Jordi Romero interviews Benoit Menardo and Avinash Sukhwani, co-founders of Payflow, one of the last startups in which Itnig has invested through the Itnig Fund.
What is Payflow?
Payflow is a fintech a B2B2C business model. Payflow’s goal is to give employees the freedom to collect the fraction of the salary they’ve already worked for whenever they want. We don’t like the idea that, until now, employees get paid only once a month. We believe that this way of paying makes sense for companies, but we want to give employees financial freedom.
Is it the equivalent of payroll advance?
We don’t like that comparison, because it has this negative connotation. A payroll advance gives this idea having to ask for money, “advance” the salary. Payflow offers a new way of getting paid, more flexible, and fairer for the employee. It is a real-time collection of payroll.
Everything is very immediate nowadays. For example, you can rent an office per month. A few years ago you couldn’t. Now there are some that are available even for weeks. Now you can rent a car per day or per hour, or even per minute.
What are the limits? Is there a cost? Are there legal implications?
Yes, there is a limit. The idea is to change the way of collecting this money and not have debts. We don’t want people to go into debt more than they can. We want people to get out of these debt cycles. We put limits in terms of the percentage of your payroll that you can access. For example, we recommend 30 percent, but companies can choose 20, 40, 50. We recommend 30 percent of your payroll because 70 percent is your rent, your food, your transportation. That won’t change from one month to the next one. If we see that people are using it responsibly, then we will remove this limit.
We integrate with the company’s processes so that this does not involve any burden and everything is automatic. That’s when technology gets involved.
Is Payflow a financial product, or a software? Where do you categorize it?
We see it more as a human resources product because it is really a «perk» that companies can offer their employees, financial freedom. We don’t see it as a financial product, because legally this money is yours, you have earned it. So, it’s not a loan.
Are there no interests?
It is a commission, you pay a withdrawal fee. We charge 2 euros for each transaction. It is a profitable business model, it is quite successful, not only in Spain but throughout Europe and throughout the world.
Why are you launching this project in Spain?
It made the most sense. We started with Rocket Internet and it was a purely analytical analysis of which countries made the most sense, where it was most attractive. In Europe, after the United Kingdom, because there is already a lot of competition there, the second is Spain. Also, we both know the country and have good networks here, we are comfortable working here. In the end, we think it is a good country to build something cool.
Who is Payflow’s competition in Spain?
In Spain there are about three or four companies doing this. But, although there is a lot of competition, we are at a very early stage. We see it as market penetration. Today, in Spain, penetration is 0.2%.
In Spain, the employee has the right to request the fraction of the worked salary when they need it. How do you compete with “the law”?
Comparing ourselves to “payroll advance” is like comparing Uber vs. the traditional taxi. Payflow is more immediate, you don’t have to ask for anything, you don’t have to give any explanations. It’s about convenience and privacy. For most people these days, immediacy is key.
Does the money come instantly? How does this work?
We work with an external provider. It is like Verse or Bizum, transfers are instantaneous. In other words, it does not matter which bank the company works with and the employee’s bank, the money is received instantly. That is also part of our value proposition.
Are banks competitors?
Banks have not yet done so, because it is a B2B2C system: you work with companies to reach the end-user. In other words, the B2B part is less developed. It is more difficult for us to get to the company because we have to make a commercial effort. On the other hand, the bank already has all the companies, but it’s harder for banks to reach the employee.
If you think about it, Payflow is 100% free for the company. In the end, we offer them a better financial situation for their employees, making them happier, encouraging them. In other words, there are very few companies that don’t care about the financial well-being of their employees.
It’s been three months since you launched the product. Let’s talk about metrics: customers, employees, product…
Well, in the first month Benoit came from Singapore and we got down to business: set up the legal structure, think about the framework, like what are companies like us doing in other countries, decide our branding, what kind of image we wanted … This was in January. By the end of January, we already had the company, and we were more or less ready to start developing the product. We spent a lot of time finding our CTO because neither of us (cofounders) are technical experts. Developing a strong app is what can make this work or not work. We were lucky to find one, Juan. We spent two months or so preparing the first version of the MVP.
What did you invest for this?
At this time we already had a part of this funding round that we have announced, it was a pre-seed funding. We’ve had external financing since day one. Without this money it would have been very difficult to hire the people we have hired. Without money and also without the brand.
The first investor was Rocket Internet. What did you present to them?
We had already worked with them and we already knew this model. When we went to MIT together seven years ago, it was just starting in the United States, and we thought it was a model that wasn’t going to work. Three, four, or five years ago, it started to get a little bit more interesting. And later we saw that we could do it in Spain.
In April, we already had a first version of the MVP. We were able to test the product with two companies of friends and we learned a lot. Also, we are a company that has practically launched in full COVID19 times. We still don’t know what it’s like to work in an office and without the virus situation.
Let’s talk about numbers
Well, we started two clients, who were two friends. But, we were able to sell during COVID19. The truth is that it has been difficult only with videoconferencing. You have to learn new skills, you have to learn new ways of working. But today we stand with more or less 30 companies (clients).
Do they make transactions? Do they use the product?
Yes, the truth is that, in three months, we’ve been able to understand the sales part better. The activation part is something that we are in the middle of understanding. The activation was very bad at the beginning, we had companies with zero transactions. And that is a problem, because, in the end, we spend effort with a client that doesn’t generate income. So, we are working more on our activation strategy. We have a fairly high download rate, over 50 percent. That is, if the company has 100 employees, 50 will download the application, which is quite good. But achieving the mindset of using the product on a regular basis takes time.
You raised a round of 1.6 million euros. It is a considerably large round for the short time the company’s been ‘alive’, and for a startup in Barcelona.
Yes. There is an urgency of this model, everyone understands it will work in Spain. The capital raised is a competitive advantage.
It is a difficult decision for an entrepreneur to make because raising money has the cost of losing ownership of your company. Why are you raising so much money so fast?
We could’ve not raised more money after the pre-seed round. We could have stayed with the initial investors, but with this money we would have made it to the end of the year. And well, being quite pessimistic, I thought that in October and November the fundraising situation would be much more complicated. So we saw that we needed more capital to go until the end of 2021. Everyone recommends having enough for next year and until the end of the year, and that is the main reason.
You are a special couple of founders. We (Itnig) as investors liked your profile, the energy, the ambition. Where do you come from? How did you get here?
We were both lucky to study at MIT for a year. The first day I stood in my fraternity looking for that American life and, instead, I found Benoit in my room. And basically that’s where the story begins. From that first day, we became inseparable. We had too many things in common and, above all, we always wanted more. We wanted to go out until later, we wanted to travel further, we wanted to go to more events within the university, and we wanted to do academics as well as possible.
It is the two of us against the world. We have very similar experiences. After MIT, we both worked in consulting, in very similar companies. And after three years, we became entrepreneurs with Rocket. We both worked with Rocket, in different startups, both as co-founders. Avinash was between Madrid and Berlin, and Benoit was in Singapore and Indonesia. We were both co-founders with Rocket.
Right after Rocket, we decided to create Payflow.
Good luck to Payflow, and thanks to Benoit and Avinash for this interview on our podcast.
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This post is also available in: Español (Spanish)