Jan-Erik Asplund
Background
Meg Nakamura is the co-founder and CEO of startup card issuer Apto Payments. We talked to Meg to learn more about the rise of developer-centric fintech point solutions and how they enable creators to build novel consumer experiences.
Sacra Highlights
- It all comes down to Stripe making it incredibly easy to get started. The way in which they're able to facilitate that is, every program fits within a certain framework of features and functionality. If that framework works for you and a vanilla program design accomplishes your needs, then it's perfect for you. You click a button, and you can deploy a card. It's great, and I have a lot of admiration for Stripe, as I mentioned. On the flip side, if you have any customizations or bespoke desires, Stripe's not going to be your best partner. Stripe's going to continue to be great for some customers, but not great for others.
- How did Apto come about?
- Who are your customers? If there’s a sales pitch that really resonates with them, what does that sound like?
- Why is it that the growth of customers is typically linear with headcount in finance?
- You mentioned the crowded landscape of issuers today, with Marqeta as the OG of developer-centric issuers. I'm curious to hear more about how Apto stands out. Is it primarily the developer-first mindset, or is there anything else that you would point to as far as positioning?
- For both banking-as-a-service and point solutions, there's an almost venture portfolio-like dynamic to a customer base. If you're Marqeta and you pick up a customer like Cash App, their growth could be enough to generate 60 or 70% of revenue. Does that align with this idea of incentivizing more companies to experiment that might not otherwise have a card issuing program? I’m curious to hear your thoughts on that.
- How do you think about differentiation among banking-as-a-service companies? Why choose one over another? For certain types of companies, does it make more sense to go with banking-as-a-service versus stitching together point solutions for different things?
- You’ve reminded me of a point I wanted to dig into deeper. I’ve seen various banking platforms that help you issue credit, but it seems like debit is somewhat rarer. Is it more challenging to offer? What are the benefits from your end of doing it?
- I’d love to hear more color on what your vision of a more inclusive world looks like, where there are vastly more fintechs or brands that have card issuing capabilities and the barriers to entry have been lowered.
- How has your thinking around crypto evolved since Shift launched that first bitcoin-backed card? How does that play into the company today?
- What’s your take on this mix of DeFI card issuing companies that are emerging? One that we were looking at is eco.com -- you get 5% APY on your deposits, so it’s like a neobank but linked to crypto. Is it a challenge to stitch together traditional finance DeFi on the back end? There aren’t a lot of companies doing it, from an issuing or a banking-as-a-service point of view.
- Various banking-as-a-service platforms aggregate together different point solutions on the back end. Would you consider partnering with these platforms to sell Apto’s services, or are you more focused on working directly with fintechs?
- If you’re a Stripe customer, why might you want to go elsewhere for issuing if you have the option to just use Stripe issuing to spin up a program? What are some of the factors that companies might be thinking about?
- Assuming we see a lot more card issuance from more brands and fintechs in the future, have you thought about what that looks like from a UX point of view? In the early days of rewards cards, when you had a rewards card from every brand in your wallet, it was overwhelming. How does a future with far more card issuance square with that UX problem, or does it look so different that overload won’t be a problem?
Questions
Interview
How did Apto come about?
As I reflect on these last two years of the pandemic, the shift to remote-first has really been an interesting experience. Among the challenges, in a remote-first environment, culture is something that's even more difficult to establish, maintain and actually share.
Along the lines of what makes Apto different or how Apto is approaching this industry in a new way, I think it comes down to not just myself, but my co-founder and the leadership team, the tone that we set, and the way we go about our day-to-days. I hope the consistency and authenticity of our leadership styles positively touches every colleague at Apto. We're not a hugely top-down type of organization; we're very organic and often bottoms-up. The way in which we try and go about our business is meant to be in our own unique way, as opposed to, say, a win-at-all-costs type of mindset. I don't want to call it a being humble thing, but I really think it is a reflection of who we are as people, the team we are, how we like to work, and how we like to see our work impact the world.
With that backdrop, to your question, “What is Apto? What are we trying to do?” We are a developer-first card issuance platform. How do we differ from, say, a banking-as-a-service platform, or why are we focused on being a point solution?
By way of background, my co-founder and I met at a consulting company that specializes in financial services matters, including regulatory issues, compliance, and risk management. It was a tremendous experience -- very, very valuable to me -- and we continue to work with many of our former colleagues. The point is, half-jokingly: as a consultant, you learn a lot, the client learns a little, but nothing really changes.
One of the last straws for me was the mortgage foreclosure crisis: consulting companies got paid gobs of money, but those who were harmed got very, very little out of it. The banks spent so much money on remediating and doing this forensic analysis of whether or not they did something wrong, but it was the consultants who got paid and not those consumers who were wronged. By rethinking payments and financial services infrastructure and specifically card issuance, why we thought we could drive change and meaningful impact.
If you think back to front, when folks are trying to pay in more seamless ways or simplify their life in terms of how they pay for things, the safest mechanism or device is, in the modern age, the card or the mobile phone. We went straight to the most tangible thing.
We were originally called Shift Payments and one of our first products to market was the first US bitcoin debit card. If you take a look at the internet time machine, you will see that our tagline back then was: “It's your money.” It really is an empowerment story of: it's your money, it's your asset, you should be able to spend it or access it however you want. Why should a company tell you otherwise? In terms of mission, we've always been about empowering consumers and helping bring about modernization and better solutions to market.
Who are your customers? If there’s a sales pitch that really resonates with them, what does that sound like?
Let me just start by saying, I tip my hat to Stripe. They're an impressive company, and we're motivated by them because of what they've been able to achieve, largely on the acquiring side.
In the issuing world, the developer-first concept is still new. I think you identified that other competitors of ours use the same type of language. But when Apto says developer-first, it really means “the developer controls his/her destiny.” There is no arbitrary roadblock; there is no bottleneck; there is no requirement to talk to a salesperson.
Outside of the payments industry, I would say Twilio is one of the best representations of a developer-first company. We are similarly working in that direction: full automation, full operationalizing of activities that others typically use humans for. To be a reliable partner to our customers, we cannot afford human error or mistakes. And, we want to be hyper efficient and able to do more with fewer people.
In other words, it's really important that we have an increasing number of customers per employee. I think in this industry, historically, companies have grown in a linear fashion, growing headcount alongside the number of customers they have. As a software company and as a product-led company, we need to build the right tools and solutions so that we can do more and achieve more with a tight knit team.
Why is it that the growth of customers is typically linear with headcount in finance?
It is linear because there are so many workstreams related to designing, building, configuring, monitoring, launching, and scaling a card program. Imagine that many competitors stand up a dedicated server for every card program. Even standing up that dedicated server takes manual work. And then, to the extent there are many potential features and functions associated with a specific card program, someone has to configure those manually while trying to make sure that he/she doesn’t make any mistakes. To avoid that, you might even put two people on it to check the work. It's a lot of human hours.
There's a reason why the networks charge all this money to set up a BIN. You're like, “Why is this so expensive? Why does it take so long?” It's because everything is manual. It’s hard to believe. But it's because there's a laundry list of things to do, and only humans are positioned to do those things for those more traditional companies.
For us, we like to ask why “Why does this have to be manual? Why does a human have to do this?” By offering the right tools, we can make configuring a card program on demand and straightforward. Our customers can say, “I want options A, B, E and F, but not C, D and G.” For us, the discipline to remove manual operations is extremely important and strategic.
You mentioned the crowded landscape of issuers today, with Marqeta as the OG of developer-centric issuers. I'm curious to hear more about how Apto stands out. Is it primarily the developer-first mindset, or is there anything else that you would point to as far as positioning?
Back to what motivated us to start Apto and what motivates our team today, it’s not only an empowerment story, but it's an equal access and lowering of the barrier of entry and inclusion story. Right now, especially in issuance, there's a huge hurdle of paying to play. Using a poker analogy, the blinds are just so expensive. In an environment where we want more customers to experiment and try new things and see if a card program makes sense for their company, the last thing these companies want to do is sign up for a three, four or five-year commitment with monthly minimums, and additional X, Y, and Z requirements. These factors disincentivize experimentation.
We want to make it easy for companies to try and experiment – we needed to make sure that there would be no hurdle to signing up on our website. Come to our website, sign up, cut your own sandbox keys, and have a look. Build, test, move to production, issue cards, and pay as you go. Other companies talk about instant issuance or self-service, other companies talk about being developer-first, but we are the only platform where customers can literally, over a holiday weekend, launch a card program without talking to us.
For both banking-as-a-service and point solutions, there's an almost venture portfolio-like dynamic to a customer base. If you're Marqeta and you pick up a customer like Cash App, their growth could be enough to generate 60 or 70% of revenue. Does that align with this idea of incentivizing more companies to experiment that might not otherwise have a card issuing program? I’m curious to hear your thoughts on that.
Think about it this way: we were fortunate enough to go through Y Combinator, but what is it -- over 300 companies in each batch now? The reason why they keep expanding the top of the funnel is because conversion rates are going to be conversion rates. Maybe that conversion rate stays the same or even declines when you have 300 at the top of the funnel. But when you have 300 at the top of the funnel, the number of absolute winners will be more than if you started with less.
That's the way we think about it. My co-founder has a family office fund and -- knock on wood -- we're very fortunate that that's done well, but at Apto, we're not investors. We're not positioned to pick or bet on potential winners. We are focused on being enablement partners to help facilitate other entrepreneurs' and other companies' good ideas, and we want to transform the way in which they can get to market and establish ideal business models. All of our customers interact with our platform – they all start at the top of the funnel. If we can help accelerate a customer’s growth because they are showing early traction, that's where our account management resources are best positioned. We want to support your company, your company's ideas and your product vision, and we just really want to accelerate your success.
I guess the other thing that I could add is -- this is all speculation but – I believe that, while Stripe, Twilio, and other developer-first companies have large-name brand customers, a meaningful percentage of their revenue also comes from a middle chunk of medium-size businesses that are significant companies, though maybe not household names in the way that some other larger customers might be. But I think it's a very meaningful revenue generator for them. For companies picking and choosing their customers, it’s more challenging to bet on the next medium-sized success story.
How do you think about differentiation among banking-as-a-service companies? Why choose one over another? For certain types of companies, does it make more sense to go with banking-as-a-service versus stitching together point solutions for different things?
I might tweak that question, if you don’t mind. I would say, the reason why I'm excited about Apto is, when you approach solution design back to front from the cardholder experience, we are uniquely positioned to continue to adopt, implement, and take advantage of the latest technological advancements. Let's just use crypto as an example: stablecoin, staking, yield. We are in a position to offer those products, in addition to a traditional checking account infrastructure. We can issue debit cards. We can create bank accounts that interact with those debit cards. And, we're also uniquely positioned to point or link that debit card to another store of value or another wallet, i.e., a crypto wallet. We have a lot more flexibility with our architecture than being hard coded as a traditional banking-as-a-service platform.
You’ve reminded me of a point I wanted to dig into deeper. I’ve seen various banking platforms that help you issue credit, but it seems like debit is somewhat rarer. Is it more challenging to offer? What are the benefits from your end of doing it?
Maybe it’s because I haven’t done it yet, but I actually think credit is more complicated. However, I would say that it's mission-aligned that we started with debit. When you think about impact and about facilitating inclusion, the problem to solve in this country -- and everywhere around the world -- is creating safe and secure ways for people to spend money. Especially since the recession, the growth of debit has been through the roof. For the first time, I think debit spend was higher than credit. For a long time, there were more debit card transactions, but the spend was higher on credit. I think that metric is now inverted, and debit is a higher volume of spend, which is pretty eye-opening.
I think what's relatively easier is commercial credit or business credit, as compared to consumer credit. Those programs can be relatively less risky. It's somewhat easier to get those to market. It's somewhat easier to implement controls and monitor those programs. For consumer use cases, I think it's harder to be inclusionary while having sound risk controls. I think that's why you've seen a number of consumer-focused credit card companies try and go direct-to-consumer, yet no one has really broken through. Instead, we’re seeing a number of those who attempted those business models pivot to provide white-label underwriting capabilities or even extend their platform as a B2B, credit card-as-a-service offering.
I’d love to hear more color on what your vision of a more inclusive world looks like, where there are vastly more fintechs or brands that have card issuing capabilities and the barriers to entry have been lowered.
In the 90s, investors were investing in “internet companies,” and now every company is an internet company, so they're just companies. At some point -- whether it was Matt Harris or whoever you want to attribute the embedded finance quote to -- it's not just fintech companies, but embedded finance is going to be everywhere, and embedded payments are going to be everywhere. So, at some point, they won’t be “fintech companies,” they’ll just be companies.” I don't want to sound too farfetched, but right now we have :crypto companies,” and the question is, when will they just be companies?
I think it really comes back to experimentation. Having been on the early stage investor side, it’s first about the people and their drive and second the idea. As an early stage investor, we always bet on people. We couldn’t predict what a company was going to be able to achieve. But, we knew that backing the right people could lead to pretty remarkable outcomes. In some ways, we want to continue to help facilitate extraordinary successes. Let's get out of the way and see what other people build. I love working on this company and executing and seeing the vision come to life. I believe there are so many talented entrepreneurs and creatives thinking about and dreaming up the next most amazing product or service. I want to make sure that those entrepreneurs and those companies have an ability to get those ideas to market.
In a legacy world, many of the next generation of products would have to endure some significant compromises and that product vision will never get to market. And that's my fear. We live in a world of so much possibility. I just want change to happen faster and go faster.
How has your thinking around crypto evolved since Shift launched that first bitcoin-backed card? How does that play into the company today?
I would say crypto-related companies today are part of our target audience. They're one of many types of companies that we work with. My co-founder and I and our team, we're big believers in the possibility of crypto and everything that's happening, especially right now with the acceleration of DeFi and progress towards a Web3 world. We're hugely excited about it, and I think it'll only be a growing proportion of our attention in the future.
Given our unique (regulatory-related) backgrounds, it's important to me that we help thread the needle and figure out how to get these newer concepts to market. These technologies can provide tremendous value to consumers and businesses. We want to do the legwork to make it all more usable in day-to-day life so the ideas don’t remain only conceptual. We want to create utility. In 2015, we did the same with the bitcoin debit card -- maybe it was too early in retrospect. We're still only so far along, but I still believe that that was the right thing for us to do at the time. Unfortunately, it didn't translate to a huge business win, but it set us on the right path.
What’s your take on this mix of DeFI card issuing companies that are emerging? One that we were looking at is eco.com -- you get 5% APY on your deposits, so it’s like a neobank but linked to crypto. Is it a challenge to stitch together traditional finance DeFi on the back end? There aren’t a lot of companies doing it, from an issuing or a banking-as-a-service point of view.
I think the challenge with DeFi and Web3 right now is the UI/UX. It is so challenging and so nerve wracking to use some of these wallets right now – it's just not user friendly.
That said, in my mind, this concept of a US dollar stablecoin is really no different than what we've been doing for years with PayPal and Venmo. An on-us transaction on PayPal, an on-us transaction at Venmo has always been a digital representation of a US dollar on a ledger. So, this concern over a cryptographic version of a US dollar backed one-to-one by traditional fiat -- I don't know why some are so up in arms about the perceived risk. It feels very hypocritical.
On the other hand, I think there’s a need for further consumer education. I don’t think consumers understand the tradeoffs for 5% APY (with these products) now. Early adopters are always going to be early adopters – it's always challenging to get past that layer and achieve mass adoption. I believe we're still very, very early.
Various banking-as-a-service platforms aggregate together different point solutions on the back end. Would you consider partnering with these platforms to sell Apto’s services, or are you more focused on working directly with fintechs?
We launched the bitcoin debit card in November 2015, but our first launch was with Dwolla back in August 2015. I'm still very grateful for Dwolla: they gave us our first entry point into the market – we continue to work with them today. I continue to want to make it easier and easier for their customers to switch on a card program. Right now it's not perfectly automated, but these are the types of partnerships that we're absolutely excited about. Customers choose Dwolla or any banking-as-a-service platform and, to the extent some banking-as-a-service platforms are not going to take on card issuance themselves, I would love to partner with them and make it easy for their customers to launch card programs seamlessly.
If you’re a Stripe customer, why might you want to go elsewhere for issuing if you have the option to just use Stripe issuing to spin up a program? What are some of the factors that companies might be thinking about?
It all comes down to Stripe making it incredibly easy to get started. The way in which they're able to facilitate that is, every program fits within a certain framework of features and functionality. If that framework works for you and a vanilla program design accomplishes your needs, then it's perfect for you. You click a button, and you can deploy a card. It's great, and I have a lot of admiration for Stripe, as I mentioned. On the flip side, if you have any customizations or bespoke desires, Stripe's not going to be your best partner. Stripe's going to continue to be great for some customers, but not great for others.
Sacra highlight
I think another one of your questions was, “Are you going to see consolidation or are there going to be a handful of winners?” I think that the industry is big enough for a handful of winners. The challenge for each of us is to establish our own unique positioning and differentiators.
Assuming we see a lot more card issuance from more brands and fintechs in the future, have you thought about what that looks like from a UX point of view? In the early days of rewards cards, when you had a rewards card from every brand in your wallet, it was overwhelming. How does a future with far more card issuance square with that UX problem, or does it look so different that overload won’t be a problem?
You can only change so much consumer behavior, but I think what's been remarkable is this acceleration of adoption for Apple Pay and Google Pay during the pandemic. Who knows what the reasons are going to be, but I think the mobile phone is so important to everyone's day to day. The physical wallet itself has diminishing value. I can tell you, I don't carry a wallet. Fortunately, living in San Francisco, most of the places I go take NFC payments. Certainly if I'm in Europe, I never need a wallet because they all take NFC payments. And then, when I go to New York, I see an increasing number of merchants saying no to cash – they're cashless and card-only.
I think there are many reasons to continue moving to cards, and I think there are many reasons to have multiple cards in your Apple Pay or Google Pay wallet. I don't think that there's a huge burden to having multiple cards because you're still going to carry your phone, and you can provision many, many cards to it. But your point is valid. I think you're not going to move everyone – however, maybe a big portion of the population is already starting to move in this direction.
I also acknowledge that there remains a meaningful population transacting in cash, and maybe that’s for budgeting reasons. I think how we interact with our phones could start to bridge that gap. Whether it's personal finance management or any of financial education tools, the fact that you have this information at your fingertips is potentially a way to further incentivize movements away from cash, because the information you have is arguably more insightful now. We'll see. I think there's a world of possibility.
Disclaimers
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