out in the payment industry as a disruptor, successfully handling both incoming and outgoing payments. It's a feat that sets them apart in a market where competitors often focus on just one aspect of the transaction.

The discussion delved into the enduring prevalence of credit card use in the travel and e-commerce sectors, highlighting the advantages they offer, such as security and dispute rights. Bob contrasts this with the challenges presented by alternatives like PayPal and blockchain, noting the importance of simplicity and legal dispute mechanisms for consumer confidence. Furthermore, the episode emphasized the influence of Generation Z, whose expectations for digital-first, frictionless experiences are driving innovation in the payment space.

Transcript

Speaker 1: 0:01

Welcome to the Leaders in Payments podcast, where we talk to C-level leaders from across the payments landscape. We'll be discussing the products and services that impact the payment space today, as well as trends and predictions for the future of payments. We will also hear stories from our guests about their journeys to the top.

Speaker 2: 0:18

There are a whole bunch of companies that offer both the ability to take money in and make payments out, but if you look under the covers, it's effectively two different businesses, and so, by us being really the only one, our competitors are either companies that just do the money in part or just do the money out part, and we can do both better than any of them. Lower cost, more efficient, better cash flow all of those things because of our combined solution.

Speaker 3: 0:53

That was Bob Kaufman, the founder and chairman of the board of ConnexPay, and he is my special guest on this episode, episode 323 of the Leaders in Payments podcast, and I'm your host, greg Myers. With ConnexPay, you can get immediate access to incoming customer funds, use those same funds to pay suppliers quickly and improve cash flow for your business all in one place. Bob and I talk about what makes ConnexPay unique in the marketplace and how they help businesses with money in and money out, as he likes to put it. We also talk about his recent move into the role of chairman of the board. We've got a great episode ahead, so let's get started. Hi, bob, thank you for being here and welcome to the Leaders in Payments podcast.

Speaker 2: 1:37

Great. Thank you for having me.

Speaker 3: 1:39

Absolutely. So let's dive right in, If you don't mind. Tell our audience a little bit about yourself, maybe where you grew up, where you went to school, where you currently live, a few things like that.

Speaker 2: 1:46

Yeah, sure, well, I'm a Minnesotan, so if you catch the accents. Sorry, but I grew up in the suburb of Minneapolis, st Paul. I have four grown children, now ages 20 to 25, that all still, if they're not in college, are in that part of the country. I went to University of Minnesota for my undergrad and then the University of Chicago for my master's degree. My wife and I were one of those silly couples that made a decision a few years ago to get out of the winter, so we now spend six months and a few days in Florida, where we bought a home here in 2021. And then we spend the nice parts of Minnesota, though they can't beat the summers there back up north.

Speaker 3: 2:26

Okay, awesome. Well, let's talk about the company Connects Pay, so tell the audience what Connects Pay does.

Speaker 2: 2:32

Yeah, so we are a combined payment company that handles both sort of money in and money out is the best way I like to describe it. Think of us as a combination of a Stripe or Square those types of companies that help businesses accept payments from their clients and then also a card issuer and a business that helps companies make payments out, so not unlike any other bank, or American Express, or Wax and Amex, and all sorts of these companies that help businesses make payments to their suppliers and vendors. So we're a combination of those two things which, although it seems simple, it solves a whole bunch of pain points and adds value for our customers.

Speaker 3: 3:20

Okay, are there certain verticals that you play in more than others?

Speaker 2: 3:23

Yeah, we started our business really in the travel industry. I'll tell this story because it's really how Connects Pay came to be. I'll keep it short, but when I was at the bank, I worked at a large bank in the US here for 20 years prior to starting Connects Pay and I was talking to a potential client about our virtual cards and I said look, not only should you choose the bank as your virtual card provider, because we have this great technology and we have this great cashback rebate, we're going to pay you, but we also have this division over here to help you accept payments. So, at the same company, we can support you as it relates to all the money in from your customers and all the money out and the payments you need to make to your suppliers and vendors. And the CFO looked at me and he said well, that's great, bob, but let me explain to you how this is going to go down. You're going to bring me a separate sales team to sell your acquiring services. You're going to bring me a separate contract to sign. You're going to bring me a separate technology to integrate into and when I need support, you're going to give me a separate phone number to call. He said tell me again how it's the same company. So that was the day, greg. It hit me between the eyes that that's really how our payments ecosystem, not only in the US but across the globe, is set up.

Speaker 2: 4:35

The concept of taking money in and making payments out are really two different animals, and I could spend another 15 minutes talking about how that came to be over the past few decades. But it really starts from Visa and MasterCard. They were owned by the banks back in the day and before they went public and spun off as their own entities. It's just how our payments ecosystem grew up. And so for companies like travel, think any intermediary, so certainly travel agencies, tour operators, think e-commerce, marketplaces, insurance brokers, ticket brokers, companies like DoorDash, uber, eats, heck, amazon All these companies are selling a good or service that they don't produce right, think of them as a middleman. And so what does a company in that space need to do? They need to take a payment in, and almost often in real time, as a middleman. And so what does a company in that space need to do? They need to take a payment in and, almost often in real time, make a payment out and without Connects Pay, that becomes very cumbersome and painful for them to do that.

Speaker 2: 5:35

And how big is the company? Yes, we're about 100 employees now. We started in 2017. So we're a seven year old business. You business customers across the globe at this point. We processed about $10 billion in payments last year. We're profitable and we're core to our business, which is handling both money in and money out for those types of verticals that I mentioned.

Speaker 3: 6:00

And is there a certain size company that this is a better fit for?

Speaker 2: 6:04

Yeah, I'd like to say our sweet spot and where we focus is sort of the middle market space, meaning we don't typically go after your mom and pop. Our goal is to have customers that do about $5 million a year in sales or more, up to a couple billion dollars. So, as an example, we're not aggressively trying to sell to the Expedia's or the bookings of the world. They're due $50 billion a year in sales. At the same time again, not just your corner mom and pop, Sort of that mid-market space is where we're best suited and set up our company to really give them top-notch service.

Speaker 3: 6:41

Okay, and what would you say? Differentiates, connect, pay from your competitors out there.

Speaker 2: 6:47

You know, when I think about our core competency, which is, you know, one combined solution for handling a company's payments both in and out. By doing that, it fundamentally changes some of the risk dynamics and the cash flow dynamics. And so when I started this business, I say a lot of people have a solution and they go looking for a problem right, and this was the exact opposite. I had seen for years the pain points and the high costs like, literally, within travel, many people that I talk to love to travel. Right, it's a passion for many of us, and there's travel companies like agencies and tour operators that help us do that. And, literally, from a payments perspective, banks put them in the same risk category as online gambling and online pornography, and the reason they're viewed as high risk is because what's basically called a future delivery component of their business, meaning you buy something today a flight or a hotel stay and that actual activity doesn't happen for weeks, months or maybe even a year from now. It's very different than using your credit card to pay for your meal tonight or to go to the store and buy a shirt. So there's this future delivery component and that's what creates the risk, and so it makes it very difficult for travel companies to get what I would define as reasonable accounts to process payments.

Speaker 2: 8:17

They often have to have large reserves and certainly they pay high fees, and so in our model, where we have visibility into the entire payment ecosystem, from beginning from the consumer all the way to the vendor getting paid, it fundamentally changes that risk dynamic, and by changing that risk dynamic, I'm able to offer lower rates to these customers, I'm able to offer them better cash flow terms, and so it significantly changes their business.

Speaker 2: 8:46

They're already typically operating at very thin margins, and so we really don't have anybody else that I can speak of that is truly doing what we do. There's plenty of businesses Chase Payment, tech, stripe, us Bank there are a whole bunch of companies that offer both the ability to take money in and make payments out, but if you look under the covers, it's effectively, as I just described, as really two different businesses, and so, by us being really the only one, our competitors are either companies that just do the money in part or just do the money out part, and we can do both better than any of them Lower cost, more efficient, better cash flow. All of those things because of our combined solution.

Speaker 3: 9:35

So quick question on the payout side. I've heard you know sort of the trend. This is very macro. But say it's a Geico or some insurance company and you have a car accident, they're looking to potentially make a quick payout to you know, I'm sure they have their financial reasons to do so someone's bank account quickly, as opposed to waiting months to settle and send a check and all of that. So I assume that dynamic has influenced your business as well.

Speaker 2: 10:06

Oh for sure. In fact, insurance is one of the verticals we're focused on, and also, in many cases we'll send a card payment directly to the repair shop so that they can be paid quickly, and so in many ways it's streamlining and helping those entire processes. So, to your point, people aren't out money for three months trying to get reimbursed for their car repair or the repair on their home, whatever the case may be.

Speaker 3: 10:32

Okay, well, where do you see the payments industry headed, say, in the next three to five years?

Speaker 2: 10:40

Yeah, so when we look at our lives as consumers, we've, over the past let's just say 10 to 15 years have received a whole bunch of what I would call enhancements and creativity and technology improvements around how we can make payments and get paid ourselves right Whether it's Venmo and Zelle and Apple Pay and Google Pay and our payment processes at least for me personally have been significantly improved because of many of these innovations.

Speaker 2: 11:11

However, you haven't seen that same scale of innovation in the business world, right, and we're talking about trillions of dollars of payments, many of which are still on a physical check, and so you know we've been talking about this for a long time, but I think in the next to your point three to five years 10 years for sure you're going to see the type of innovation that we've experienced as consumers find its way into the business world. I think you're going to find businesses to start to demand and expect the same type of simplicity and speed at which consumer payments happen, but now in the business world, and so I think companies like ConnexPay and other innovators are going to be the drivers behind that.

Speaker 3: 11:54

Do you see blockchain and technologies like that affecting your business?

Speaker 2: 12:00

You know, given the markets we serve, you see blockchain and technologies like that affecting your business. You know, given the markets we serve, no, I think it will. In the general B2B space, Given travel, travel is still our number one market that we're focused on and in that space, I always tell people when's the last time you paid for travel with anything but a credit card. It's the norm and I think always will be, primarily because of the chargeback rights that you have, Also in e-commerce, when you think about your willingness to give your 16-digit card number to some company you don't normally do business with, maybe have never done business with in your life and maybe never will again.

Speaker 2: 12:40

How and why are we as consumers, comfortable doing that? And it's because we know if you don't get what you demanded, what you paid for, you're going to call your bank and dispute the transaction and you're going to get your money back, and it's really the only payment mechanism today that does that in an efficient, legal way. You know a lot of these others, even PayPal and certainly Venmo. You know they have dispute procedures, but they're more complicated and cumbersome and it takes a while and it's not clear what's disputable and what's not. And you know. Certainly, blockchain will face some of those same challenges. How do I dispute something? And so real-time payments? That's still unclear, and so I think that's where, in certain industries like travel, cards will always be the dominant payment force.

Speaker 3: 13:30

Yeah, makes a lot of sense. So back to your earlier comment about sort of the technology and innovation on the consumer side going over to more the B2B side. How much of that do you think is driven or will be driven by sort of the Gen Z of the world who are now coming into the workforce. They've had a mobile phone since they were probably eight or 10 years old. Everything they do is frictionless and easy. And how much of that is being influenced by that generation do you think?

Speaker 2: 14:01

Yeah, I think a lot. I think you nailed it. I think there's just an expectation. I think about my kids at 20 to 25 years they've never seen a checkbook in their life, they don't know what it is, and so I think that's absolutely right, and I think we are guilty of just living with the norm and the status quo. And I think we are guilty of just living with the norm and the status quo, and I think that generation is going to push the envelope there for sure.

Speaker 3: 14:25

Yeah, absolutely. Well, let's switch gears a little bit and talk about you, so tell us about your journey and how you got to your role there at Connects Pay.

Speaker 2: 14:33

Yeah, so you know, actually, I just recently two weeks ago moved into chairman of the board and I hired or found a great leader named Ben Peters to take over the day-to-day as CEO. So I'm still very involved. Like I say, I'm now working on the company instead of in the company, which has been my goal for some time. As the company has grown and grown and grown, I had less time to do the more strategic things right Finding that next strategic partner, that next large deal, helping the company with potential acquisitions, all those kinds of things. But going back to the start, I was always sort of an entrepreneur at heart. My dad had his own business 24 years ago. I invested in, of all things, a NASCAR-affiliated speedway, a racetrack, because I'm a little bit of a car nut. So me and three other partners bought this racetrack that's just outside of the Minneapolis-St Paul area, and so I've always had this sort of entrepreneurial spirit in me, and even in my long career at US Bank I was able to work at a large enterprise, but in an entrepreneurial way. I worked in a division that was sort of the most innovative at the company and my boss there allowed me to sort of you know, do startup type things in a larger organization, do startup type things in a larger organization. And so when this concept for ConnexPay came about, I actually tried for a year and a half to stand up the business just within the bank and just couldn't get the credit department behind it. Back to that travel concept and comment I made right, because travel was deemed high risk. The minute you use that word, it sort of didn't matter what came out of your mouth. Next. It was no, thank you, right.

Speaker 2: 16:24

And so finally I called my old boss at the time and said gosh, I'm really passionate about this idea. I know it can help a whole bunch of businesses out there that struggle. Do you have any suggestions for me? And she actually said you know, bob, you probably just need to do it on your own. And I went home that night and made that comment to my wife and she said you know, bob, I think you should do it. And I said but, steph, you know we're about to put four kids through college. You know giving up this paycheck, that is security for us. And she said you know what it's not about that? She said you're not happy anymore. And that was the truth. I had gotten to the point where it's just the regulatory environment around banking has gotten really painful, and I wasn't able to be that entrepreneur within a big company anymore, and so two days later, anyhow, I put in my notice. And here we are seven years later and just ecstatic for just all the companies and people we've been able to help.

Speaker 3: 17:22

Awesome. So when you started at US Bank, were you always in the payments area or did you start somewhere else?

Speaker 2: 17:29

You know, for the most part you know I was there 19 years in total, and I think maybe the first few years I was somewhere else but then moved into the payments area and so spent most most of my career there.

Speaker 3: 17:39

Okay. Well, what are some things you're passionate about? And you may have mentioned one already on the car side, but maybe one work-related passion and one personal passion.

Speaker 2: 17:49

Yeah, so we'll do work first At the end of the day, for me, you think about people that go into fields like nursing or doctors because they're passionate about helping people, and I would actually say it's the same for me. But you know, in the business world I get most pleasure out of not just selling a product and oh geez, we put another you know $10 on the bottom line for the company, but something that truly can help a business for the company, but something that truly can help a business. And you know, when we went through COVID you know many of my customers, I would tell you, if it wasn't for, connectspay would probably have been out of business because you know we were able to significantly change their cashflow at a time when cashflow was a big problem for them. We were able to process payments and do it lower costs than others. We were able to make payments and do it lower cost than others. We were able to make payments and give them more cash back than others.

Speaker 2: 18:45

All of those things allowed all of my customers to survive. We didn't have a single client. We have over 250 customers today. During COVID we probably had north of 100 and not a single one of them went out of business, and when you look across the industry, believe me, it was more than 0% that failed, and so that's what gives me the most pleasure and allows me to wake up and be excited about. What I do is to truly help individuals and their businesses succeed, and we're able to do that every day at Connects Pay. On the personal side, cars, and then the other one's hockey. I grew up playing. All four of my kids played hockey, and so it's just one of those things that I have always been passionate about and continue to enjoy.

Speaker 3: 19:31

So do you play or just watch?

Speaker 2: 19:34

So, I still skate a little bit not as much as I used to, but I coached a lot. I coached all of my kids and now I'm anxious to have grandkids at some point and being able to do the same and coach them.

Speaker 3: 19:48

I guess you'll have to move back to Minnesota for the winter.

Speaker 2: 19:51

for that, that is true, that'll be the downfall, but it'll be worth it.

Speaker 3: 19:55

Although they have hockey in Florida.

Speaker 2: 19:57

I'm sure that's true, that's true, it's just not at the same level, that's for sure.

Speaker 3: 20:01

Right, right, Well, one final question. So, as you know, the payment space and fintech space has grown and it's a great industry to work in very innovative, dynamic, transformational. And to work in very innovative, dynamic, transformational. And kids are coming out of college these days looking at what industry do they want to build a career in. And let's say they pick FinTech or payments and they come to you and say, Bob, hey, I'm graduating, I'm looking at this industry. What would you tell them they need to do to be successful in payments?

Speaker 2: 20:30

Yeah, maybe make a couple comments there. First of all, it's an industry that's not going away, right, and only going to continue to grow. It's sort of like what are the two most certain things in life death and taxes. Well, you know, there's a third thing is that there's always going to be a need for efficient payments as the economy continues to evolve and grow, and so it's certainly an industry that's safe, that isn't going away and going to constantly have innovation and change.

Speaker 2: 20:59

You know, when I think about advice, you see a lot of failed companies. You know there's a lot of people have that entrepreneurial spirit and more companies fail than succeed, right, and why is that? There's lots of reasons, but often what I see like I'm a big Shark. There's lots of reasons, but often what I see like I'm a big Shark Tank fan. Before bed, my wife and I were always watching Shark Tank and I chuckle because some of the things on Shark Tank are awesome, like yes, there's a need, and some of them are like, okay, this person woke up with this crazy idea, but there's not really a need for it, and so that's the biggest thing is start with a real pain point, search for.

Speaker 2: 21:37

It's almost an inverse People sometimes search for something cool and innovative, search for the problem, search for what is broken, and then you know work to the solution as opposed to the other way around. And so you know that would be my biggest thing. And then also get knowledge first. You know, I think part of the reason I was successful in starting Connects Bay is I had 20, 25 years of knowledge and experience. One of my kids is getting her degree in entrepreneurship, which is awesome, but I'm not telling her to start her own business out of college. I'm telling her to go get some real world experience first and learn and make some mistakes on other people's dime and because we all do and then start something later. So those are a couple of pieces that I would share.

Speaker 3: 22:25

Yeah, I think that's all great advice. I'm a Shark Tank fan too, and I agree with you. Some of the ideas that I know will be successful are the ones that actually solve a pain point. So I agree with you 100% there. Well, bob, we're about to wrap up the show, so I just wanted to see if there was anything else you wanted to cover before we go.

Speaker 2: 22:44

No, I just very much appreciate you taking time and talking to me, and certainly ConnectSpaycom has more info for anybody who wants to learn more about the company.

Speaker 3: 22:54

Great. Well, Bob, thanks so much for being on the show today. I know your time is very valuable, so I really appreciate you being here.

Speaker 2: 23:00

Thank you for having me, Greg. Have a great day.

Speaker 3: 23:02

You too, and to all your listeners out there. I thank you for your time as well, and until the next story.

Speaker 1: 23:10

Thank you for joining us this week on the Leaders in Payments podcast. Make sure you visit our website at leadersinpaymentscom, where you can subscribe to the show and where you'll find our show notes. If you enjoyed listening, please share on your social channels as well.