Launching a financial startup in Australia has its challenges, with complex regulations to navigate, and a market dominated by the big banks.
Despite these difficulties, there are an increasing number of Australian financial startups launching products in direct competition with the major players — everything from Pocketbook, up against ANZ’s Money Manager, and Pygg, a service similar to the Commonwealth Bank’s Kaching.
Fat Zebra is another Australian startup, trying to make a dent in the online payments space. The service allows you to take credit card payments directly on your website, and competes with the banks’ solutions, as well as a few long-term providers like eWay and SecurePay. The company has been growing rapidly since launching its product in January.
“We’ve grown substantially since launching,” says Canberra-based Pred Dragila, co-founder of Fat Zebra. “We’re doubling in size every month. It’s an interesting growth and as a startup it’s probably pretty good.”
Dragila and co-founder Matthew Savage have been working on Fat Zebra since 2010, but only started working full-time on the company in January this year. It’s a difficult industry to try and crack, with a number of established players who aren’t particularly keen on new competition. Dragila says a big break came when ANZ and Westpac agreed to work with the company.
“It’s a chicken and egg scenario. The banks don’t want to deal with you until you demonstrate yourself, but you can’t demonstrate yourself until you’ve worked with the banks.”
In Australia, you still need to go through a bank to setup Internet Merchant Facility in order to process credit card payments through a website. It’s a risk-aversion measure, which isn’t necessary in the U.S. Dragila says the establishment of a merchant facility as being one of the greatest pain points for startup companies — it’s expensive, time consuming and can be confusing if you’re not familiar with Australian financial regulations.
It costs around $100 to establish an account initially, and then there is a transaction fee between 0.7% and 4%. Some banks also charge a monthly fee of up to $40, or a cost per click fee between 10 – 20c per transaction.
Fat Zebra offers some assistance in filling out the paperwork, to simplify the process and pre-empt some of the standard questions a bank’s risk team will want to ask. In the U.S., the banks have handed over the ability to assess potential merchants to third-party gateways like Braintree, making it quicker and easier to setup a payment platform.
“We’re getting very hands-on, not only helping with the integration but also helping startups which don’t understand who to approach, or how to approach the banks.” Fat Zebra has targeted startup companies as its first customers. Companies like Show Pony Fashion and Muesli for Me are some of the current users of the platform.
Dragila says Show Pony Fashion has doubled its transaction value, by introducing the ability to take credit card payments alongside Paypal. Reducing friction at the payment stage can significantly improve sales conversions, he says.
“Nine out of ten people know their credit card number off the top of their head. We always push that you should give customers as many ways to pay you as possible.”
Dragila won’t say exactly how many companies now use the platform, although says the figure is now in the hundreds. The company is break-even, and doesn’t plan to raise investment anytime soon. Dragila is keen to make sure current customers are well-serviced, before trying to grow any faster. Any investment would go towards improving the offering, rather than trying to generate new users.
While Canberra has a small community of startups developing, thanks to people like Peter Davidson (co-founder of Fishburners) and Rory Ford (Director at the new Canberra-based Entry 29 co-working space), it’s still difficult to build a startup, largely due to the lack of development talent. It’s one of the reasons Dragila and Savage are looking at relocating to Sydney next year. They’ll also be recruiting for developers — currently they outsource what they can, but that can be challenging due to the complex PCI standards FatZebra must comply with as a payment gateway.
“The startup community here [in Canberra] is fairly fresh. There are some great startups here, but you don’t tend to hear about them until they move to Sydney or Melbourne.”
Fat Zebra offers a special rate for startup companies — $110 upfront and then 20c per transaction. Its other plans range from the solo plan, with no monthly fee and a 40c transaction fee, through to its top plan, charging $50 a month and 18c per transaction.
U.S. payment gateway Braintree (see our our story on the company’s expansion into Australia), has also targeted startup companies. As Ready told FLT, the Braintree platform will scale as a startup grows. Both luxury-car service Uber and online retailer Fab.com started their businesses with Braintree, and continue to use the platform. Dragila doesn’t think Braintree poses a threat by expanding into Australia.
“We’ve had a number of conversations with Bill and the guys at Braintree. I’m all for it and I think the more options for the market the better.”
But Dragila says this isn’t the main reason Fat Zebra is targeting early-stage companies. He says working with early-stage companies means Fat Zebra is able to determine how relevant its product is to companies which understand new technology, and are testing new business models.
For example, Muesli for Me required the ability for recurring payments, so Fat Zebra helped the company integrate their platform. By working closely with new companies, Fat Zebra hopes to be able to pick up on current trends and develop the tools other companies might be looking for in the future.
The best way to acquire new customers has been pounding the pavement, so to speak; dropping into spaces like York Butter Factory in Melbourne, and Blue Chilli and Fishburners in Sydney. Fat Zebra hasn’t spent any money on marketing. Engaging with companies on internet forums and listing on payment ecommerce providers like WooCommerce and FoxyCart has driven some traffic, but Dragila says word-of-mouth has been the most effective tool.
“People do see a new name pop up and we do try and work as closely as possible with some of those e-commerce providers, but so far what’s worked best has been popping into some of the co-working spaces. Being a startup, we’ve been able to relate to them and you know, every startup knows another startup.”