Why Bento Goes Where No SMB Solution Has Gone Before

http://www.pymnts.com/wp-content/uploads/2015/04/Bento-Podcast.mp3

Newly launched financial services innovator Bento takes the idea of “prepaid” to a whole new level – starting by honing in on small businesses. Bento CEO and Founder Farhan Ahmad says SMBs’ needs have long been underserved and underappreciated – so his company is stepping in to help them better manage and exert more control over their money, in real-time. Ahmad caught up with MPD CEO Karen Webster to talk what makes Bento’s “Bento box” of prepaid-debit and financial services offerings unique, and how the company is in the prime place to “marry” both startups and banks in the future.

KW: Bento is a platform that helps small businesses manage their expenses using prepaid debit products. Before founding Bento, Farhan, you were the Head of Digital Consumer Payments in Europe at Barclaycard. My first question, therefore, is what’s a digital payments innovator like you doing in the SMB prepaid space?

FA: As you know, before Barclaycard, I ran emerging payments for Discover, including prepaid. So prepaid is something I’m very familiar with, and I think it has great potential if we change it from the word “prepaid” and make it just another product that has utility and value.

The way we’re doing things is we’re not looking at prepaid as what we’re doing – we’re using the prepaid vehicle as a way to innovate in a space that’s avoided a lot of innovation. That space is small business banking and commercial cards – that’s been stagnant, and we think the best financial services network rails that will bring innovation to that space is prepaid.

KW: There are other players that have done similar things in the space directed to small businesses. What makes Bento unique?

FA: So you have the typical small business credit card companies, and as you know, those credit cards are actually just consumer cards. They’re not really built for small businesses – they serve consumer functions with monthly statements, and owners can set limits for your employees on a monthly credit line limit. And they’re based on the owners’ personal liability – it’s their credit on the line.

In addition, most startups and young companies won’t get approved. Take our own example – we’re a well-funded company. We applied to three different small business credit cards, and one got approved and two got declined. So that’s the one problem in the credit card space that exists.

In the debit card space, there’s really no functionality for small businesses. We realized that about 20 percent of general purpose prepaid cards sold in the U.S. were being used for small businesses to manage expenses because they just don’t have any other option. They don’t want to use cash, and they either don’t qualify for credit or don’t want to use credit.

KW: So you’ve taken a product that people were adapting to their small business requirements, and you’ve made it more efficient for them to use. Tell us about the product.

FA: With Bento, businesses sign up for a debit-prepaid product, so there’s no credit risk for owners. Everyone in the company can get approved and get assigned a card, or cards can be assigned for specific purposes like gasoline or petty cash. Businesses can set limits on the card, not just by month because most small businesses don’t operate under a predictable monthly cycle. And the card can be set to only work on certain days of the week – that’s something that only applies to businesses, not to consumers, so no credit card does it.

Something that Bento also does very cleverly is offer the option to switch a card on or off in real time. If an employee just leaves, the card can be turned off immediately. If the problem is resolved, it can be turned back on. In the traditional world, the card would have to be cancelled and then reissued. It is really a hassle.

Finally, we don’t send monthly statements. What we do is provide an elegant dashboard to show businesses where their money is going, how much is left, and how much money is being spent on what kinds of things. And the whole dashboard is operational – users can click on any item, get more information or change something like budgets. Users can also send out simple invoices with one click. No credit card out there can do any of these things.

KW: So it does give the small business owner a measure of control and predictability. But the one thing that credit cards do give you is the ability to dispute the quality of a product, or something that an employee may have purchased that needs to be disputed. What are the protections in a situation like that?

FA: We offer all of the same functions that a typical credit card will provide. We use MasterCard, and MasterCard’s commercial prepaid card has an amazing set of benefits. Not only do we provide purchase protection, we also offer zero liability for the owner, as well as car renter’s insurance and ID theft protection. These are all great features offered through MasterCard – consumer prepaid cards don’t get the same benefits as commercial prepaid cards.

KW: Is there a fee to acquire a Bento card? How do you guys make money – what’s the business model?

FA: The card product that we have is just the first product on our platform. Ultimately, we want to be the backend financial services platform for a small business. If they want a loan, we will provide it, and if they want bookkeeping, we will provide that. We’re not charging anything for the card.

We do have a fee structure. If it’s a small sole proprietor business, the product is free to use. If there are up to five users, we’ll charge $29 a month – that includes all the services like invoicing, expense management, the card, whatever else they’ll use. For up to 20 employees, the fee is $79 per month. So it’s not per card, it’s per user.

We make money from the SaaS model as well as, of course, the interchange benefit.

KW: On your website, you refer to expense management and the efficient access or the ability to raise capital. Give us some more information about what that means and how Bento fulfills that promise for small businesses.

FA: So I’m in the startup world, sitting in a space with lots of other small companies. All of them use a personal bank – cash or credit card or debit card – and then something to file expenses and something like a Bill.com to do invoicing. They use another system for bookkeeping on the backend, and another system to capture receipts. First of all, with Bento, businesses can eliminate all of these things. We use our own product for our own company, and nobody has to file an expense report – stuff gets done automatically in version one.

In version two and three, we will add more features like more sophisticated bookkeeping. Then, the next feature we may offer is lending – the next thing businesses need is loans. With a credit card, you have to get the expense management of a card and the credit line. They come as a package that you can’t separate.

Our vision is to separate the two – everyone who needs one or the other doesn’t necessarily need both. We’re going to do it in a very different way. If a business wants working capital and they need expense management, it will get both. If they don’t qualify for credit but still need the tool, you get the tool.

We also feel very confident that we could significantly increase the margin on loans for the bank or the lender – almost double the margin. I can’t share how we’ll do that yet, but that’s the plan.

KW: That’s an interesting opportunity to explore because obviously the access to capital for small businesses was – some say still is – at a crisis point. How’d you get the idea for Bento?

FA: I wanted to come back to the startup world and build a company from scratch, and I wanted to do something that has a global reach and really, truly impacts the lives of many people. The one thing I learned is that no bank builds products just for small businesses. They offer consumer or commercial products and mask them to serve to small businesses.

The other part of it was that we’ve built this to be a global product from Day 1. Small business needs, right now, are globally very similar. Thirdly, although we want to disrupt how the industry is doing it, we also want to partner with banks to do this. Having worked with banks, I can see both sides and I think we’re uniquely positioned to marry startups and banks.

KW: So what is different about this particular venture and others you’ve been involved with over the past years? How have you overcome the obstacles?

FA: Of course, as I get older, I get wiser. I am making fewer mistakes now than I was before! Part of it is experimentation – in my last couple of ventures more than 10 years ago, I didn’t have the influence or network to talk to the right people. Now, we have a plan B and plan C for everything. We’re talking with perhaps four of the top banks in the world, and that network was unavailable before.

We’re also building a great culture – the importance and value of the team cannot be underestimated.

The one biggest lesson I’ve learned over time is that I start by saying we’re going to do something knowing full well that when we bring it to market, we will be proven wrong. That’s nothing to be ashamed of – that is just something to learn from.

KW: So you launched very recently. What are your customers telling you you’re doing right, and what feedback are you planning to incorporate?

FA: We launched live earlier this month. For live customers, open market, we’re seeing better acquisition than we had expected which is a pleasant surprise. From our beta customers when it comes to feedback, like for any new product, there are bugs to be worked out. We’re making the signup process even more seamless. But people do love the control and the cards. Most of the friction comes from getting the money in the first time, which we’re working to solve.

What people do want in the future are products like this that are also built for larger corporations – they want that control. We haven’t built these yet but we will over time. That’s great because it means there’s a much greater demand, even from larger businesses.

KW: How are you acquiring customers?

FA: Well, for one, we’re talking to PYMNTS to get the word out.

And really, we’re just experimenting – we’re attempting to learn as we go to get customers.

We have a marketing and sales channel, and in each of those we’re testing about 15 different ways to acquire customers. We’re building this for Middle America – small businesses who are trying to build from the ground up. Nobody’s building things for them – we’re going to try both new and old techniques to see which works best to get their attention.

KW: Finally, what’s the origin of the name?

FA: We came up with the name to reflect the fact that every small business is different and has different needs, yet they’re often categorized into one big bucket. Because we wanted to build out about 10 products over time, we fully anticipated that every business wouldn’t need all of our products – they will need a mix of them. So we said that everyone could build their own “Bento box” of solutions that fits their needs – it’s not a cookie cutter thing.