Executive Interview - Jost Stollmann - CEO, MoneySwitch
Sydney based MoneySwitch is an authorised deposit taking institution focussed solely on payment solutions to merchants and billers across Australia. The company was founded by chief technology officer Paul Wood in February 2003 and two years later became the first APRA authorised Specialist Credit Card Institution (SCCI) for credit card transaction acquiring. MoneySwitch is a principal member of Visa and MasterCard, and was the first new Tier 1 member of the Bulk Electronic Clearing System (BECS) for 10 years. In 2005 Jost Stollman became a shareholder and was appointed chief executive officer. East & Partners senior consultant Paul Bartholomew spoke to Stollmann.
Jost, you had an illustrious career in Germany before coming to Australia. Can you tell us a little bit about that and how you came to live in Sydney and join MoneySwitch?
In a former life in Germany, I built Germany’s leading IT system network integrator. I sold it to GE Capital in 1996. After an excursion into politics with former Chancellor Gerhard Schroeder, I moved with the family onto a sailing yacht. We travelled around the world visiting the most remote islands of the planet. This is how we discovered the southern continent, and fell in love with Sydney. After we had settled down, and the kids were in school, my wife asked me to develop my career elsewhere than around the kitchen table. So I looked for a new entrepreneurial opportunity and came across Paul Wood and Richard Freemantle. I found their vision extremely compelling. The more I learnt, the more fascinated I became. Joining Paul and Richard became a straightforward decision.
MoneySwitch was founded in February 2003, and it’s now mid-2006, which is a very long build up before you even open the doors and get any customers. That must be very tough.
I have in my life looked at many different business models and investment opportunities. This is the most complicated one I have come across. Both the barriers to access and the complexity of the business are significant. The other day I asked Paul (Wood) whether, if he’d known how difficult it would be to become a part of the Australian payments system, would he have done it? But how many successful entrepreneurs would have started their business if they’d known all the hardship in store?
You’re right to observe that it’s a long set up. It starts with the fact that the industry is hard to understand, this is compounded by the fact that most processes are not well documented and that there is a high level of security and secrecy. Most importantly, the industry is not used to accommodating new players. In virtually every case we have been the first new applicant in ten to twenty years. Paul and his colleagues have put enormous energy into working with the incumbents to define the processes and protocols required to accommodate new entrants like MoneySwitch.
How has becoming a member of the schemes helped MoneySwitch?
It is only when you become a member of the schemes that you get access on how things really work. Every day there are new discoveries. For us, it’s a challenge because we are trying to automate as much as we can. But this always reaches limits when there is a procedure that we were not aware of previously. Scheme membership gives us the ability to "learn by doing" which is essential.
To operate you need to connect with the banks’ payment systems. How accommodating have the banks been given MoneySwitch will be competing with them?
This challenge is now behind us thank goodness. When I joined, MoneySwitch was still to be authorised as a Specialist Credit Card Institution by APRA, so the predominant reaction from the banks was, "why don’t you go away because we don’t think you’ll be around". The other reaction was, "if you do survive and stay around, why would we nurture a competitor?" We have come a long way since then. I think the credibility of MoneySwitch has dramatically increased as we have consistently achieved our milestones.
In everything we do, we are the first. This has created vicious cycles: for instance, the schemes said we needed to have the banking authority before we could become a member, then we went back to APRA and RBA who said we needed to be a principal member of the schemes before we could get the banking authority and so on. All these things have been worked through with lots of effort and goodwill from all the participants.
So, I think the banks are cooperating with us as much as we can expect of large organisations working with a small start up. Most of the issues we’ve had with the banks are to do with dealing with large and complex organisations, and dramatically, with the ability to interconnect with an IT environment which is still very manually oriented and complicated. Another issue for the big banks is that they’re very strained in their IT resources because of Basel II and compliance, and then along comes MoneySwitch.
You talk about challenging the status quo. A lot of feedback we get in the course of our research shows that SMEs relate to the notion of working with a challenger. Is this something you can leverage?
Your research may show small business doesn’t like banks, but they trust them with their money, as they always have done. We are a new banking institution, we can say regulated by APRA; we are principle members of Visa and MasterCard and we have all the key security certificates (PCI etc), so trust us….The extent and speed with which we earn this trust is the great unknown.
The RBA reforms and competitive pitching for their business has created awareness among merchants that they can be proactive about choosing their providers. That must be good news for you?
You’re right that with the Reserve Bank’s reforms, and the newspapers full of it, more and more merchants are questioning the deal they have with their incumbent bank. Because SME’s don’t have the purchasing department of the big end of town, they can’t constantly chase every supplier for their services or products, trying to find out whether there’s a new hidden fee which has been repackaged another way to regain the margin. They need a participant who is easy to deal with, is transparent on price and terms and who they know will give them a fair deal. Quite simply this is the core MoneySwitch proposition.
And smaller merchants have traditionally had a jaundiced view of banks, seeing them as a cost centre rather as opposed to a partner offering value.
Since I’ve been in Australia, I’ve seen lots of articles, and opinions and quotes by the big banks expressing interest in the small to medium enterprise market. However, for the big banks, it’s not easy to deal with independent entrepreneurs or smaller businesses. Given the technology that they’re using, it’s hard for them to show the level of flexibility and efficiency that the smaller merchant really needs.
What do merchants need to do to interact with MoneySwitch and how secure is your system?
The small merchant doesn’t have huge staff; they need a simple solution so a lot of our thinking goes towards making it simple, on both the payment processing and on the accounting and reconciliation side. We are obsessive about simplifying the whole process.
Our entry point is an internet connected EFTPOS terminal. The simplest one is the wireless terminal, you just switch it on and it works, it’s like your mobile phone. If you already have broadband you plug it into your ethernet port and it works. We have gone to great lengths on terminal evaluations and we now have a terminal that has a Meantime between Intervention of greater than five years. The smaller merchant doesn’t have spare terminals in their closet, their terminal has to work, and for us to go out there and fix something or swap something, it’s too expensive.
We need robust technology that is self initiating and self servicing. Now, the internet is the ideal world that shows us what is possible. With our system you can go to the web and see at a click your balance and transaction history.
You said that MoneySwitch will initially go to market through friends and family at the start of 2007. How will you market the service beyond this to the wider market? Do you have any targets to reach a certain level of market share at a given time?
We want to have a significant market share. How fast we achieve this is not easy to answer because we’re a new player offering something new, and we don’t know how difficult it will be to get merchants to trust us.
There are three channels we are preparing for: one is the one the banks use today which is a high cost channel, this is feet in the street knocking on merchants’ doors and explaining the value proposition for the merchant and hoping to get them to change one from another. This is how the churn is being driven today, in our view. We have access to the same people the bank are using and they’re quite excited as for once they have a differentiated proposition. It’s hard when the only differentiator is price. When margins compress it becomes harder and the closure rate for these people goes down. A new differentiated proposition is something we think that will work for them.
There is a second area we are very interested in which Americans call Independent Sales Organisations. There are quite a few people who have contacted us saying they’re already dealing with small to medium merchants and they would be interested in marketing and selling our facility. I personally believe an independent sales organisation model will develop in Australia. The third approach is for the internet savvy, the possibly younger generation of merchants who increasingly get used to doing business on the net.
We think the merchant should buy our product where he likes to buy it, that’s what we’re trying to achieve, as we think in the long run payment devices must be ubiquitous and the merchant decides which ones he accepts and in which ways. It’s all about giving choices, we don’t have a dogmatic opinion there, and we’ll see what works.
Will your marketing include any significant advertising?
From a competitive perspective, this is our weakest point, how do we match the lavish advertising budgets of the big incumbent players? We are very dependent on convincing small to medium enterprises of our solution, engaging them and getting them to give us a helping hand if they are satisfied with our solutions, spreading the news. I think this will be more advisable than any great advertising campaign.
In a former life in Germany, I built Germany’s leading IT system network integrator. I sold it to GE Capital in 1996. After an excursion into politics with former Chancellor Gerhard Schroeder, I moved with the family onto a sailing yacht. We travelled around the world visiting the most remote islands of the planet. This is how we discovered the southern continent, and fell in love with Sydney. After we had settled down, and the kids were in school, my wife asked me to develop my career elsewhere than around the kitchen table. So I looked for a new entrepreneurial opportunity and came across Paul Wood and Richard Freemantle. I found their vision extremely compelling. The more I learnt, the more fascinated I became. Joining Paul and Richard became a straightforward decision.
MoneySwitch was founded in February 2003, and it’s now mid-2006, which is a very long build up before you even open the doors and get any customers. That must be very tough.
I have in my life looked at many different business models and investment opportunities. This is the most complicated one I have come across. Both the barriers to access and the complexity of the business are significant. The other day I asked Paul (Wood) whether, if he’d known how difficult it would be to become a part of the Australian payments system, would he have done it? But how many successful entrepreneurs would have started their business if they’d known all the hardship in store?
You’re right to observe that it’s a long set up. It starts with the fact that the industry is hard to understand, this is compounded by the fact that most processes are not well documented and that there is a high level of security and secrecy. Most importantly, the industry is not used to accommodating new players. In virtually every case we have been the first new applicant in ten to twenty years. Paul and his colleagues have put enormous energy into working with the incumbents to define the processes and protocols required to accommodate new entrants like MoneySwitch.
How has becoming a member of the schemes helped MoneySwitch?
It is only when you become a member of the schemes that you get access on how things really work. Every day there are new discoveries. For us, it’s a challenge because we are trying to automate as much as we can. But this always reaches limits when there is a procedure that we were not aware of previously. Scheme membership gives us the ability to "learn by doing" which is essential.
To operate you need to connect with the banks’ payment systems. How accommodating have the banks been given MoneySwitch will be competing with them?
This challenge is now behind us thank goodness. When I joined, MoneySwitch was still to be authorised as a Specialist Credit Card Institution by APRA, so the predominant reaction from the banks was, "why don’t you go away because we don’t think you’ll be around". The other reaction was, "if you do survive and stay around, why would we nurture a competitor?" We have come a long way since then. I think the credibility of MoneySwitch has dramatically increased as we have consistently achieved our milestones.
In everything we do, we are the first. This has created vicious cycles: for instance, the schemes said we needed to have the banking authority before we could become a member, then we went back to APRA and RBA who said we needed to be a principal member of the schemes before we could get the banking authority and so on. All these things have been worked through with lots of effort and goodwill from all the participants.
So, I think the banks are cooperating with us as much as we can expect of large organisations working with a small start up. Most of the issues we’ve had with the banks are to do with dealing with large and complex organisations, and dramatically, with the ability to interconnect with an IT environment which is still very manually oriented and complicated. Another issue for the big banks is that they’re very strained in their IT resources because of Basel II and compliance, and then along comes MoneySwitch.
You talk about challenging the status quo. A lot of feedback we get in the course of our research shows that SMEs relate to the notion of working with a challenger. Is this something you can leverage?
Your research may show small business doesn’t like banks, but they trust them with their money, as they always have done. We are a new banking institution, we can say regulated by APRA; we are principle members of Visa and MasterCard and we have all the key security certificates (PCI etc), so trust us….The extent and speed with which we earn this trust is the great unknown.
The RBA reforms and competitive pitching for their business has created awareness among merchants that they can be proactive about choosing their providers. That must be good news for you?
You’re right that with the Reserve Bank’s reforms, and the newspapers full of it, more and more merchants are questioning the deal they have with their incumbent bank. Because SME’s don’t have the purchasing department of the big end of town, they can’t constantly chase every supplier for their services or products, trying to find out whether there’s a new hidden fee which has been repackaged another way to regain the margin. They need a participant who is easy to deal with, is transparent on price and terms and who they know will give them a fair deal. Quite simply this is the core MoneySwitch proposition.
And smaller merchants have traditionally had a jaundiced view of banks, seeing them as a cost centre rather as opposed to a partner offering value.
Since I’ve been in Australia, I’ve seen lots of articles, and opinions and quotes by the big banks expressing interest in the small to medium enterprise market. However, for the big banks, it’s not easy to deal with independent entrepreneurs or smaller businesses. Given the technology that they’re using, it’s hard for them to show the level of flexibility and efficiency that the smaller merchant really needs.
What do merchants need to do to interact with MoneySwitch and how secure is your system?
The small merchant doesn’t have huge staff; they need a simple solution so a lot of our thinking goes towards making it simple, on both the payment processing and on the accounting and reconciliation side. We are obsessive about simplifying the whole process.
Our entry point is an internet connected EFTPOS terminal. The simplest one is the wireless terminal, you just switch it on and it works, it’s like your mobile phone. If you already have broadband you plug it into your ethernet port and it works. We have gone to great lengths on terminal evaluations and we now have a terminal that has a Meantime between Intervention of greater than five years. The smaller merchant doesn’t have spare terminals in their closet, their terminal has to work, and for us to go out there and fix something or swap something, it’s too expensive.
We need robust technology that is self initiating and self servicing. Now, the internet is the ideal world that shows us what is possible. With our system you can go to the web and see at a click your balance and transaction history.
You said that MoneySwitch will initially go to market through friends and family at the start of 2007. How will you market the service beyond this to the wider market? Do you have any targets to reach a certain level of market share at a given time?
We want to have a significant market share. How fast we achieve this is not easy to answer because we’re a new player offering something new, and we don’t know how difficult it will be to get merchants to trust us.
There are three channels we are preparing for: one is the one the banks use today which is a high cost channel, this is feet in the street knocking on merchants’ doors and explaining the value proposition for the merchant and hoping to get them to change one from another. This is how the churn is being driven today, in our view. We have access to the same people the bank are using and they’re quite excited as for once they have a differentiated proposition. It’s hard when the only differentiator is price. When margins compress it becomes harder and the closure rate for these people goes down. A new differentiated proposition is something we think that will work for them.
There is a second area we are very interested in which Americans call Independent Sales Organisations. There are quite a few people who have contacted us saying they’re already dealing with small to medium merchants and they would be interested in marketing and selling our facility. I personally believe an independent sales organisation model will develop in Australia. The third approach is for the internet savvy, the possibly younger generation of merchants who increasingly get used to doing business on the net.
We think the merchant should buy our product where he likes to buy it, that’s what we’re trying to achieve, as we think in the long run payment devices must be ubiquitous and the merchant decides which ones he accepts and in which ways. It’s all about giving choices, we don’t have a dogmatic opinion there, and we’ll see what works.
Will your marketing include any significant advertising?
From a competitive perspective, this is our weakest point, how do we match the lavish advertising budgets of the big incumbent players? We are very dependent on convincing small to medium enterprises of our solution, engaging them and getting them to give us a helping hand if they are satisfied with our solutions, spreading the news. I think this will be more advisable than any great advertising campaign.
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