GoCardless, a simple solution to expensive or lengthy online payment methods. It allows any business or individual to accept Direct Debits for just a 1% transaction fee which works out as a maximum of £2. So whose bright idea was this?
In 2010 three Oxford graduates, Matt Robinson, Hiroki Takeuchi and Tom Blomfield managed to squeeze themselves into the payment business by seeing a gap in the Direct Debit market. The trio couldn’t understand why only very large organisations could accept payments via Direct Debit. So they set out to create process which would allow for small businesses to accept debit payments without the large price-tag.
Securing a deal was extremely difficult due to the rigorous regulations surrounding the use of Direct Debit, but luckily the trio had established connections from their time working in the city, so they were granted access to the niche market. Upon researching the credit card market they discovered that one merchant lost almost 10% of credit card payments every month due to loss and expiry in comparison to just 1-2% of Direct Debits. Credit cards are also extremely expensive, taking around 2.5% in transaction fees from small businesses.
Initially the venture was funded by the founders’ savings, but in 2011 they went to Y Combinator over the summer and established some seed funding as they had previously learned to be coders. They were then granted $1.5m from investment company Accel Partners and Passion Capital.
Over five months GoCardless technology was trialed by 300 varied merchants in closed beta. Another 1,000 merchants have signed up since that time, and the trio have also collaborated with Kashflow. It has also been calculated that when GoCardless first went live in February 2012 that there were approximately four sign-ups occurring every minute.
So the secret of their success…? At Y Combinator the founders learnt an important lesson; you have to make something that people want; which is exactly what GoCardless seems to have achieved. Plus the nature of the ‘product’ is that it can market itself, with the effectiveness of this marketing being determined by the existing number of partnerships.
Matt Robinson explained that the hardest part of the GoCardless journey was raising money quickly, and of course, having to convince people to invest in your idea. Luckily for the trio, their business model was very attractive, particularly when investors found that they were charging only 1% and that it costs less than that to do it.
The three founders have naturally developed their individual roles within their company, with Tom being a self-proclaimed ‘techie’, Matt leading the sales and customer service and Hiroki managing the product side. They maintain that working in a group of ‘3’ allows them to cover the ‘three Ds’ effectively - Development, design and distribution.
The trio hope that they can grow fast enough to generate a profit in the next three years, and with the way things are looking, PayPal are in for some stiff competition.