One of the key challenges finance departments face is connecting the various bits of data generated when money moves into or out of the business. This is especially true for small and midsize businesses. Although a profusion of digital payments providers has cropped up to help such companies, many systems generating data from money movement don’t talk to a company’s other systems—at least not well. In this episode of Talking Banking Matters, McKinsey payments sector leader Roshan Varadarajan speaks with Cosmin Pitigoi, CFO of Flywire, which offers a digital payment system along with software integrations for linking payments to companies’ other systems. The following edited transcript shares highlights from the conversation. For more discussion of the banking issues that matter, follow Talking Banking Matters on your preferred podcast platform.
Roshan Varadarajan, McKinsey: Cosmin, tell us what Flywire does, how you create value for your customers, and how you differentiate your offerings.
Cosmin Pitigoi, Flywire: We’re a global payments platform, with vertical-specific software offerings to help our customers solve their problems. I think the rest of the payments landscape realizes that payments by itself is no longer enough, so Flywire sits at that intersection of software and payments. Our tagline is “Software drives value in payments.” We serve what were previously poorly served verticals. For example, that could be large cross-border payments in a consumer context, such as students or their parents paying tuition at an educational institution abroad. In a B2B context, it could be paying suppliers in other countries.
Moving money across borders involves complexity, and we help solve that. We also help our customers tie this movement of money into their record systems on the receiving end. That’s where we’re really creating value. For example, if you’re a college or university, simply receiving a student’s cross-border tuition payment is not enough; you also need to tie those payments into your back-end system, so that you know which student the payment is for and how that payment fits into the student’s overall account. Or if you’re a business paying a supplier, you need those payments to connect to your ERP [enterprise resource planning] system. We build strategic relationships with those ERP providers so that our software and payments capabilities are already embedded into customers’ systems.
Roshan Varadarajan: So the software is targeted to the specific vertical. You mentioned education and B2B, and you also target healthcare and travel. Those are large and varied verticals that involve complex money flows. How do you decide which verticals to target?
Cosmin Pitigoi: We started by being pretty focused and targeted, as opposed to spreading across too many. We looked at the specific use case of driving value through software in payments. I come from a background where I knew how difficult it was to move even $100 from one country to another, from a consumer to another consumer or to a business. Here we’re talking about $20,000 or $30,000 tuition payments, for example, or very large travel arrangements that you want to split up across your friend group, where multiple travel operators or agents within those arrangements need to get paid.
So what you start to see is the similarity between all these use cases—large transaction amounts, usually cross-border, and manual back-end processes being carried out usually by a small team reconciling payments through PDF forms or similar. That’s what we want to automate. We focus on the receivable side, helping people like CFOs ensure their businesses are getting paid.
I think the rest of the payments landscape realizes that payments by itself is no longer enough.
Cosmin Pitigoi, CFO, Flywire
Roshan Varadarajan: So your ability to plug into a business’s system of record is one piece of Flywire’s special sauce. What does the growth story look like from there?
Cosmin Pitigoi: It’s a land-and-expand type of strategy. I’ll explain it through the lens of our education vertical, which we targeted first: Our origin story focused on the case of a European student looking to pay their tuition at a university in the United States. The payment was, in effect, lost because the money came in under a different name from the student’s; there’s a currency difference, so conversion rates were involved; and the school was struggling to figure out “How do I know this payment is for that student?” In addition to providing the cross-border payment network, we offer software that lets them connect those payments to the students they’re for, automating that process for them. If you talk to our clients, they say, “We love you guys. Your product is mobile; it’s a modern experience.” That’s what they need. That’s the “land” piece.
Because we make receiving tuition from international students so much easier for schools, they want us to then help them with their domestic students’ payments too, and the “expand” piece goes from there. We offer a full suite of services in addition to the payments. Because we’re already embedded in our customers’ ERP systems, it’s easy for them to add new products. For example, we recently added the ability to make payments from 529 savings plans [the US tax-advantaged college tuition savings plans]. Today we serve something like 4,000 to 5,000 educational institutions in the United States alone. Of those, maybe 10 percent use our full suite, so we have room to grow. We believe that with our current customers in the United States alone, we have the opportunity to grow three to five times over.
Roshan Varadarajan: The verticals you target would seem to have very different industry dynamics. The travel industry, for example, is now an ecosystem with online travel agencies, long durations between booking a service and utilizing it, the use of virtual cards for payouts, et cetera. How much retooling do you have to do to target a new vertical?
Cosmin Pitigoi: As it turned out, a large part of our platform that we built for education applies quite well to other verticals. For example, a hotel chain needs a way to take payments in multiple currencies, and they need to reconcile them and know which reservation corresponds to which payment, even if the name on the reservation is different from [the name] on the payment. We can offer an automated accounts receivable process for this. And then we can start making it simpler for their payers. Maybe you’re booking a vacation with friends and want to split up the payments among you; maybe you’re all paying different amounts. The same goes for a large healthcare bill that a payer wants to split up and pay over time.
It all starts with automating a significant portion of our customers’ back-end processes. For them, that’s an immediate use case. And then in addition to our payment network, we’re offering them additional products and automations that, from our customers’ perspective, they don’t have to pay a lot [for], to offer to their customers or payers. For the most part, the cost is de minimis for our customers. That’s what makes us different as a business: We have this mix of software modernization along with payments modernization mostly from the foreign-exchange side.
Roshan Varadarajan: What about your healthcare business? I would imagine that is less a matter of cross-border payments. Tell us how your healthcare vertical works and the challenges involved.
Cosmin Pitigoi: You’re right. Healthcare for us is more uniquely focused on the United States and mainly on the payments piece. Patient affordability is a big piece of it. You get that large bill and have that “Now what?” moment. That’s where we come in. It goes behind just splitting that payment up over time to include machine learning and predictive analytics to help answer “What is your capacity to pay? What could you pay?” And then we can look at other ways to split payments up and other payment options. We’re not offering financing, but we’re providing healthcare providers with the capability to offer those different payment options to their patients. The way we go to market with that is often to partner strategically with existing providers such as Epic or Cerner, who have an end-to-end process already that we build onto.
Roshan Varadarajan: How do you manage the regulatory complexity that might be involved in money movement from so many different jurisdictions? What’s the operating model that allows you to do this with such broad coverage? Cosmin Pitigoi: Creating these individual global centers to build a global network requires not just the technology but people on the ground dealing with the regulators and compliance issues. All of these countries we’re in have constantly evolving regulatory and compliance frameworks, so just being able to exist in these countries takes a lot of time and investment. That’s why, whenever I hear of somebody saying, “You could have a new competitor pop out of nowhere,” I think, “Obviously, they don’t understand how difficult it is to build this kind of business.”
We are thoughtful about which market we launch in next. We make sure we have the capabilities to launch, and once you have that in a certain market, it is a lot easier to add new verticals or add new capabilities, because you’ve already created that footprint. And we look at what our clients are asking for. If we see everyone asking for services in a specific part of Latin America, for example, we’ll spend more time on that particular geography and build it up. A big piece of it is creating those capabilities locally, whether it’s banking or regulatory relationships, and maintaining them. That’s how we’ve built our proprietary global payments network.
Roshan Varadarajan: What’s the right way to think about the competitive landscape and the different archetypes of players you compete against? How do you differentiate Flywire?
Cosmin Pitigoi: The competition is beyond fragmented. If you start with just the broad definition of large money movement, large payments, there are a lot of players out there. But usually they serve a specific use case, and it might not be that well aligned with what clients are looking for, which is usually to save costs by automating a back end and to have a payment solution to move money. Take foreign-exchange [FX] providers. It’s great to be able to convert the FX, but can you help your customer reconcile the payment exactly from both sides, so the payer knows what they paid, the receiver knows who it is they got paid by and what for, and all of this is tied into the customer’s backend software? That’s a lot more than just converting FX and moving money.
So for us, the integrations on the software side are unique differentiators, because we’re tied into the ERPs or CRMs or healthcare and other systems that are deeply embedded into those workflows that customers need automated. It’s also our focus on receivables. When we look at the competition, we don’t see a lot of providers that are able to offer all of this. This is what I love about Flywire and why I came to work here. It’s exciting to be working on something that is unlike anything else.
Roshan Varadarajan: How do you think about direct versus indirect distribution, especially when you’re looking to serve hundreds or thousands of universities and then adding travel endpoints and healthcare systems?
Cosmin Pitigoi: Our go-to-market is both direct in channel and through channel partners. We have relationships with banks and others such as ERP providers who are also supporting our customers and those providers have us as a feature. For example, Ellucian, the campus payment system, offers us as one of their preferred providers. So those channel partners help us scale up the go-to-market function. And we also have a mix of specialist sales professionals, who have built those relationships long-term with those schools. But we also use generalists who understand the education business well enough.
The way to scale the direct part is that you’re helping customers understand the savings from the automation, and that doesn’t take a lot of people to do. You can just say, “Here are the best practices from these other universities, and you can follow what they’ve done. If you have a question, call us, or maybe talk to one of our chatbots.” So you can see how you get to the point where you can almost say, “Look, you can save $300,000 and move faster by reconciling all your payments with this.”
Roshan Varadarajan: Let’s switch gears and talk about you. You’ve held just about every role one can hold in a finance organization over the last 25 years or so, including many years at PayPal and earlier at eBay and E-Trade. Can you share a little bit more about how you think about the role of the finance organization in companies and the role of finance professionals within that?
Cosmin Pitigoi: What I love about finance is that you can be that central nervous system that sits behind every other function and brings everyone together because of the way finance operates. But for that to happen, you need a finance team that has the mindset of “We’re one team. We collaborate together, and we help everyone else be better and stay aligned, whether the product team is talking to the marketing team or to the sales team.” But for that to work, you need to be able to communicate the finance story, and that is the reason why I talk about both balancing the storytelling and understanding the data. You always have to be both, and that’s actually a hard combination of talent to find in finance. You need people who can do deep data analytics, understand the customer and the business, and at the same time actually tell the story. That’s especially true in my role as CFO of a public company. Even though I have a million numbers in my head, how do you simplify it to illustrate how software drives value in payments?
Roshan Varadarajan: Cosmin, thank you so much for taking the time to speak with us.
Cosmin Pitigoi: Well, thank you so much. I appreciate your having me.
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