It’s rare for a start-up to glide silently under the media’s radar. “We never decided not to go to the media, we just never decided we would, and now seems like the right time to tell our story, before someone else writes about our financial technology start-up, Melio Payments, without asking us.”
This is how Matan Bar, the company’s CEO, explains things on the day the company comes out regarding its operations, after raising a cumulative amount of $144 million. “We did manage to halt previous publication through personal connections, but I’m now happy to share.”
In essence, Melio is Venmo for businesses, and provides a service for digital payments by companies, with an emphasis on very small businesses, such as a corner wine store paying the winery it buys its products from.
“Around the world, services that allow for payments between consumers are growing rapidly. Here in Israel there is Bit and Pepper Pay, and overseas there is Venmo, a service owned by PayPal. However, when a small business needs to pay a supplier, it has to go to its back office, which then sends off a cheque, by mail, to the supplier. In the U.S., the annual scope of these types of transactions is between $14 and $17 trillion dollars. That makes no sense, since the same person will send money to a friend using a digital service” says Bar.
Melio allows a small business to enter its service, scan an invoice (or enter details by hand), set a payment date, and that’s it. The app will see to it that the store is billed and issue a cheque or make a transfer to the supplier, according to the payment method prefered.
Melio Payments currently employs 125 people, compared to 35 last January. The company has raised $144 million, $128 million of that raised between March and August 2020. It handles billions in payments, with tens of thousands of businesses using its service as it rapidly grows. “This coronavirus period is awful for many people. We have clients who’ve closed their businesses, including retail stores and restaurants”, relates Bar. “Despite this, because of the rapid switch of businesses to online mode, we experienced a 700% growth between March and now.”
Melio Payments was founded in 2018 by Matan Bar, Ilan Attias, who is Deputy CEO for technology, and Ziv Paz, who is the Deputy CEO in charge of operations. Bar has established and sold a start-up before. In 2009, he set up, together with Ron and Maya Gora and with Erez Dickman, a venture called The Gifts Project. This company allowed friends to get together online and buy a joint gift for a common friend. In 2011, this start-up was sold to eBay.
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“We sold this company when I was 26-years-old” says Bar. The value of the deal was assessed at $20 million, after an initial investment of $1.1 million. “That was a different period in high-tech,” he says, explaining that he and Ron Gora were childhood friends. Bar was just finishing his studies in computer engineering and management. High-tech entrepreneur Yossi Vardi invested the money, and two years later they sold the company.
eBay was then part of PayPal. “I had the privilege of being part of a global group that dealt with transferring funds between people (P2P), within and between different countries. I was responsible for PayPal’s mobile app and for part of Venmo, operations that handled $50 billion, with revenues of over $1 billion. I was in the right place at the right time, since consumers around the world were switching from cash payments to digital transfers, and the growth was insane. That is where I started learning how small businesses pay their suppliers. I was in total shock that it was still done by cheque or bank transfer,” relates Bar.
Those methods were cumbersome, some of them requiring postal services, with worries about payments arriving on time. The transactions didn’t always synchronize with a business’s bookkeeping, so that entries needed to be made by hand.
These gaps led the entrepreneurs to leave the cozy incubator and start a new company. “I felt like creating another start-up” says Bar. “We were less naïve and chose a good area. I came from the fintech world so the ideas were mine. We then encountered the crazy scope of cheque usage in the U.S. We flew to the U.S. and interviewed small businesses.”
They bought a small company that dealt in bookkeeping, invoices, sending cheques and updating entries by hand, in order to garner experience and base their future company on consumers’ experience.
Melio chose a segment that was mainly off the beaten path followed by Israeli start-ups. Israeli start-ups usually aim to provide solutions for big corporations. “There is an entire area of our kind of solutions geared to corporations, with companies such as Tipalti or Bill.com. These are excellent companies, but their product is suitable for corporations. It’s a complex system, focused on inter-departmental approvals, going through financial or acquisition officers in a corporation. This is overwhelming for a small business, which has no departments or finance officers, and who do not care about automation of services.
On the other hand, a solution such as Venmo is too simple, since it doesn’t allow for future payments and does not link up with bookkeeping software,” says Bar. “Suppliers often don’t accept Venmo anyway.”
Melio allows a business owner to choose whether he wants to pay by credit, in which case there is a commission, or from his bank account, for free. The app helps the client define whether the supplier prefers a cheque or a bank transfer, and Melio completes the transaction accordingly. Bar says that they’re placed precisely midway between solutions that are good for corporations and those for consumers. “Conceptually, we’ve built a consumer-oriented company, since the person handling accounts is the business owner, the standard is a consumer app. It doesn’t have to look like a back office, but rather provides an experience which is not just simple, but also delightful. That’s why we recruited designers and product people with a background in consumer affairs.”
Another unusual decision Melio made was that much of the platform would be free, staying that way forever, Bar says. “I believe that transferring money is a basic right. I don’t think it’s right to pay for that,” explains Bar, while adding that this was part of the project’s viral strategy. “Because we chose this sector, we have a huge responsibility, to keep small businesses in business, to help them survive this terrible period.”
The way Melio wants to help small businesses is by improving their cashflow. “For example, before the holidays, some businesses buy double the amount of products. But sometimes they don’t have sufficient funds for that. If they choose to pay by credit, there is a 2.9% commission, but they pay 30 or 60 days later, after the products have been purchased. The supplier might give them a discount for buying extra, which can help cover the commission. I found you can make a big difference if you let someone get money a day earlier or pay a day later – it really impacts people.”
Melio’s roadmap includes several services. These include interfacing with services that provide loans or move-up payments. Melio is about to launch an option for international transfers from a U.S. client to any other country, including handling currency exchanges. The company intends to offer a speeded-up payment service, since bank wire transfers take roughly 2-3 days until they are registered. With an instant transfer, a business owner can pay a bit later. These, however, are services that will be offered for a fee.
Above all, Melio has plans to become a platform. “We’ve found out that there are companies that wish to offer the capabilities we’ve developed. You can now press ‘pay a supplier’ on Intuit’s Quickbooks software for example. This company handles 5 million businesses and is practically a monopoly in this field. We realized that payments are made in a context that occurs in different locations, not necessarily on our website. It can happen as part of a relationship between clients, on a bank website or an online site where a business orders some product. It’s just like a ‘pay through PayPal’ button exists on many sites, not just on PayPal. We’ll enable Melio capabilities on sites that are not Melio.com.
In case you’re wondering, Melio is focusing on the U.S. market for now, with no plans of expanding to Europe or Israel. “In European countries you may have 3 large banks, so it’s easier to build common infrastructure. In the U.S. there are 8,000 banks, it’s an insane fragmentation that creates inefficiency and a challenge – to construct new banking infrastructure. That’s why they still use cheques, and that’s why our focus is on the U.S.” explains Bar.