An Interview With Fattmerchant CTO: Jacques Fu

Payment processing – A pain point so tedious that it is perhaps among the more common barriers keeping people from jumping into entrepreneurship. A lot of budding companies have set out to solve this problem around the world with renowned brands like Stripe and Payoneer making cross-border waves, especially for e-commerce entrepreneurs operating on Shopify.

Unexpected charges, fees, underwriting problems and most of all… The very unpredictability of payment charges make calculating e-commerce ROI a nightmare for most solo hustlers. But thankfully, a few startups are in turn hustling to solve this problem at the root.

The way most payment processors work is usually something like this: There’s a central payment gateway provider that handles the crux of the processing for a small fee on every transaction, but they usually can’t be tethered to your business directly (not unless you’re a ginormous enterprise). You need a payment processing service for that… Which handles stuff like integrating with banking systems, risk management, underwriting, and stuff like that… For yet another fee that gets added on top. Then you have credit card companies and banks adding their own fees on top, all culminating in knocking off a noticeable chunk of your profits that you certainly won’t see coming.

Enter: Fattmerchant

Fattmerchant is a company that approaches this problem with sleeves rolled up. They work at the lowest level of the process (i.e. at the payment gateway) and significantly cut down payment processing fees compared to the usual payment process… All for a very lucratively cheap subscription cost. The startup has raised a cool $8 million in capital so far and has just crossed $1 billion in annual payment processing. I had the pleasure of chatting with Jacques Fu, CTO at Fattmerchant and an all-around nice guy who had some valuable advice for struggling entrepreneurs.

For those of us who don’t know you or your company, can you tell us a bit about yourself?

Jacques Fu: I am the CTO and the technical co-founder at Fattmerchant joined the team early on during a tech accelerator starter studio in Orlando. And yes, it raised $5.5M… And in total, we’ve raised $8M in capital so far.

What does Fattmerchant do differently?

So one of the key differences in what we do is we don’t make money on processing. Even though a lot of merchants or businesses compare us to Paypal or Stripe… the difference is that we are a SaaS product first. Instead, we have a membership subscription to our network and we only pass along processing fees (instead of adding our own).

What differentiates us from Stripe or Paypal as an example is that they charge a markup on top of banks adding a certain percentage (whether as a flat rate or an add-on cost). This percentage adds up as you grow the amount of money that you need to have processed. With Fattmerchant, it is only the direct interchange from which the charges are incurred, thereby bringing the businesses the lowest cost of transacting. It’s pretty much like charging a debit card where it is a fraction of a percent.

The Fattmerchant Team

I think the difference for the vision for FattMerchant was that we really just wanted to be there to serve the customers.

How did you come up with the idea for your company? Payment processing is a rather tough game to get into… Not many people would try to stare down giants like Paypal and Stripe.

Our CEO, Suneera Madhani, was the one who originally came up with the idea. She started out in traditional merchant services where that was the standard practice. I think the difference for the vision for FattMerchant was that we really just wanted to be there to serve the customers. We wanted to offer a membership instead of trying to make money on the actual processing. This is why we don’t consider our company as a payment processor first but rather a technology company with an SaaS model.

If our revenue model were to align with that, it had to be a membership-based model. And everything else we would do at or below cost.

… you really need to make sure you focus on thousands of customers having the best experience in the future, even if it comes at the cost of responding a little late to something today.

What has been your biggest hurdle thus far along your journey as entrepreneurs? How did you overcome it?

I think the biggest hurdle for us was really the focusing on what projects and objectives we needed to tackle first.

Having a small team of very driven and smart people; we’re always trying to solve every single problem. What we realized early on is you really have to make sure is that you’re not reacting to everything that holds your attention throughout the day. You really want to start each day tackling what is going to be most impactful to your business. And sometimes that means that you’re not going to immediately respond to a customer or do something that’s very hard for you to NOT react to … But you really need to make sure you focus on thousands of customers having the best experience in the future, even if it comes at the cost of responding a little late to something today.

So focus on “the greater good”, always!

Correct!

Fattmerchant seems to offer terms that sound amazing on paper. A small fixed fee with no hidden charges. How welcoming have your business leads been so far and what has been your biggest challenge in terms of converting them?

One of the challenges we face is sometimes is other payment processing models having a certain simplicity that seems more attractive to those who are just starting out … So our toughest job becomes educating micro merchants on what they’re missing out on. Usually as they grow to become mid-sized businesses, they eventually realize that the cost of payment processing wasn’t exactly on their radar from the start.  I think when it comes to micro merchants and getting them to understand the value of our subscription as they scale their business, that’s been the toughest challenge.

On the other hand, for businesses that have been operating for a while, they get it. The worst that happens there is sometimes they’re a little suspicious just because they’ve been burned so many times by other payment processors to the extent that it just sounds too good to be true in some cases.

Since China is a market that’s too big to ignore, do you see yourself penetrating that border? Paypal’s been unable to do it, but they sidestepped it by focusing on cross-border payments and partnerships. Stripe and Payoneer are available in many countries where Paypal doesn’t bother to operate. Will you be focusing on emerging markets in Asia and the like?

I think our first expansions are going to be mostly North America… Like Canada or maybe even South (America). Not to say that we wouldn’t be interested in pushing out into other merchant markets at some point in time but it will depend on when we can be the most beneficial for the global market.

What is most likely is that we might be partnering with other companies for this I would imagine. But again i can’t speak too much on those because there just aren’t a lot of links right now for those markets.

Do you think said partnerships could lead to increased processing fees?

We would want to find a partner who would be able to support our model. If our goal was to make a whole lot of money off a group of merchants, then we would just be doing the same old thing. But what we want to do is make sure is that IF there is a partner out there, they have the same vision and they can deliver our tech and pricing to the same merchants and somehow be able to work together and collaborate on that.

We’re really excited to have recently on-boarded a top exec from Worldpay, something that we wouldn’t have been able to do prior to our funding round. We have also crossed the billion dollar mark in annual payments processed now, so our volume is getting up there. Plus this year we released our marketplace, API and an omni-channel platform so there is a lot on the product side that we are focusing on right now before we’re able to push out into other markets.

I actually had the chance to survey some large e-commerce sites prior to this interview. I asked them about the most common problems with Payment processing and the most unified ones among them were unexpected fees and a certain portion of their funds being held back in case of refunds and charge backs. How does your service make lives easier in these aspects?

So this is what I was saying about the micro merchants previously, that it has been one of the challenges with that group of businesses because they’re expecting some sort of instantaneous underwriting process that comes along with the Paypals and the Stripes of the world who let you click a button and say “oh yeah you can take money right away! And we don’t even need to know anything about who you really are!”

What happens is that those organizations are doing a risk based approach to underwriting so when they do end up reviewing your transactional volume and you’re doing something a little bit outside the norm and they’ll start holding back funds and things like that without telling you. So that’s the danger of that sort of instantaneous approval.

We do things differently by performing all of that underwriting up front. That doesn’t make a lot of businesses happy initially because they want that instantaneous approval but once they get approved, we know what their volume is going to be, we know what amount of chargebacks and refunds to expect.

It is not a common practice for us to have to hold back funds. It is kind of all or nothing. Once we approve you, we know what sort of activity to expect. So we don’t have to resort to those sort of things.

Followup! How long does this approval process take? And how do you expect to cater to a larger market as your subscriptions grow?

We are looking at essentially doing something akin to instant approval but in a bit of a hybrid model where we can get as much documentation upfront, but still give them that instant approval convenience alongside the underwriting process.

You can still get approved same day or next business day, it would depend on how quickly you can provide documentation and if everything lines up correctly. But again, that’s where we distinguish ourselves in that we put in a little upfront effort for your business so that we don’t have to hold your funds or have to resort to investigating anything out of the norm further down the line.

“Where are my leads coming from? What percentage are converting? How do you scale those leads?” If you can’t answer those questions, you’re going to have a tough time keeping yourself fed and with growing your business, regardless of how amazing your product is.

I have a couple of questions from our community for you as well! The guys were very impressed after first hearing about your company.

The first one is from Ovais who works as a finance manager for a tech company- He says “A big pain point for a lot of ecommerce businesses is chargebacks. How does Fattmerchant distinguish itself in terms of Paypal’s service offering with seller protection insurance fees. They take 1% of every transaction in exchange for an insurance of sorts. What does Fattmerchant offer in terms of seller protection and risk management?

As far as chargebacks we do monitor them and facilitate the process. So we don’t just wait for you to respond. We try to do our best to actively monitor and reach out to businesses to help them work through the cause and resolution of chargebacks. We work with them to make sure that they are following best practices so that any issues come up, they have the right documentation in place so that they can address them quickly. As far as insurance goes, we did open up our marketplace this year and the first cohort businesses we are looking to partner with are around financial services that are like insurance, lending and things that grow businesses with financial products. So certainly that’s one thing we’ll be looking into as to how we can incorporate some protection for the merchants.

This one is from Alex Silva from Reppy.co – He asks:

It would be awesome to know if your solution can fit multi-vendor marketplaces as there are not many solutions out there that are tailored for peer-to-peer platforms at that attractive a pricing model. Also I’d like to know if you are planning to support virtually any business model, including on-demand businesses, crowd-funding, travel & events etc.

We do have an underwriting process today that would limit the type of businesses that we would be able to support BUT with a very quick phone call, we’ll be able to figure that out with your business right up front to make sure that you’re with the right fit.

For the most part, that’s something we’re going to be revisiting as we move towards instant approval. Along with that we’re potentially looking at changing the underwriting rules for us as a business and being able to accept a broader spectrum of business models out there. But for now, we’re sort of fixed in in that regard.

Any advice from an entrepreneur to struggling ones out there?

The common thing that I see for businesses is really just their lead generation and sales problem. I see a lot of great products, I see a lot of sales teams, but not necessarily given the right process or funnel to become successful.

The common theme that I come across is making sure that entrepreneurs can answer questions like “Where are my leads coming from? What percentage are converting? How do you scale those leads?” If you can’t answer those questions, you’re going to have a tough time keeping yourself fed and with growing your business, regardless of how amazing your product is.

I agree. I see a lot of startups crop up but never see as many managing to scale upwards.

On that note, It was a pleasure talking to you Jacques. I wish you the best in all your endeavours and it was nice time talking to you!

Thank you and best of luck to all you entrepreneurs out there!