Do you think payments can drive brand differentiation?
Payments do drive differentiation. Having a seamless and smooth payments experience that’s almost invisible can drive a competitive advantage, and real growth in revenue. I think eventually—I don’t know if it’s 10, 20 years or something—it’s going to be “if you have any type of friction in payments, you’re going to lose.”
Does this trend of making the consumer experience much faster and more convenient also apply to B2B businesses?
I always think of B2B as consumers at the end of the day. So if you think of the folks who are so used to one-click checkouts or the speed of payments, and they’re the accountants or operators inside a business moving money, the expectation is going to start to shift. It may be slower, but it’s going to be, “Why is my business not getting the same speed?”
And we see that control of cash flow is absolutely critical for businesses right now. When a payment settles within hours, or when it settles in one day, it’s fine. But any time funds settle within two days, they start to call us and panic over it. Folks are willing to pay for instant settlements, especially in the small business sector. Folks are willing to get micro loans and so on, all to control cash flow and to understand when their cash is coming in and when it’s leaving.
I always think of B2B as consumers at the end of the day. So if you think of the folks who are so used to one-click checkouts or the speed of payments, and they’re the accountants or operators inside a business moving money, the expectation is going to start to shift. Shirley Hsu, VP and General Manager of Payments, FreshBooks
Can you give an example of a business where this kind of speed is especially important?
We recently launched Instant Payouts with Stripe, and we had a customer that was a big caterer. They were willing to pay for instant payouts because with that speed, they were able to purchase materials to complete their order with the money they had actually been paid for the order. With a longer settlement time, a smaller caterer might pay thousands of dollars to buy raw materials and then just hope that they actually get paid at the end of the day once the event is over. That’s a risk they’re taking, and that’s cash flow management that’s not smooth.
How do you think about managing risk in a world with an expectation of instant money movement?
It’s a constant struggle. Historically, I would have panicked over any fraud loss, and said, “No, you can’t have any loss. All loss is bad loss.” And that’s not necessarily true. It is all about “what is your risk tolerance, and what is your customer experience?” And I think the best way to think about that is around having organizational alignment on your risk tolerance. You need to be able to say, “We are willing to have better customer experience for high loss, or we’re willing to have medium customer experience for medium loss, or we’re willing to have bad customer experience for low loss.”
Is this risk management balance something AI can help with?
Yes. With AI, you can even go deeper and segment your customer base or the type of customers you’re attracting, and figure out the level of trust per segment that you are willing to have. We’re currently working with Scale AI to develop a supply chain intelligence platform for small businesses, to assess the risks in these small businesses’ entire supply and customer networks. Is there a supplier risk that our AI is detecting? Is there a customer payment risk our AI is detecting? We want to help that business manage the flow of their funds—and we also want to be able to better assess the general risk of that customer to decide if we’re underwriting or not.
Historically, I would have panicked over any fraud loss, and said, “No, you can’t have any loss. All loss is bad loss.” And that’s not necessarily true. It is all about “what is your risk tolerance, and what is your customer experience?” And I think the best way to think about that is around having organizational alignment on your risk tolerance.
FreshBooks is growing incredibly quickly, and I’m sure you’ve had to make changes to support that scale. What advice would you give to businesses in a similar position?
I think there’s a misconception that once you reach a certain scale, there are interventions you can make that almost passively improve your business. So for example, we recently changed to an interchange plus cost model. We thought it would be a magic bullet for instant margin improvement, but it’s more like a marathon than a sprint. You really need people that know how to optimize, how to ensure profitability, how the interchange and scheme and network costs are split, and how to monitor the industry. It’s not a set-it-and-forget-it situation.
So now we have teams looking at transaction costs, nontransaction fees, operational overhead. It’s not an easy task to take on, but it is giving us a 50% to 75% increase in margin because we’re doing the work.
More insights from our Payments Unscripted series
For more insights from leaders at companies such as FreshBooks, Anthropic, Visa, and Klarna, read our guide, Revenue growth reimagined: Practical lessons from 10 industry leaders.
