When Eliot Buchanan moved to America from Canada to attend Harvard University, it never occurred to him the biggest nuisance of attending one of the preeminent universities in the world would be simply paying his tuition.
Because he had just gotten a social security number, and therefore had no credit, Buchanan typically had to send a cross-border wire transfer every time tuition was due. When he did try to build his credit by paying with a credit card, he was told by Harvard that it was impossible.
That inconvenience was the impetus for Plastiq, a company Buchanan co-founded to allow people to pay any bill, from tuition to mortgage, through a credit card for a small fee.
The following interview has been edited for length and clarity.
Benzinga: Give us the skinny on Plastiq.
Buchanan: The company was started by myself and my co-founder. We met at Harvard, we were undergraduates, we knew nothing about payments, but I had been trying to pay a part of my tuition … and it was very inconvenient.
It turns out there’s tens of billions of checks in cash payments that are still made in the U.S. and that’s because there’s all these large bill payment industries that not many people are focused on, but they don’t take credit cards. So right out of school my co-founder and I decided to build what is now called Plastiq, and basically it’s a service that allows you to pay anything on an existing credit card. Basically, you can use them whenever you’re told you’re can’t.
Benzinga: You build a product that you would use. Did you know if other people would use it?
Buchanan: No, the honest answer is absolutely not. I had an intuition about market size. Obviously other people pay tuition, and every household spends a large portion of their income on bill payments, so I had a sense that the market size would be really large because almost everyone pays bills.
But when you’re first developing a product, you don’t really know how people are going to interact with it or use it until you build the first minimum viable product, which was just a simple website that was only focused on tuition. And we wanted to see what people would do. How much do people care? That’s how the company started—it was literally just a website that allowed you to pay tuition payments with MasterCard, Visa or [American Express]. And that’s how it all started.
Benzinga: How’d you get the word out?
Buchanan: One of the earliest observations we saw from talking to customers was, while many people opted to pay tuition [through Plastiq] it’s a very infrequent bill. It’s very seasonal, and therefore we had a lot of demands from customers who did want to use our product who said “Hey why can’t I pay all my household bills on this app?”
And it turns out there’s actually a lot of organic search and demand on Google to pay bills, or people who are typing in things like “pay harvard tuition” or more specifically “pay harvard credit card” or even more specifically “pay harvard using amex.” And there’s actually little competition for SEO, so we’ve been pretty successful driving organic demand through that perspective as well as word of mouth.
The other side is … if you think about our model, like any payments network it’s a two-sided business. There’s a sender and receiver of funds. So if you would use us to pay your rent, we would then pay your landlord and we would use that payment as a means to get his or hers attention. As in “Hey Landlord, your tenant has paid using Plastiq, would you like to learn more?” And they tell other tenants, and by doing so you get a one-to-many sales model.
Third and finally, we’re lucky to have strong partnerships with the major networks. So Visa, MasterCard, Amex, Discover, etc, they’re pretty motivated to want to grow our business because they’re in the business of wanting to get more spend on their cards. And we basically are a service or tool for them.
Benzinga: What kind of person uses Plastiq?
Buchanan: Within the consumer segment we found what we called a “mass-affluent” segment, which are people who have good-to-excellent credit. And the reason for that is because a decent credit limit can support these types of big payments. The average customer on the consumer side is 28-40, either young professionals who are living in the city and renting or they’re recent parents, the couple that has a young kid and still some tuition expenses. They’re middle to middle-upper earners in terms of their income and therefore they have decent to good credit and a premium credit card.
Within that you have the extreme rewards junkies, this group of five-eight million Americans who are really obsessed about points and they know where to transfer points and when, and that’s a segment we’ve been lucky to build partnerships with.
More recently we’ve had a surge in growth on the small business side, and it’s actually our biggest segment. Small business owners it turns out have a pretty strong need for short-term capital, especially if it’s a business heavy on inventory or supply chain – like restaurants. Oftentimes they are very profitable businesses but only on a 30-45 day cycle.
What we’re finding is they view us as the easiest and most unrestricted way to use credit they’ve already been issued i.e. in the form of credit cards to spend on a short-term capacity.
Benzinga: What’s your primary focus for growing the company in the next 1-2 years?
We’re continuing to grow our consumer business, mostly very much organically via the methods that you and I just talked about. Most of our proactive attention on growth is on the small business side, just because the spend per customer is higher because the size of the bills they pay. We feel like we’ve captured a pretty healthy amount of payments on the consumer side, but we feel like we’re pretty early in the market on the small business side.
Benzinga: Who are your competitors?
Buchanan: Our biggest competition is, it’s more online banking. We’re competing for people’s behaviors. This is an advantage and disadvantage. The advantage that we’re focused on is it’s an astronomically large market. Everyone pays bills. However, it’s a behavior that’s already happening. It’s not like everybody pays bills because of Plastiq. Everybody already pays bills. We’re not trying to change behavior dramatically, but our biggest competition is the behavior change of “Oh I didn’t know I could pay this on a credit card.”
Benzinga: Why charge a fee?
Buchanan: We’re not a free model. Clearly not everyone wants to pay a premium for the service. But we make it transparent and clear. But there are a lot of reasons why people love using credit. We actually have a lot of people who are fairly well-to-do financially, but all of a sudden they get a legal bill that’s unexpected or some other expense and they need 30 days to float that $30,000. Credit cards are a tremendous instrument to float short-term cash.
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