Payments Innovation

Sometimes It Takes A Bagel

YapStone Takes Down Paper Checks

The inspiration for payments innovation can sometimes come from unlikely places — like investing in bagels only to have an anti-carb diet craze take the market by storm months later. But Tom Villante, CEO and founder of YapStone, didn’t let it get him down. Villante joined Karen Webster to discuss how this experience eventually led to tackling the paper check in some unlikely markets and enabling YapStone to carve its own path into payments.

Every innovator can point to something that stirred up their passions for changing the world and working 100 hours a week to make their vision a reality.

For Tom Villante, Founder and CEO of YapStone, that was the Atkins diet.

Almost two decades ago, Villante decided that investing in food businesses would be a safe bet. People, after all, have to eat, so what could go wrong? So, he invested in a steady, no-fuss business — a bagel restaurant chain. Bagels in the early 2000s were a pretty hot food group, and everyone was buying them by the bagful.

Until they weren’t.

Six months after Villante’s investment, the anti-carb Atkins diet phenomenon took hold. Bagels, that ultimate carb-carrying food group, found themselves suddenly as popular on the breakfast and lunch tables as a skunk at a picnic. Villante managed to get out with most of his investment — and waistline — intact, but he knew two things: He had dodged that bagel bullet and had to quickly pivot and find something else to do.

So, he started looking for the kinds of investments that “moved electrons, not atoms” in order to create a business that could quickly scale by not selling a physical product.

Which led him to something that his friends told him was almost as popular as eating bagels while on the Atkins diet — the paper check.

Even as early as 1999, Villante observed that many of the people he knew were already paying their bills online, all except for one — their largest payment every month: their rent payment. For that bill payment, the paper check reigned.

That convinced Villante that the way to “move electrons and not atoms” was to zero in on a pain point and a niche that others had largely ignored: making apartment rent checks disappear.


A YapStone Was Born

Villante decided that making checks disappear was going to require the introduction of a “full-stack” payments platform and technology solution that went far beyond plain vanilla “Auth, capture, settle” payment processing. It had to understand the apartment industry business rules, reporting requirements, accounting software integrations, as well as take on the risk of underwriting, onboarding and processing rents for landlords who received thousands of recurring paper checks each month.

Except that the landlords really didn’t think they had much of a problem to solve and, in fact, thought that making paper digital would create more problems for them. Getting landlords and property managers on board wasn’t all that easy.

Unlike supermarkets and retail stores, landlords didn’t see the value in accepting digital payments.

“A property manager isn’t going to rent a three-bedroom apartment versus a two-bedroom apartment simply because they accept credit cards,” Villante told Karen Webster.

Strike number one: Landlords wouldn’t see any lift from offering their customers the ability to do debit and credit card payments versus making paper check payments.

Then, accepting credit cards was pricey. Adding a 2–3 percent fee to a high-ticket rental payment was a material hit that landlords were not eager to take on.

Strike number two: Landlords weren’t all that keen on adding unnecessary cost to their operating budgets.

Previous attempts to persuade property managers to go digital forced them to deal with a lack of transactional detail that they needed in order to determine who paid and what they paid for. Just getting a statement with a name and amount didn’t help landlords and property managers distinguish between a payment that was for rent, parking or utilities; a payment by roommates; or if a payment was actually a security deposit. All of these scenarios were a big drawback.

“It was even hard selling ‘free,’” Villante joked.

But it was that last insight that Villante and YapStone used to turn what might have been strike three into the business that he has today.

Villante tweaked the platform so that it solved for the transparency and visibility issues by being the middleware that incorporates all those line-item details property managers need when receiving digital payments.


Bringing Value To Payments

With that value proposition intact, YapStone’s next order of business was to figure out how it could monetize its value.

YapStone’s apartment business, RentPayment™, which accounts for about 10 percent of its business, is a renter-paid, cardholder-paid model where there’s a transaction fee to use the service. Unusual at first blush since it is often the customer who is subsidized by the merchant or business in a matchmaker model, but renters pay because they receive other incentives and reasons beyond the convenience of making an electronic rent payment.

“Consumers get positive credit reporting by paying through our platform on-time, as well as other discounts and rewards,” Villante explained. “People can make meaningful differences in their credit score by just doing what they would ordinarily do but doing it through us.”

Millennials, Villante explained, are willing to “set it and forget it” on auto pay for $3.95–$4.95 and never have to worry about paying their rent or late fees — while, at the same time, building positive credit and earning other rewards.

“It’s a no-brainer.”


To Go Where Paper Checks Have Gone Before

Over time, YapStone has expanded its footprint into integrated software partnerships that have enabled it to reach a wide range of markets and marketplaces that also found payment a friction-filled experience since it was paper-based and/or difficult to close the digital loop. Vacation rentals, for example.

Its go-to-market strategy was to integrate most of the major vacation rental software vendors, enabling them to offer integrated payments to their customers without having to deal with risks, payment operations, customer service, onboarding, etc.

According to Villante, one of the largest global vacation rental marketplaces, HomeAway/VRBO, was initially focused on just connecting renters and landlords and was not focused on payments. It didn’t want to take a chargeback for losses or deal with the time and complexities of building out a payments business.

But once Airbnb and Uber came along, which Villante noted are essentially payment companies at their core, the pressure became too great for them — and others — to eschew payment offerings as well.

Now, HomeAway/VRBO has a payment infrastructure powered by YapStone, without taking on all of the challenges and risks that come with payments themselves. “Together with the 2015 acquisition by Expedia, YapStone is helping HomeAway transition from primarily a subscription business into an eCommerce transactional model.”

In the vacation rental space, Villante said that YapStone has now integrated with more than 20 vacation rental software vendors. They get to rent to people who want to stay in their facilities, and YapStone takes care of making sure they get paid for doing that — right away.

“Our view is that most marketplaces are not flush with the amount of money that [Airbnb and Uber] have or their model, and they’re not going to want to be payment companies, and we can help them compete without the hassles of being a payments player.”

Much like the Atkins diet back in the 1990s pushed Villante to think broadly about what to do next, the paper check today has pushed YapStone into thinking about the ways in which payments can play a more strategic role for marketplaces and matchmakers who see an opportunity and have the creative juices to make it their passion. That passion, Villante said, has now become his and YapStone’s.

“We’ve structured our partnerships so that everybody makes money pretty quickly,” Villante said. “Because if your partner isn’t making money and they aren’t seeing a decent amount quickly, then everyone loses interest.”

And for someone who knows firsthand how quickly things change, Villante emphasized that it means making sure that driving its partners’ business remains top of mind and at the core of how YapStone makes its money.



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