Shieldpay: How to Safely Process High-Value Transactions (Tom Squire, Group Commercial Director)
Shieldpay: How to Safely Process High-Value Transactions (Tom Squire, Group Commercial Director)
In this episode of the Storesome podcast, I spoke to Tom Squire, Group Commercial Director at Shieldpay.
Shieldpay is a payments company and escrow facility that is quickly becoming the global leader in securing high-value transactions. In this episode, you’ll learn about Tom’s views on how digitisation of brick-and-mortar has increased the risk for fraud and the steps they can take to reduce it, the lay-down of the new PSD2 regulation and how it affects retailers, and what actions they need to take in order to be compliant.
It’s an important conversation to listen to, especially if you’re a retailer that’s dealing with high-value transactions.
Use this link if you’d prefer to listen to the podcast live: https://anchor.fm/storesome/episodes/Shieldpay-How-to-Safely-Process-High-Value-Transactions–Being-Compliant-with-PSD2-Regulations-Tom-Squire–Group-Commercial-Director-eo9r91
Graham: Welcome to this season’s focus on the fintech industry with Storesome and today, we’re joined by Tom Squire, Group Commercial Director at Shieldpay. Welcome Tom!
To begin, it would be great to hear more about you and your background. Obviously, I know you really well; we’ve been working earlier this year at Retail Without Borders, where you were on a number of panels. You presented a session on what the future of fintech could look like, and it would be great to hear how your perspective may have changed since the pandemic’s kicked in, and understand what your industry looks like at the moment, but to start with, it would be great if you could introduce yourself and Shieldpay.
Tom: Thanks very much, Graham, for having me on today. Yes, a little bit about myself. Well, I took more of a traditional route starting in life. I started as an accountant. Quite understandably, I realised that was not the way that life was taking me.
I joined an accelerator called Techstars back from 2016 to 2017. For those who don’t know, Techstars is three months of hardcore graft, where around 10 start-ups are selected from a pool of around 700, and they go through this rigorous process of meeting investors, having their business plans almost ripped apart and built back up again, and at the end of the three months is a pitch day, where you present to investors and hopefully raise some fundraising.
I was one of the few people on the course to actually help these start-ups and one of those companies was Shieldpay. I worked with them throughout the three months and loved what they were doing. I think when I go through what Shieldpay does, it will be very much a case of you either know someone who this problem has happened to, or if it happened to you.
So, on that, Shieldpay is a digital escrow company that protects both sides of the transaction. We do ID checks; we collect the funds in a client account in the middle – or an escrow – and then release those funds when both parties are happy. If you think about those use cases, as I mentioned, you either know someone who’s been defrauded, or you’ve been defrauded yourself. Unfortunately for me, I was defrauded a long, long time ago when I was a little wet behind the ears and definitely wished Shieldpay was around during that time.
In the last few years, we’ve really focused on the legal industry and high-value payments, where traditional escrow is really convoluted, manual-based and extremely time intensive, but what we’ve really been working on this year, which is really exciting, is our new merchant service solution called Paycast. Essentially, Paycast is a payment solution for online marketplaces, merchants, et cetera, to enable pay-outs to their sellers in a compliant fashion. That’s a snippet, but as we continue, I’ll go through Paycast in more detail.
Graham: Awesome. And so with Paycast, how long has that concept been in incubation within Shieldpay, and has Paycast come out of this new PSD2 legislation?
Tom: That’s exactly it. I think where we see the problem – actually a number of problems – and this year has really been an accelerant to it, even ignoring Covid (which is more fuel on the fire as well). But the regulatory changes have really helped us in terms of launching a product and coming to market with this, because you’ve got marketplaces who are either transacting online or looking to transact online.
And now the regulations say that unless you’re doing it in a compliant manner, you need to be regulated. So another way of saying that: traditionally marketplaces were acting as an intermediary and therefore enabling payments from both sides of a transaction for a buyer and seller, bringing the two together on their platform. That is now a regulated activity. Therefore, if marketplaces want to continue doing that, they need to become regulated. Now, just a word of advice, don’t. It takes a long time (18 months plus) to do it, so just let the people who were crazy enough to do that four years ago, do that for you and therefore focus on running the core piece of a marketplace, i.e. bringing those buyers and sellers together.
As you said, Graham, there’s PSD two (payment services directive two), there was also another one, which was fifth money laundering directive, which is really about the high-end space, so any transactions over about 10,000 euros. Now when you think about where those two worlds collide, it’s the B2B marketplaces. So this is the area where most reports have the figure at around 126 trillion as a market, and only about 1% of those transactions are done by card at the moment. So a really exciting opportunity for many people is to get in there and digitize it, but also to enable more card payments.
Graham: Awesome. And effectively Paycast is that merchant solution where Shieldpay is enabling the marketplace itself to comply with these new regulations?
Tom: Exactly that. So what Paycast does is it facilitates marketplace transactions by on-boarding sellers, and so dealing with the second half of the transaction, and that’s the piece that really needs the compliance. We handle the pay-outs; we do all the ID checks and ensure compliance.
I think one of the really key things why this has been getting so much interest is the fact that we’re compatible with any payment service provider. And the banks or banking acquirers have really had that light bulb moment where they’ve realised that they are losing clients left, right and centre to Stripe hyper wallets of the world. But when you’re using Stripe, you’re only using Stripe from end-to-end, you can’t then suddenly chuck in another banking partner and then be like “Oh, can we just use this acquirer instead?”
So we’ve really actually been quite fortunate in terms of coming to market at the right time, when banks are wondering “should we partner, or should we try and build this ourselves?” And when the product pipeline is always so jam-packed, it’s always a bit of a scrum just to get in there, so hopefully it’s a pretty easy decision to decide to partner on this.
Graham: Exactly. Okay, brilliant. So I understand in more detail now what Shieldpay does, we understand your background, and I can see a very unique point that you have. If people are going through a very early marketplace journey and they’re scoping what they want to build, because of your background, in terms of that incubation series where you effectively joined Shieldpay, you’re looking at things not necessarily just from the financial aspect. You’re looking at the operational process and some other components as well. So I see you added a lot of value there even necessarily before you actually sell them a solution. So that’s really interesting and I think I’m probably giving you a lot of credit now as well, Tom. So that fiver you sent me in the post is going to good use at the moment.
So a more interesting question, in terms of lock down and the pandemic we’ve seen a huge pivot. This acceleration in terms of digital is being compressed into a very, very short timeframe. How do your existing clients look like, and what do they look like at the moment in comparison to the inquiries you’ve been receiving over the last six months?
Tom: Where I’ve been really fortunate during COVID – and obviously not wanting to capitalize on a global pandemic – but the move to digitalization has changed both sides of the business.
So as I said, we have been working with the legal industry. They’ve had their workforce cut in half, everybody’s now working remotely. Manual processes where you could walk to the next desk and put a pile of papers on them doesn’t work anymore, it’s the same with banks. So in terms of law firms who’ve been inquiring, it’s just been great for us.
There’s been a lot of business there where they just needed to go digital. Again, we seem to always get quite lucky with regulatory changes and there’s always a piece there at the end of last year, which the legal regulators, the SRA, were clarifying that you can use third parties to handle your funds. There’s a great benefit to it. You don’t have to do it, but there’s also the cost savings as well, both from an admin, but also potentially an insurance point of view as well. So that’s been great.
I think as you will most undoubtedly be aware as well, marketplaces are – as I mentioned – either non-compliant because of these new regulations, or have realized that they are dealing in a very offline world and need to very quickly become online. So one example was a jeweller. I think I mentioned them before, but they were very much face-to-face, wanting to build rapport. This is our artwork that we’re selling to you; we want to tell you the story about where these jewels came from, how they’re made. But now, no one can go into that jewellery store.
So what do you then do? You need to be able to adapt quickly and go digital. It’s just being able to have that digitized end-to-end solution that enables payments and is compliant, but takes your inventory and puts it online in the most seamless manner, because not everybody has done four years plus in a digital escrow or in the payments industry, so they need help. And I think when everybody’s trying to focus on cash flow and other things, leave the payments and leave the digitalization to the industry experts.
Graham: One hundred percent. You touched on that there in terms of what we’re getting asked at the moment, this year. So for over a quarter of the year, we’ve been in technical lockdown. So bricks and mortar, unless you’re a supermarket or a shop selling groceries, you have to close. Four or five months a year is a long time not to then digitize or embrace some kind of technology to effectively trade. So, we’re not about capitalizing on the pandemic, but I think it’s just accelerated the journey for both users and retailers and brands in terms of how they want to operate.
It’s effectively been imposed on us that that’s how we operate moving forward, and I think with solutions, a lot of it’s about timing. So what you’re talking about, your Paycast solution, what you’ve embedded and built in the past is all coming to fruition now. But at the same point, it’s been accelerated unfortunately by a pandemic that has forced people to shop online.
Tom: Yeah, absolutely. I think it’s been really interesting to see how some businesses have adapted to as you say, the non-bricks and mortar world. I definitely remember seeing a local cafe suddenly selling groceries. And at the same time, as we’re buying groceries, you can get a coffee. So it’s just being able to have that. I guess that’s the agility to adapt to new situations, and I guess that’s really where start-up life really gives you that learning.
Graham: One hundred percent. I think in terms of when we talk about the platform economy or marketplace economy, I think the first go-to for everyone is very much siloed into eBay and Amazon bear platforms. I think people don’t necessarily forget, but something like Just-Eat or Uber Eats is a platform technology, effectively. And again, it has been massively accelerated due to government legislation supporting takeaways, et cetera.
What are some of the platforms that are slightly more obtuse that you would normally see, or that you would work with that our listeners can hear about? You talked about jewellers online. That’s quite new, I believe. What do you see in terms of some of the inbound stuff that you’re getting in the future of that platform economy?
Tom: Well, let’s say if we go back to March and April, we’re hearing a lot of inbounds on PPE in terms of needing to deal with the pandemic. Everybody wanted a cut of that pie. I think where it really is, as I mentioned, the B2B space. It’s international trade to be honest; it’s actually those transactions where they offer PPE or other consignments of goods. There’s letters of credit, which are extremely archaic forms of trading now. How can you actually trade, therefore, in a quicker and more flexible way? Letters of credit are extremely narrow of what’s actually allowed and any deviation from it before it essentially gets null and void.
So we’ve seen a lot of inbound in terms of imports/exports, and around the supply chain piece as well. Being able to pay suppliers – transparency as well – because as everybody moves online or as there are a lot more payments and transactions done online, one of the key things is transparency and trust.
Do you trust the other person and also as customers, do they trust you as a platform? Having that ability to outsource payments and put them in a regulated business where there’s transparency over that, really goes a long way for both customers and for the platforms by building that brand credibility.
Graham: So it’d be good again for our listeners just to understand in very simple terms, what Shieldpay does with escrow accounts or how you enable that trust piece. How do you combat fraud, how do you enable trust and why do people use Shieldpay?
Tom: Let’s think about second hand cars. I want to buy your car, and we’ve met, let’s say Auto Trader. Now, the problem with Auto Trader is that it doesn’t have payments. So we’re going to swap emails, swap phone numbers and arrange to meet up. Now, I guess the inception of Shieldpay was this exact problem where a potential buyer came around, did a test drive of a car, and just nicked the keys and took the car, with the seller left pretty red-faced.
Thankfully they put their woes up on Facebook and said “I’ve just been scammed. If you see my car, please help me.” because there was no recourse. They only had an email address and a phone number, both can be quickly deleted and moved on. So, where we help in that exact situation is, I want to buy a car. I’m going to put the funds into an escrow. So from my point of view, I haven’t given you the money. So therefore, I’ve shown my commitment to a transaction, but I haven’t lost anything because I now know that you can’t run away with the car and the money.
Likewise, because it’s impartial, you get that certainty as well, that I’m a committed buyer because you can see the funds in the escrow. It takes both of us to essentially do a ‘digital tap’ on authorization to say “that’s the car you said it was, the money’s there, I would like it now.” And then the funds are released. So we can do that in about 15 minutes, really in terms of being in a car park, doing the ID checks and releasing those funds.
Graham: Understood, that’s brilliant. I presume there’s some kind of bracket in terms of where that works. So you’re talking about second hand cars, I presume anything north of about 1000 to 1500 pounds. Is there a sweet spot in terms of where you operate in that piece?
Tom: Yeah, I guess what we’ve been really keen to build and show the public is that we have no limit, we have no range of what we’d like to transact in or what our risk appetite is. We’re doing multi million pound deals in the professional services side of the business, the Shieldpay side, but we’re also doing far smaller transactions, from 100 to 200 pounds. I guess really where the sweet spot is, is you’re right. Anything north of about 500 is when most people’s risk appetite kicks in of, “ah, I wish I hadn’t lost that.” Below that, you sort of get “okay, I can just about cope with losing that” but obviously it’s very relative.
Graham: Understood. I’m going to put you on the spot a little bit now. So, you can answer this as open or closed as you want. So in terms of payment and the cost of these kinds of solutions, normally PSPs and those solutions charge a percentage fee and then a nominal transaction fee. When you’re going north of 500 pounds, there are a lot of very slim margins involved, and you might only be making one or two points, and then effectively all of that operational cost can be absorbed through that due diligence, in terms of using a service provider. How do you combat that? And like I say, we don’t have to necessarily go into the fine details of how you charge and what your commercials are, but is it flexible in terms of people to understand that there’s an operational solution enabled there? How do you approach that?
Tom: Yes, I’m happy to talk about it. As I say, I’m all about the transparency here at Shieldpay.
Graham: Is it more on a case by case basis then, depending on who you’re working with, what the volume of sales are, et cetera?
Tom: Yeah, that obviously has a large part to do with it, but I think it’s really key where we’re looking at high risk sectors or high value sectors it does really depend on the use. For instance, everybody knows that in low end retail, for example, the margins are so incredibly tight that if we’re charging what we’re going to charge in a high risk sector, it’s just not going to be viable for anybody. So that’s really where we’re focused on.
Essentially there are high value payments, there are high risk sectors, which other providers can’t facilitate and therefore the cost is essentially the cost to enable these transactions. So we see ourselves as enabling a really large niche of payments, that’s really where our focus is. There are a ton of payment providers who can do that low-end range, PayPal is a great example: $60 transaction size is the average. They’ve nailed that; they’ve done a really good job; it’s over all of the ecommerce sites.
But for any large ticket item, you’re going to want that layer of extra protection. You’re not going to buy a house or buy a car with PayPal, typically. It doesn’t have that ability. Also just to point it out to the listeners, it’s actually a prohibited item on their website. It says that you cannot use PayPal for house transactions or for cars.
Cars are an interesting one really, because as I mentioned, the reason why Shieldpay was born was actually a high risk transaction, because it’s people meeting face-to-face with a bag of cash, potentially. And as for those, there’s a bit of a liability issue there that they don’t want to be involved in.
Graham: No, understood. That’s a good response to a difficult question, Tom. So effectively get in touch, have a conversation and we’ll see if it’s commercially viable and then take it from there?
Tom: Exactly. It’s a percentage basis basically, as with pretty much all payment providers, the percentage just varies on what’s been bought and sold.
Graham: You just mentioned buying houses, currently I don’t believe you can buy a house through Rightmove, and effectively that is a market place. It’s a platform which is enabling people to transact. If you look at a simpler version, Airbnb is a platform where you’re renting from people on a weekly or monthly basis. How do you see the future of something like Rightmove or Auto Trader? Airbnb is almost like an earlier version of how Rightmove can then convert. Then if you look at Cazoo, that’s had a phenomenal amount of investment, but the trust is there in terms of the platform, the payment is obviously there as well. How do you see these kinds of marketplaces, with these high value transactions, moving and evolving?
Tom: So the US is obviously a really great breeding ground or test basis where all of these happened before. So to put that into context, Cazoo is the UK or the European version of Carvana, which has been going for a long time in the US in a proven model; it’s just been replicated. Not putting down what they’ve done, they’ve done an amazing job over here. And again, they’ve lucked out in terms of the timing of people not wanting to get into cars with other people and just having it delivered. It’s a great idea.
If we then think of Craigslist, which is one of the original marketplaces; they’re non-transactional, but they enjoy about 90% margins at the moment. So for them, they can’t really realistically see the threat, or the requirement to become transactional. They will be starting to see that marketplaces, ecommerce, Andersons, Alibaba et cetera, are eating into that share slowly but surely, and I imagine that will start accelerating. So we believe that in about the next five years or so, most classified sites will become transactional, otherwise they’re just going to be completely eaten up.
I imagine that’s just been accelerated because of everything, but that’s where we really see it happening, because everything is going to be going online. You want it in one ecosystem; you don’t want to be going off into other sites. So what we’re therefore providing the market is almost your own profile that embeds in each marketplace. Therefore, you don’t need to go through checks the entire time, and you can facilitate all different marketplace transactions through your one account. We realized that there are a lot of sellers out there who are using Gumtree, Depot, Vinted and other sites. That means that they have four different profiles, whereas what we’re giving these sellers is actually one account that they all come into and they can control all of their payments from that one place.
Graham: Understood. So you talked about Paycast, which is your new solution in terms of the marketplace compliance piece, and then Shieldpay is the escrow payment system. Do they sit separately, or do you have to have them both? Or if someone’s using PayPal at the moment, could they layer on the Paycast solution on top of that?
Tom: Yeah, so the Shieldpay escrow essentially is part of the core payments engine. You then imagine that the payment engine has a face out to law firms and then there’s a Paycast front end on that, which is the face to marketplaces and online sellers. So, the core engine is that regulated part of the business that is able to hold funds for any amount of time in any amount of funds. So that’s really that core USP on that piece.
So yes, absolutely. A buyer goes online, sees a checkout and puts their card details. Those card details are then tokenized by a gateway. There’s the interaction and a dialogue between the issuers and the acquirers. Those funds – before Paycast – were then settled in the account for the platform, the marketplace’s bank account. From there, they then had to make the payments out to the sellers. Now as I said, because of the regulations, we then act as that bank account. So, the funds ultimately settle into a Paycast account and therefore we will then on-board the sellers. It’s quite a nice messaging piece of “Graham, I now have 5,000 pounds for selling your car to Tom. Go online, put your ID details into Paycast, and withdraw those funds.”
So where we sit, it’s almost like a nice little module and piece of the puzzle if we can just slot in with different payment providers. So yes, we could work with PayPal. PayPal is more of a payment method, but they obviously have Braintree. So absolutely, we could work with them.
Graham: Okay, understood; that’s brilliant. So you’ve come a long way in the last 6-9 months complying with the new legislation and offering a solution. What’s the future? What do the next 6 to 12 months look like for Shieldpay? Is that iterating what you’re currently doing at the moment? Are there new solutions to come out? What does the future hold for you guys?
Tom: The next 12 months is going to be a very busy time, if the last six months is any indication of it. I think what’s really going to be happening now is we’ve got a number of new partnerships that are going to be announced over the next few weeks and months. Those are with really large acquirers that are bringing out a market-based solution. As I mentioned, they are currently turning away opportunity after opportunity because they don’t have this. And we have therefore essentially got three of them together, and we’re going to be launching with them at the end of this year/beginning of next year to bring this to the market. So it’s really going to be, as you said, iterating on this and essentially just putting more and more transactions through, and hopefully bringing more PSPs on board as well.
Graham: Excellent. So effectively you’ve built the great foundations now, you’ve secured all the future terming in terms of the legislation approach. You’ve pulled the solutions together; it’s just about growth effectively.
Tom: Exactly. Now it’s all about just playing with the levers and optimizing growth.
Graham: Fantastic. I really appreciate your time today. I think in terms of just wrapping up what we like to ask our interviewees is: if you could give one piece of takeaway advice from your years in industry, what one thing would that be?
Tom: So we’re going to go back to almost the beginning. I think especially now there’s a lot of maybe fear, hesitation and a reticence to do something new. Some people get bogged down and stuck in a career choice. I, for every up and down day, don’t regret a single moment of joining Shieldpay and leaving the old world of accountancy behind.
So one piece of advice: if you’ve got an idea, if you want to do something different, go do it. The last thing you want to do is regret it in 5 years’ time or 10 years’ time that you wish you had actually taken that leap. You can always come back to what you were doing before if it doesn’t work out, but at least you tried.
Graham: Awesome. That’s brilliant. And if our listeners want to get in touch with you, what’s the best way to get in touch with the Shieldpay team and you, yourself?
Tom: Yeah, absolutely. Get in touch, I’m happy to talk about Paycast, or even Shieldpay in more detail.
Graham: Fantastic. So I know you’re super busy at the moment Tom, so I really appreciate you taking some time out to be interviewed today. Shieldpay is a close partner to Storesome in terms of our solutions that we provide. So, if people want to learn more about Shieldpay, or learn more about Storesome, you can get in touch at www.storesome.com. Thanks a lot for spending the time with us today, I really enjoyed the interview.
Tom: Thanks Graham, it’s always a pleasure chatting with you.
I hope you enjoyed this piece and many thanks to Tom for contributing his insight.
If you’d like to learn more about Shieldpay, you can learn more on their website https://www.shieldpay.com.
If you’d like to learn more about the future of marketplaces, we’d be glad to help you. Get in touch today and book your free 90-minute discovery session.