Tom Blomfield, Matt Robinson and Hiroki Takeuchi are three Oxford graduates who defied the odds to get into the Direct Debit niche, jumping regulatory hoops and smashing development challenges to launch a brand new kind of payments business. GoCardless lets any business or individual accept Direct Debits for a 1% transaction fee (to a maximum total – that’s right, maximum – of £2). It’s one of those businesses that are so simple you don’t know how it hasn’t been done before.
MT caught up with Robinson and Blomfield on the day of their public launch to find out how they did it.
Who had the idea?
Matt Robinson: It all came around at the back end of 2010. We were management consultants working in the City. We wanted to leave and start our own thing but were just looking for the right idea. We tried to think of a problem that we’d all experienced and landed on the idea for a payments venture – everyone’s had to collect money at some point, whether it’s your sports team or university society. So we started from there.
What’s the business model?
Tom Blomfield: We thought that it was crazy that only massive organisations had access to Direct Debit. It’s a really powerful mechanism – but it’s really clunky and hard to integrate with any existing payment platform. So, we went and sealed a deal with the banking authorities to let us create a seamless API that made it easy and cheap for small businesses to take debit payments. We package it all up and make it modern and simple to use - and take a 1% cut for our trouble. But we never charge more than £2.
You make it sound easy
Matt: It wasn’t. Getting the banking deal was very difficult. There are extremely stringent regulations governing the use of Direct Debits. We were extremely lucky to get a look in – you can’t usually get access unless you run a £1m or £2m – sometimes £10m – turnover company. We were lucky in that we had some decent connections from our City days and managed to negotiate a deal.
How did you get the cash to fund all this?
Matt: For the first few months, we bootstrapped. We all had a bit of savings and most of us are coders – or learned to be. Then, in 2011, we went to Y Combinator for five months over the summer and got some seed funding. Later on, we managed to secure $1.5m backing from investment company Accel Partners, and a London-based company called Passion Capital.
So, who’s using it?
Matt: In closed beta, we had 300 merchants trialling the technology over five months, everyone from coffee wholesalers to digital content providers. Since then, around 1,000 merchants have signed up to use it. We’ve also teamed up with Software-as-a-Service (SaaS) accounting business Kashflow to give their customers GoCardless access. It’s all automatic – so you can set up recurring payments without any hassle. It went live today and there are around four sign-ups happening every minute.
What’s the secret to your success so far?
Tom: At Y Combinator, we had it drummed into us that you have to make something that people want. You can’t be dogmatic or prescriptive about your product. Merchants already used things like Paypal for those one-off sums but they wanted something cost-effective to take regular payments. And they wanted to move away from credit cards. So we gave them what they wanted.
What’s the problem with credit cards?
Matt: Well, one merchant we worked with told us that they lost nearly 10% of payments every month on credit cards. Direct Debits, on the other hand, only have a 1-2% failure rate. It’s because credit cards are often lost, or they just expire. Your bank details stay the same – and you can’t misplace those. Also, credit cards take around 2.5% from small businesses in transaction fees. We’re much, much cheaper. It's the age of austerity: lots of businesses are finding it really hard and reducing the cost of payments can make a big difference.
How fast are you going to grow?
Tom: That depends how fast we can get more partnerships on board. That way they do the marketing for you, which is nice. And the good thing about GoCardless is that there’s a viral nature to the technology. We've had lots of people coming to us and saying, ‘I’ve just paid someone using this. How do I get it for my business?’ But ultimately, we’re looking to grow fast enough to generate a profit in three years or so.
What’s been the toughest moment so far?
Matt: We’ve had a pretty pleasant journey, really. The hardest thing was raising money extremely quickly, having to convince people that you’re worth the investment. But the model was sound: if you’re charging 1% and it costs you less than that to do it, you’re on to a decent business.
There are three of you. How do you divvy up the workload?
Tom: It happened pretty naturally – we have ended up taking the roles that we were good at. Matt’s great at sales and customer service and talking to people, I’m the techie of the team, Hiroki is good at the product side. Three really is the magic number for us. Have you heard people taking about the three Ds? Development, design and distribution. That’s what we have.
Find out more about GoCardless