By Matthew Lynley
When you finally buy that sweet lampshade from a site like Fab.com, there’s another start-up working behind the scenes making sure your money gets where it is going.
It’s a start-up called Braintree that now processes more than $5 billion in payments annually, and more than $1 billion of that comes from mobile. The company just raised $35 million to bring its total funding to about $70 million.
Braintree, like other payments providers, charges a small fee for every credit card transaction. Developers basically add a few lines of code to their websites or apps and can immediately begin accepting credit card payments, with Braintree handling all the processing details.
Like the younger provider Stripe and Square, a payments-processing company built by Twitter co-founder Jack Dorsey, Braintree is one of many payments-oriented start-ups that is attracting a lot of interest from venture capitalists.
That’s a lot of funding for a start-up that already seems like it would be making a fair amount of money (Braintree is actually profitable too, according to its CEO Bill Ready). So, we caught up with Ready to find out exactly what the company is doing. Here’s the short version from our conversation:
- Payments providers need a strong balance sheet to handle international payments. They still have to work with banks, and those banks are more likely to work with a start-up if it has a lot of money sitting in the bank as a hedge against fraud and other problems. These kinds of problems often prevented start-ups from expanding internationally until they had hundreds of millions in revenue, but they can now by using Braintree.
- For its customers, using Braintree for one-tap purchases on mobile apps like Fab.com brings conversion rates for mobile shoppers back to where they were on desktops. Mobile users often don’t monetize as well as desktop users, and entering credit card information can be a painful process on a phone or tablet. But start-ups can build a custom check-out interface that is basically a one-tap-purchase, which brings conversion rates back up.
Here is an edited excerpt of the interview:
What’s your experience before running Braintree?
Bill Ready: Braintree is my fourth early-stage business. The first one was an online banking and payments company. I was the first engineer in their group while I was a computer science student at Louisville, that had an IPO in 1999. I went through the first bubble, we ended up selling that business. From there to another start-up to Infosys , the first digital health plan, where I led a product and engineering team there. I took a brief break from entrepreneurship to go to Harvard Business School, but really missed being in the start-up environment.
After a few more businesses, I went out to Accel Partners as an entrepreneur-in-residence. While I was at Accel we found Braintree, when Accel put the $34 million Series A into Braintree and liked the company so much and got along with the founder, they decided to come on board and run the company. We’re growing the business quite rapidly and just raised our Series B round, bringing our total funding to $70 million.
How is Braintree different from other payments providers?
Bill Ready: Think of us like PayPal. We’re targeting the merchant side, making it easy for e-commerce developers to get up and running. We’re going after the consumer side to enable an elegant mobile payments experience for consumers. We’re a solution that works for every size e-commerce company. Integration of Braintree takes 30 minutes or less.
You then have everything you need to grow and scale your business, and build the next LivingSocial. Many started with us when they got their first dollar, but they are still able to run on Braintree when they have hundreds of millions in revenue. We think of this as we’re doing for payments what Apple’s iOS platform did for mobile. You could build mobile applications before iOS, but not many did because it was really hard to do so. Apple came along and built this beautiful platform that gave you easy access.
We handle 130-plus currencies. Uber and HotelTonight have expanded internationally in their first year of existence, which was previously unheard of largely because you couldn’t get the ability to accept payments internationally until you had tens or hundreds of millions in revenue. It’s making it really easy for companies like Uber and LivingSocial to expand internationally.
So how does it work?
Bill Ready: It’s a couple lines of code, we give you the code to drop into your app. If you’ve used Uber or Fab.com, you as a user are oblivious to the fact that we’re powering that behind the scenes. The experience is completely built by the developer, but that developer is getting that experience by dropping in a little code by Braintree. We enable that to work across more than 130 currencies. We’ve got everything you need, and we’ve proven to scale up to very large volumes. At peak load we’ll see as many transactions as Amazon, and we can handle those massive volumes. We will work for you even when you become a LivingSocial-size company.
What kind of volume do you guys process?
Bill Ready: We’re north of $5 billion total volume and more than $1 billion is coming on mobile, annually. Braintree’s been profitable from inception; it remains profitable today. We certainly have lots of cash from the fact that we’re a profitable business and a business model that scales.
So why raise money?
Bill Ready: The reason we’ve raised funding is, we do think we have a very legitimate opportunity to go create the PayPal for the next generation of e-commerce companies. Having a strong balance sheet helps us do that, we cut deals with major banks around the world. We say to banks we have a proven ability to assess and handle risk so they can trust us to work with companies to handle that risk appropriately. Having a strong balance sheet is part of that.
You need to have a lot of money to process money internationally?
Bill Ready: It’s not that you’re required by them, but when you talk to an international bank, one thing they want to know what the competency of your management is. Having a strong balance sheet is really important. It gives them a greater degree of confidence. As many people know, PayPal in its early days burned through $100 million in cash because they took so many losses from fraud and those kinds of things. The risk, if you don’t manage it well, can be tremendous. While we’re profitable, having a strong balance sheet that demonstrates we can handle that.
What kind of risk do you deal with?
Bill Ready: There are different types of fraud. If you look at traditional e-commerce, where somebody buys something or a service and you deliver it, managing the front-end risk around, that’s the primary risk. Then there’s marketplace businesses. We work with Airbnb as well as Taskrabbit and others that have marketplace-type businesses. Each have different risks around the markets in which they’re operating. Airbnb makes sure the renter and the person renting are trustworthy. In the same way that you’re Taskrabbit, they’re making it so small vendors are delivering goods and services, and they have a different type of risk. Those will be handled by the business. What we do handle are whether it’s a buyer, is it a valid credit card, that’s the core competency of whatever that business is.
How hard was it to get funding? Was it easier because your company isn’t making money off advertisements?
Bill Ready: We didn’t have to work hard to raise funding. We only talked to a few firms that we had gotten closer with over time. We have a fantastic partner in Accel and had a lot of other firms wanting to invest. It’s much more around the fact that we’re growing really fast. We have a proven business model that makes money. That’s largely what caused that to happen more-so than payments being really hot.
There’s a lot of interest in payments. Just as what happened with social, once people that was working everyone wanted to do it. You’ve had some big successes. Square has been the most noteworthy, and we’ve seen a lot of emulators. I don’t know if it’s about people giving up on advertising, it’s more about people seeing there are new commerce opportunities. Uber created a business that didn’t exist before, and you see shopping experiences like Fab.com that are inherently mobile and social.
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