Kash isn’t your average scrappy payment startup – the billion dollar retailers have already started knocking. We met with co-founder Kaz Nejatian in San Francisco, to talk about how this startup is gunning to replace credit cards.
At first glance, Kash could be mistaken for just another payment technology startup, although one with a particularly bold goal: to become the retail payment method of choice. Nothing about Kash’s offices in San Francisco’s SoMa district pegs the company as remarkable; as is the case for many of the City’s early startups, searching for Kash’s offices leaves you concerned you’re about to walk into someone’s flat. But no, this is the right place, says CEO and co-founder Kaz Nejatian as he lets me in, explaining how there are six Bitcoin companies in the building, which neighbours Pinterest and AirBnB.
In his hoodie and ‘Toronto Law’ t-shirt, Nejatian brings out water in mason jars as he explains how four people work for Kash in SF and three more in Canada – this count should double this year. But this is by no means a bootstrapped operation. Kash’s ambitious plan to become the retail payment method of choice has some big-name backers: first Y Combinator, then investors including Tim Draper and Green Visor Capital – and in September, former Visa CEO Joe Saunders joined the Kash board, alongside Square founding member Sam Wen. In other words: the Kash plan may be bold, but the talent pool is deep. Nejatian tells a compelling story, and after an hour in his company it’s hard not to get onboard with the excitement.
The quick and cheap alternative
The key to what Kash does, is letting people pay for things using direct debit: “We’re the only direct debit company in the US,” says Nejatian. “In the US, there’s no instant payment system that’s affordable.” The alternatives are the credit card networks, which are quick but expensive – or the Automated Clearing House network, which is cheap but takes several days. Kash adds an API on top of the banking network, which then allows people to log into their bank accounts and pay directly, at low cost. It’s all done and dusted in about two seconds.
This all sounds great, but still – getting people to change a behaviour as fundamental as credit and debit card payments is a tall order. It’s not like Kash is the first to have tried? Nejatian nods, eager to explain. First of all it’s easy: the payment is done within the browser, with no app required, and the technology is available to 93% of US consumers. The low rates are a key issue for merchants choosing Kash: instead of paying the usual 4-5% transaction fee to clear card payments, e-commerce merchants pay 0.5% with Kash. This enables them to either pocket the difference, or pass this saving on to their customers.
“We do incredibly well everywhere we’re deployed. We’ve just deployed across a major e-commerce retailer – our e-commerce product came out less than five weeks ago! On this e-commerce route, we do over 25% of transactions. In the first week there, we beat every brand of cards.” Right now, about 400 companies use Kash, with several more in the pipeline. In about three months, a “multi-billion dollar company” with physical outlets in fifty states will join this number – Kash can be used both online and in-store.
The reception from the established banking industry has been positive, says Nejatian: “There are banks that really like us, and we have big and small partner banks. But credit card transactions are the single largest source of revenue for American banks, so there are obviously banks that are nervous about that revenue going away.” Nejatian hopes to partner with more banks, but accepts it will take time. “The regulators here take a much dimmer view towards innovation [than in the UK]. It’s not as easy for banks here to say they want to have a fintech innovation hub that lets startups do whatever they want.” Nejatian shrugs; the Canadian national was previously a banking lawyer in New York, making it easier for Kash to navigate this issue.
The anti-fraud guarantee
Another appealing feature of Kash is how merchants are protected from chargebacks, which in the US can be significant. Then there’s how the technology boasts being highly resistant to fraud. Kash will cover fraudulent transactions up to $100k, says Nejatian: “But we haven’t had a single case of fraud.” Asked to explain how they’ve managed to create a system that makes this possible, Nejatian compares standard card payments to a game of Chinese Whispers: you swipe your card and it starts a chain: to the gateway, the bank, the network, and many more steps beyond:
“Instead, we have an algorithm that clears transactions, determined fraud, and moves money around. We use literally hundreds of factors to determine fraud, credibility, and creditworthiness. None of those factors we use are used by credit card companies.” Nejatian asks if I have a $5 note on me. “If I have the serial number that’s on your bill, I couldn’t spend that $5, right?” I look at the note in my hand. “But if I knew the 16 digits on your credit card, I could buy myself a Louis Vuitton purse tomorrow.” He laughs. “If you were to design a payment system today, you wouldn’t say, ‘Let’s clear money using 20 random digits!’ Because that doesn’t make any sense.”
Most of the security features in the Kash algorithm are kept secret – Nejatian will go as far as saying one of them is your IP address, but there are several dozen more. “We know information about you that your bank doesn’t know, and doesn’t want to know. … When we know those things, we don’t have to rely on numbers.”
A passion project
Having a catalogue of big name supporters to point to has been good for Kash as it pushes ahead with its ambitious goal. “But I think what makes us impressive to our merchants is when they see results. 80% reduction in transaction fees – that’s real to people.” Nejatian pauses. “I come from a long line of retailers. We moved from Iran to Canada when I was 12, and we had a corner store. I would go through our bank statements and look at credit card fees, and every month the credit card companies were making more money from my mom’s store than my mom was. Every single month. That’s true for most merchants in the US and Canada.” Nejatian was 14 years old when he decided he wanted to do something about this. “I’ve been thinking about this for a really long time! It’s nice to have a plug that a lot of people are using, and like. It’s having a real impact in the world.”
While getting small retailers onboard is Nejatian’s hobby, he knows full well it’s the billion-dollar chains that are going to make Kash a success. Progress has also been aided by the US’s recent migration to chip and PIN cards, which changed the landscape for card fraud by driving it online. “We honestly didn’t expect e-commerce [takeup] to grow as fast as it has,” says Nejatian. The company started in 2012, but the first few years were spent building the tech from scratch – the actual product is less than a year old. Even more amazingly, this growth has happened without a sales team, as it’s all been word of mouth. “But we’re building a payment company – it will take a while! I’ve waited twenty years to start the company. I can wait twenty more years for it to become a big company.”
The goal is to take Kash global: “The payment system is broken virtually everywhere. It’s bad in the US, but it’s terrible in Africa and Asia. … Moving money should be frictionless. Ideally moving money shouldn’t cost you. We have a long way to go.” Nejatian describes Kash as his mission in life, and considering his enthusiasm it’s hard to doubt his sincerity as he explains he didn’t start Kash to run his own company, but to make payments more affordable for people. “I want this to exist. I think we’ll be the ones to do it. But even if we’re not, I’d want this to exist.”