Summary
Ecommerce banking with Highbeam is what a financial platform built for online sellers actually looks like, and this episode breaks down exactly why that matters.
Stephen Brown, COO at LedgerGurus and co-owner of Sole Toscana, sits down with Samir Shergill, CEO and co-founder of Highbeam, to dig into why traditional banks fail ecommerce businesses, how specialized neobanks are stepping in to fill that void, and what responsible financial infrastructure looks like for DTC brands and online sellers.
They cover the real cost of merchant cash advances and why a 10% fee is almost never a 10% loan, how Highbeam approaches working capital lending for a segment traditional banks refuse to touch, why multiple bank accounts are a smart cash management strategy, and how focusing exclusively on ecommerce brands allows Highbeam to build tools that match how these businesses actually operate.
Takeaways
- Why Ecommerce Banking With Highbeam Is Built Differently From Traditional Business Banking
- What Is a Neobank and How Does It Work for Online Sellers
- The Real APR Behind Merchant Cash Advances and Why Most Sellers Miss It
- How to Calculate the True Cost of a Merchant Cash Advance Before You Sign
- Why Ecommerce Working Capital Loans Are So Hard to Get From Traditional Banks
- How to Use Multiple Bank Accounts as a Cash Management Strategy for Your Business
- What Makes Ecommerce Lending Different From Asset-Based Business Loans
- Why Specializing Your Financial Platform in One Industry Produces Better Results
- How to Maximize Yield and Minimize Interest as a DTC Brand
- What Is the Debt Spiral Treadmill and How to Avoid It as an Ecommerce Seller
- How to Evaluate Whether a Financing Offer Is Right for Your Ecommerce Business
- Why Long-Term Optimism in Ecommerce Requires Short-Term Financial Discipline
What We Cover:
- 00:00 The E-Commerce Banking Landscape
- 02:25 The Rise of Neobanks
- 05:28 Challenges in E-Commerce Lending
- 08:18 Understanding Merchant Cash Advances
- 10:57 The Importance of Transparency in Financing
- 22:04 The Importance of Financial Management
- 29:04 Specialization in Financial Services for E-commerce
- 36:12 Optimism in E-commerce and Consumer Brands
Guest Information
Samir Shergill is the CEO and co-founder of Highbeam, a banking platform built to help brand founders and operators grow sustainable businesses through smart financial decisions. Highbeam works with omni-channel brands like Sabah, Birthdate Co, Suzie Kondi, and Branch Furniture to help them maximize yield, minimize interest spend, and run profitable businesses. Before founding Highbeam, Samir worked as a software engineer at Microsoft and spent years at ad tech startup AppNexus, where he first got exposure to the financial challenges facing ecommerce brands.
Work with LedgerGurus
If this conversation raised questions about how your ecommerce business is managing cash and banking, reach out to our team at LedgerGurus immediately.
Transcript
Stephen Brown (00:00)
Why is banking so bad for ecommerce businesses? And what should ecommerce business owners and operators be thinking about when it comes to banking? Welcome to the ecommerce finance podcast. I’m Stephen Brown with LedgerGurus
with me today I have Samir Shergill, CEO and co-founder of Highbeam Samir, thanks for joining.
Samir (00:16)
Thanks for having me.
Stephen Brown (00:17)
Before we get into answering that question I posed, I’d like to understand your journey to ecommerce. How did you get into the world of ecommerce? Maybe a little bit background to getting to where you started and built and have been growing Highbeam.
Samir (00:32)
Yeah, and I think that by trade, I was a software engineer and I worked at Microsoft for a number of years on nothing related to ecommerce, but I ended up, my first foray into startup land was at a company called AppNexus, which was an ad tech startup. And so I got exposed to ecommerce businesses through the lens of them doing advertising. And I got really interested in this notion that advertising was becoming much more programmatic, something we take for granted now, but at the time…
advertising was very kind of you imagine people like the mad men on the martini lunches, like making decisions on TV ad buys versus programmatic ad spend on meta or Google. And AppNexus really at the start of that wave. And then when AppNexus got acquired and I started my own company, I really got interested in this idea that the other most important thing for an ecommerce business is managing their cash flow. And it’s you kind of live or die by if you do that effectively, and yet the tools to do that seem so poor. And so kind of from that idea, I acted as
you know, a poor CFO for a number of my friends, consumer brands, and it really started to learn more about like, if the data exists, similar to advertising, where advertising moved to programmatic, why are customers and businesses still making relatively poor financial decisions? And from there, we evolved that into, well, the answer to this is to build a banking platform that has intelligence built in. And there we are here four or five years later with Highbeam
Stephen Brown (01:47)
Gotcha. What years were you doing at AppNexus?
Samir (01:50)
So AppNexus was 2012 through 18 or 19 almost. Yeah.
Stephen Brown (01:57)
Okay. Yeah. So
those were the kind of the early heydays of I consider that like wave two of ecommerce way one was really crazy. You know, people building putting in servers, you know, think of early dot com days. Yeah, I feel like wave two was really kind of the Shopify Amazon seller central, ⁓ you know, meta ad platform, all that. I feel like there was this there’s this there was a second wave and
Samir (02:09)
the dot com day, the pre Shopify website days.
Stephen Brown (02:25)
The second wave, I think, really enabled so many of businesses to grow. And I feel like we’re at the end of the second wave, but that’s a whole different conversation. ⁓ But banking, yeah, banking sucks for most businesses. And, you why is that? Why is it that the traditional banks are so bad when it comes to, I mean, let’s start with something as basic as like the bank portal. I don’t feel like those have evolved hardly at all in the 30 years of the internet.
Samir (02:54)
It’s a great question. I think that the answer lies somewhere in that banks are financial institutions with good reason, but they don’t really compete on customer service or have not historically competed on customer service or software or the experience that you have with them because they’re competing on, do I have a balance sheet? Do I have kind of regulatory compliance checks that I need in place? And to some degree, there’s been a huge barrier to entry to do that.
The way that happened probably the last 10 years is this new layer of neo banks, what we’ll call broadly, where people like Mercury, Brex, Highbeam, others, they really act as the software layer and the intelligence layer to access the financial products. It’s kind of like putting ourselves in between the balance sheet from the bank. And you still have a bank in the background with the balance sheet and the regulation and all that stuff. But you allow a technology company like Highbeam to be that interface, that middle layer and provide all the software.
unlocked kind of for the first time real competition. And that’s good for everyone in the ecosystem. I think that now you’ll see better banking solutions, more specialized banking solutions. And we’re starting to see, I think, the evolution of financial services where the software will get better and the banks will be forced to adapt. So we’re probably at the early stages of that. But I think the lockjam was there because there just wasn’t a way to enter to provide banks. There was no new bank charters historically until the last couple of years. And now suddenly there’s
everyone is applying for bank charters, but there was these like kind of the taxing medallions in New York. Taxing experiences are so terrible because there’s no new medallions. And so that was kind of the way we were stuck with, which hopefully is going to change now.
Stephen Brown (04:29)
And banks, don’t seem to, I mean, they haven’t felt like they’ve had any incentive to improve their technology, right? I feel like there was probably a big push in those dot-com days. And honestly, I don’t feel like bank portals have evolved that much since those dot-com days. It does feel like some banks and credit unions are using the same underlying technologies. I don’t know if there’s like companies out there that are selling really crappy bank portal software that they implement, but…
I don’t feel like they’ve evolved in line with the rest of the software ecosystem.
Samir (05:02)
Yeah, that’s an understatement. If you think about even like nine to five and like the payment rails, which may be a little bit technical, like ACH as a payment technology from, you know, why is it only available within certain hours? And, know, anecdotally, this is because, you know, people go home and you have to like literally print out a dot matrix printer and like you have to transfer it around. It’s like things have not evolved. Like you’re still sitting in a age where real time instant payments.
Stephen Brown (05:05)
Yeah.
Yeah.
Samir (05:28)
are facilitated by third parties like PayPal, but not the banking system. And so it’s really been this, ⁓ there’s been no pressure to innovate because there’s not been enough competitive force in my mind. But increasingly, I think that is starting to happen. But historically, and especially for small businesses or mid-market businesses, I think that’s been even a further underserved segment. Like lot of banks would care about their large customers and they care about the consumer experience to some degree because it’s one size fits all.
Stephen Brown (05:31)
Mm-hmm.
Samir (05:54)
But kind of SMB mid-market, was a servicing cost associated with it. You you think of historically, you had maybe a small business banker in a small town and you sat down with him and talked about your business and he kind of gave you some advice. And that was the relationship you had at a personal level. But once they took away that personal relationship, what did they replace it with? They replaced it with a terrible portal that hasn’t evolved. And so I think that that’s part of the reason why banking has deteriorated over time. It’s actually probably worse today than it was 50 years ago.
from banking experience for a small business. But I think part of what we see that as, as an opportunity to redefine that through technology and that’s why we exist.
Stephen Brown (06:31)
Now you use a term that I don’t usually hear used without some rejection, which is neobank. A lot of times when I talk to companies like you, they don’t like that term. I like that term, but maybe explain what it is you guys are and how like a neobank works because I don’t know that everybody always understands this concept that are you guys a bank or how does that work? So maybe just explain how you guys function in relationship to your partner banks.
Samir (06:58)
Yeah, it’s a great question. And ⁓ I think that the way to think about it is what we are is the software layer that sits between a partner bank and the end customer. And we are completely transparent if you go through the Highbeam UI on which bank we’re partnering with, where the money sits, what the FDIC insurance is and all those things. And so a way to think of it is instead of that bank having a branch down on the corner on the street,
they opened a branch through Highbeam. And Highbeam is responsible for providing all the services and software so you get the best of both worlds. But the banking partner, who’s ThreadBank in our case, is fully the institution that’s regulated, that has the deposits. And I always encourage people to be as educated as possible on things that are important, like how much FDIC insurance do I have? Where’s my money sitting? Which is the bank that has it.
The banking industry is a heavily regulated industry where companies like us, we choose to partner with the best banks possible to be able to provide kind of this best of both worlds vision. Now, I think whatever you call it, Neobank or financial platform or cash management platform, at the end of the day, we’re in the business of storing and moving money on behalf of our customers by partnering with our banking partners. And we of course take that very seriously. And I think that’s…
really the benefit to the end customer is you get the best of both worlds. You still get access to the financial products that you would otherwise not get because of the scale that we provide and you get the technological services that we would do. So to give you a specific example, something as simple as you want to set up an auto sweep from your operating account to your high yield account or money market account on a minimum balance of $200,000 or whatever it might be. Now, most small businesses
would not get access to that or we have to pay significant fees from their bank to go get that. We’ll provide that for free because we’re doing it through software at scale. So you kind of get the best of both worlds where you get access to financial products and the software kind of layer that we provide to the end customer. Does that make sense?
Stephen Brown (09:05)
Yeah, absolutely. And I think what people don’t always understand, I worked with banks early in my career. I was doing enterprise software before I came over to do ecommerce accounting. ⁓ There’s a lot that they have to deal with. And I think they’ve just prioritized the compliance, the security. ⁓ If you imagine what a hacker would target, right, a bank would be just like bad guys, they want to steal from a bank, so do hackers. So the amount of infrastructure and
spending that they have to do to secure those systems, because all those systems are what is keeping track of everybody’s money and loans and this and that and payments. There’s a lot of infrastructure and I think they’ve just prioritized that. But I love what’s happening is the neobanks or these financial platforms are becoming what the consumer, what the business owners want.
while the banks are doing banking stuff, licenses and regulation and whatnot. What’s really interesting is, mean, obviously the biggest one in this space, and you mentioned them, not the biggest one, but one of the big names has been acquired by banks. Like, Drex got acquired by Capital One. So I have this grand theory of maybe all these neo-banks are gonna get eventually become a part of a bank and then you’ll have the best of both worlds.
You know, there are others I see that are going and getting their own banking which is an interesting thing as well. Um, but yeah, the portals suck. I mean, I’ll give you my perspective from an accounting standpoint. Like I feel like what we can do is so limited or, as a business owner, own two businesses as well. I Co-Owned LedgerGurus and I have co-ownership and a little DTC brand, Sole Toscana. And one of the challenges I’ve seen is a, I want to be able to move money. don’t, I don’t want to go down to the branch. Like.
It’s annoying. I want to be able to just do things from my desk like everything else. I’m shocked. And maybe this is me just coming from enterprise software. I’m shocked that how many banking portals don’t even have things as the ability to do read-only users. So like your accountant can do accounting but not have access to move money. That blows my mind that in 30 years into the internet that they have that there and there are big banks.
I won’t name names, but there are big banks that have really, really crummy, ⁓ multi-user permissions, which seems just unbelievable for business banking where you’re going to have many people that need different levels of access. And so what I love about what like high beam is doing and others in the kind of the neo bank realm is they’re providing the experiences that we need. And that’s kind of table stakes for all small businesses, but let’s just talk about some of the things.
specifically to ecommerce. One of the biggest things that comes to my mind is the lending. And I think people don’t think about this a lot. The lending landscape for these businesses is really problematic. ⁓ In my experience, traditional banks don’t want to lend. ⁓ They want to lend for buildings, for bulldozers, for trucks, warehouses, but
They don’t want to do working capital for inventory. ⁓ Unless you’ve built up a really long history of ⁓ financial profitability, then you can go and you have clean financials. Usually what I’ve seen is our customers, they’ll get some success. They run into challenges for needing working capital to finance inventory purchases. And the big banks, or almost any bank, doesn’t help.
Why is that? Why is work capital financing so problematic for ecommerce and just consumer product inventory based businesses?
Samir (12:52)
Great question. Actually, it’s part of the reason why I started Highbeam was I was acting as a CFO for my cousin’s consumer brand. And, you know, I was doing the math and they were taking one these cash advances at MCA, a merchant cash advance loan. And it seems like easy money, right? You’re like at the click of a button. And this is where a lot of fintech I view as fundamentally extracted from the business and not in its best interest sometimes. Because what happened was the banks stopped lending to the segment. I’ll get to why. But
someone jumped in to fill the void. And it a lot of those merchant cash advance people. you know, there’s, not, not to paint them all with one brush or whatever, but a lot of this is just loan sharking, right? Like the MCA product is designed to get around loan sharking rules because it doesn’t have to, you know, it has to describe an APR, but a lot of times loan sharking rules don’t apply because it’s just this structure they’ve set up whereby you might think that, you know, for example, you’re getting a $40,000 loan at
10%, right? So the way it works is I have to pay back $44,000, you’re going to take it out of my revenue, and it’s a 10 % loan. And you know, people that are financial experts might say, OK, well, that’s a 10 % interest loan. That’s not great, but not terrible. Well, it gets worse because you’re going to pay it back in six months. So like, OK, so it’s a 20 % loan. Pretty bad. It’s actually worse than that because it’s not like you’re paying it back in one lump sum at the end of six months. You’re taking the money away each single point in time. Now it’s a 40 % loan. So you’re like a 40 % loan.
That’s insane. Like, why would you take this money? And not to say there’s good reasons not to sometimes, but the point is, I think what happened was these businesses, ecommerce businesses, are working capital intensive businesses. And unless you keep a really solid eye on it, as you scale your business, your working capital needs also increase. And then you have these variabilities in ups and downs. So if you doubled your business, you probably need to double your working capital unless you’re being much more efficient. And so you’ve got to push more money into the business.
and these merchant cash advances set up to take advantage of that, a lot of businesses we see, most of their free cash flow goes to servicing their interest expenses. None of that’s flowing back to the actual owner of the business. And so our point was a lot of the banks stopped lending to the segment for two reasons. One, they don’t trust the underlying data.
They actually don’t trust, they’re not audited financials, they don’t know how to read this, they don’t understand the data, they don’t want to do it. It’s not worth their while. They’d much rather do one large $100 million loan than do 100 small $1 loans and forget about $100,000 loan. And then two, as you said, they’re underwriting based on assets. So typically they’re doing asset-based underwriting based on the building or the factory or it’s very hard for them in this model where there’s a lot of inventory that turns quickly over time, you have revenue flowing in and out. They’re just not designed to underwrite it.
Stephen Brown (15:05)
Mm-hmm.
Mm-hmm.
Samir (15:34)
you really need a underwriting system custom designed for this segment that is still fair and reflects the risks fairly for the business. And I think that’s where we and others have tried to kind of now standardize the industry to say there is a product that can be both fair and easily available to kind of, again, the best of both worlds. Like some of product that you can get access to, but yet isn’t this crazy, serious rate that some of the cash advance people have.
Stephen Brown (16:01)
Yeah, I mean, I feel like it’s you call it loan sharking. I like to call it the payday lending of ⁓ ecommerce businesses. But what I there’s to me, it’s deceitful, right? They say it’s a 10 % loan. And I think consumers, have gotten accustomed to understand APRs, annual percentage rates. The 10 % doesn’t translate to an APR.
Samir (16:07)
Yes. Yes.
Stephen Brown (16:29)
Like you were saying, when you do the math and it’s a little complex, not crazy complex, a little complex, to me it’s deceitful. Why isn’t this regulated? Why do feel like these companies can get away with what I would argue is deceitful advertising of rates?
Samir (16:44)
Well, the cynic in me says that there’s probably a lobbying group somewhere that managed to carve out an exception for MCA products. The reality is though that almost all these companies do have to disclose the effective APR if you ask for it. So my advice is always before you take any money from anyone, doesn’t matter who it is, ask them explicitly, can you tell me what you estimate the APR to be? And they will always have to give you an answer. If they don’t, that’s a big warning sign.
Stephen Brown (16:57)
Mmm.
Samir (17:09)
We’ve actually built some tools as well. There’s a whatstheapr.com that we built that was just like put in your offer and we’ll just spit out what we think the APR is so some people get a sense of this. ⁓ I think one of the most important things people can do is understand the cost of capital that they’re signing up for and then weigh that against the operational decisions they would have to make to not use the capital. Like what would it, I think sometimes people try to conflate operating problems with financing solutions.
and saying like, well, I have this problem, but I can solve it with $20,000. So I just need to take the $20,000 no matter what the cost is. And that’s where the more that you can have tools or technology that can help you assess what is the cost of this money, how realistic is it that I would pay this back? And, know, I’m sure you talk to consumer brands all the time. Most small business owners have an intuitive sense of their sales. Like they know how much their top line is. fall in very closely.
they might have an intuitive sense of their margin or EBITDA, which is like, think about 20%, but that’s still an abstract. When it comes to their actual cash, how much did I pay in interest? How much did I actually pay myself? How much did the cashflow end up being to various sources? It’s very hard to figure out, but it’s also very hard to intuitively understand. And yet at the end of the day, that’s what matters and why most small business owners started businesses was to get cash out of the business. And so I think you have this, you know,
unfortunate problem where intuitively you understand sales and maybe margin, but it’s really hard to get to the root of where the cash is going. And that’s where these MCAs and other kind of predatory lending is what it is in some ways. They just prey on that where like, it’s not affecting your sales or margin, but it’s sucking all the cash out of the business.
Stephen Brown (18:44)
Yeah. And I think you’ve brought up another really good point. The traditional banks, they’re very risk adverse, right? There’s a reason a lot of these big banks are big. They’ve been around for long time. And when they do a loan against a building or a truck, they have some risk models that allow them to say, hey, if this loan goes up, I can sell this asset and probably get X amount. And they kind of know how much their default rates are. And they’re going to be able to
risk adjust that. I hate to say it to all those of you listening who think your inventory is amazing. Banks, nobody knows how to sell your product but you, right? It’s the value of your inventory is almost zero to anybody else because they don’t know how to sell it. And so part of what I see as a problem with the big banks and the traditional banks, even the small banks, is that asset is something that’s not, they could convert back into cash if, if
you have a problem with business. And so they shy away from it because of that you have these MCAs or sometimes they’re called revenue based loans where they’re taking a piece out of every one of your sales and they obfuscate the reality of the cost with this fixed fee which doesn’t translate directly to an APR. You have to do some math. It’s a little bit tricky.
And so it’s easy to get swooned into, flexible payback terms. Oh, you know, it’s only a 10%, you know, because that’s what I see a lot of times, sometimes a little bit more. And you’re like, that’s comparable to what I would get for a traditional bank line of credit. And people get these loans and they, you know, like you said, I think if people knew, I had to pay an effective APR of 40%, people would probably be like, whoa, no, that’s, that’s bad. That’s a bad deal. And I hate it.
Samir (20:10)
Peace.
Stephen Brown (20:26)
I hate it and I hate the fact that some of these companies are, they’re also the key technology partners for sellers. And so you have a trusted relationship on one aspect of doing business with them. But on the other end, feel like, you know, it’s like, it’s that loan shark with a bat who’s, you know, squeezing you. You just don’t know it because they’ve, they’ve tricked you.
Samir (20:47)
And I think that that’s where my philosophy and what I try to do is like as be as transparent as possible. And I think there it’s, you know, it’s very personal because everyone, your business is very near and dear and it’s personal, right? And so when someone makes an assessment of the risk on your business and says it’s a 20 % or 10 % or 50 % risk, you take that very personally as you should, right? But I think that my role,
in ideal world is to be as clear and transparent as possible as what we can and can’t do and why we decided on that risk profile. And I think that’s where the more obfuscation exists, the worse it is for the business. And so I think that that’s where you got to be very skeptical of the easy button sometimes. it’s understand a little bit more about like, what is the real risk here, the cost of capital and why. And for very early stage business, the reality might be that, you know,
rather than taking a 50, 60 % APR loan, you need to go find someone that’s willing to invest equity in the business. And that’s hard and people don’t want to do it, but that sets yourself up on a much better footing for the longterm than servicing this debt on an ongoing basis. And what I call it is like debt spiral treadmill, which is now you’re always having to get another MCA, another MCA, another MCA, and you have no room for error. That’s really what I find really, really unfortunate is when you have a business that has some product market fit, it already has something that’s growing.
But the reason it fails is not because of any dent of the person not working hard or the product or the marketing or any of that. It’s because the financial management was such that you made a few bad decisions and then you got on this treadmill of debt and you just couldn’t get out from underneath it. And so to the degree that people with, you know, obviously working with partners like yourself, but also that can avoid that fate by access to responsible financial products, responsible lending, and just some basic good practices on
cash management, cash forecasting, cash understanding, I think that makes such a difference. And it’s hard sometimes for people that don’t have a finance background, but I think with the tooling that exists and the services that exist now, it’s possible. And that to me is the most critical thing to do from, I’ll say about a million dollars of sales to $200 million of sales, right? That’s the most important thing you can do for your business is to feel like you have a handle on that.
Stephen Brown (22:55)
Yeah. I want to go back to something basic, ⁓ which is multiple accounts. Traditional banks, its owner has to have multiple accounts. Oftentimes there’s fees. And I become a huge fan of multiple accounts within business. Personal life, it’s, you know, it’s okay to have like one checking account and kind of do a lot of things from that. Maybe you sweep some extra money out into different investment and savings accounts. But
within business, I’ve seen a lot of interesting challenges over the years. Somebody compromises your account. It’s a nightmare. I’ve had customers where this has happened and your account gets locked down. because of, as I’ve seen all these different nightmares, I’ve said, I’ve learned to set up a strategy. So I have like a money in account for my businesses and all I use it for is taking money and I always take the money out of that. that can’t be compromised. And then I use different accounts for like payments. ⁓
Samir (23:30)
Yes. Yes.
Yes.
Stephen Brown (23:51)
I learned a couple of years ago about the horrors of payroll disputes, payroll tax disputes, how the states can really clamp down accounts based on if they have a lien on your business. I of segmented my accounts based on their purpose, money in, payroll, AP. And you can get really crazy with things like Profit First, where you can have accounts for this, that, and the other that are really just holding accounts in large part.
Samir (24:03)
Yes.
Yes.
Stephen Brown (24:19)
But the traditional banks do not make this easy because you have to go in and sign docs every time you set up an account. And there’s usually minimum balance fees, which makes it really hard to have like these holding accounts that maybe you want to zero out periodically. ⁓ This is something I love about the NEO banks. You guys make it easy. let’s just take Highbeam example. How many bank accounts could I have with a Highbeam if I was working with Highbeam?
Samir (24:25)
Yeah.
But we’ll cap you at about 100 right now. But if you ask for more, we’ll give you more. But if you can come up with a good use case, for the first 100, we won’t cap you. And that’s all free of charge. Because at the end of the day, it’s just software on our side. software is.
Stephen Brown (25:02)
Yeah, just
banking. You know, I think about it like I spent a long time in software as well. It’s like. Banking is just it’s just numbers in a database somewhere and this number lives in this this account, which is just another number. ⁓ Why do you think banks charge so much for minimum fees? Is that just part of their historical revenue models or?
Samir (25:25)
Well, I think that, again, the cynical part of me says like, it’s because they can. And once you’ve standardized it across multiple banks, it becomes a standard. I think at some point there might have been a servicing cost associated with the paper of someone actually filling something out. But because banking hasn’t really evolved, they maintain the same structure as if it was tellers and paper, and they haven’t moved into the software-led world. And so I think part of the reason is their infrastructure is still very much rooted in this.
Stephen Brown (25:28)
Yeah.
Yeah.
Samir (25:51)
I have people and paper and large buildings and they didn’t come at it from the software first. These are fixed costs and unit costs that I have associated with the actual movement of money. Someone gives me a check and someone has to take that check and process it. Well, if someone just clicks a button and the money moves, there’s no longer a person there that deposits his check and writes in the ledger and like all that stuff. their previous structure on how they charge fees was based on that. And they’re like, well, let’s just carry that forward. Like, let’s just make a bit more money here. And I think that that’s…
Stephen Brown (25:52)
These are costs associated to accounts.
Samir (26:19)
until there was an alternative, people have just continued to do that. so ⁓ that’s, you know, sorry.
Stephen Brown (26:23)
Gotcha. And I was
gonna say, and I think the average person, that’s not how banks make their money necessarily. I mean, obviously they’re making money, but they’re making money by taking the money you put into deposits and lending that back out, investing in doing, you know, bank stuff, right? I’m sure there is a revenue stream from all these fees, but I’m also sure that it pales in comparison to
Samir (26:37)
Correct. Correct.
Stephen Brown (26:49)
where the core of ⁓ bank earnings come from, which is being able to redeploy capital and make money off of interest or loans or whatever.
Samir (26:59)
Totally. Banks health is judged by its net interest margin or how much they pay out on deposits and how much they get from their loans that they make off those deposits. And there’s a lot of regulation to make sure that the risk is appropriate, et cetera. But that’s what makes or breaks the bank. ⁓ so I think that everything else is, but it doesn’t hurt, is the way I’d put it. But I think that it’s also a legacy of they view as most important in their business, the ability to
get deposits, yes, but more importantly, package those up and make loans on that. And that is more important if anything else to see the deposits coming in. Whereas you as a customer, as long as you know your deposits are safe, and you know that they’re FDIC insured and the federal government will stand behind them. And look, we offer $3 million by default. There’s different ways in which you do this. You don’t really care what the bank is doing with that money, right? You care that, of course, that it’s safe and regulated, but your main premise is,
Do I get the experience that I want? Do I get the technology that I want? And the banks have just not had to do this. They’ve just, you know, it’s not been competitive. They’re just not to build the features. And what’s interesting is if you look at different countries, things are even worse in Canada where I’m from. Because in Canada, you have five banks. At least in the US, you have hundreds of banks. In Canada, you have five of them. And the portal, if you can imagine, is even worse than they are here.
Stephen Brown (28:09)
Hmm.
Yeah.
Samir (28:18)
The barrier to entry is really high and it’s like the classic capitalism free market problem versus like an oligopoly or like kind of whatever you might call that model. And I’m sure there’s a country somewhere that has one bank and it’s completely state run and it’s even worse. And it’s just the nature of things and the way they evolve. So, ⁓ but I do think that there is now a push towards being able to be competitive and do those things. But it is interesting to me that
Your banking relationship is one of the most important things that you’ll have as a business and yet that’s not evolved. And the value you derive from your banking relationship has been almost a one-way street where you’re giving these fees, you’re paying the stuff, you’re grappling with this terrible portal, and you’re really not getting that much back in return. And I think that’s something that will change over the next five, 10, 15 years.
Stephen Brown (29:05)
Now I want to lean back into the ecommerce specific stuff because the accounts is that’s kind of every business faces that you’ve talked about intelligence and some of the things you guys are doing around consumer brands and particularly consumer brands selling online, which is the world that we’ve lived in with Ledger gurus. ⁓ What is it that you guys are? Let me ask you. Let me back up. Why did you guys decide to do a specialized industry focus?
financial platform versus something that’s more generic like we see there’s quite a few generic business platform, financial platform companies out there. What was your thesis there to focus on one industry?
Samir (29:47)
Yeah, it’s a great question. you know, most banks are credit cards. They’re the same bank or the same credit card and the financial product applies to every single business. in our mind, the reason that is true is because the people are the specialists, like LedgerGurus specializes in consumer brands or the CFO might specialize. And the reason is the intelligence is specialized. You understand the business really well, so you know what to do. But the financial products are kind of a commodity and it’s just.
you look at a credit card and all you care about is the rate that you get on cash back. Our idea was, if you can combine the financial products with the intelligence, then maybe you can build a better bundle or package for the customer. And so an example of that might be, because we know that credit card, you know, your Facebook ad spend shutting off is a major problem. When you use our credit cards to pay on Facebook or Meta, we’re going to make sure one, always goes through, but two, by being the bank account,
we can toggle between one day cash back if you have excess cash to maximize cash back, 30 days if you don’t or 60 days if you really need the float. So the same card number, you don’t have to update in meta, but it can toggle between maximum cash back 30 to 60 days. Now the only way we would build this is if we understood our customer really deeply and they have a specific use case on when they spend on meta. Now we think the segment is large enough and interesting enough that you can actually build a very scalable business by understanding the business needs deeply.
building financial products specific to those business needs, and then applying the intelligence on top to make usage of those financial products easy. So we’ll do things like provide ⁓ a cash forecast or other things like that that you can use to plan your treasury or working capital or other things. We’ll lend to these businesses. Most banks won’t lend. The reason we can lend to this segment is because we’re only specialized in this segment. So our underwriting takes into account
your Shopify sales and your Facebook ad spend and your ROAS and things like that. I would not be able to lend as effectively if I was also lending to restaurants and services businesses, but because I specialize in consumer brands, I can build this bundle of banking, cards, working capital, intelligence that hopefully is much better than the business saying, I’m gonna get banking from here, a loan from here, cards from here, and then try to stitch it all together to understand the picture of where my cash is and going.
So that’s really the thesis behind and what we’re continuing to evolve is a single financial platform to manage all your cash from the moment it hits your business, the moment it leaves your full visibility. And then you can maximize all these things that have been historically hard to do. Like how do I maximize yield? How do I minimize interest? How do I make sure I don’t pay any fees when the money leaves? We’re trying to go and automate a lot of that. It turns out that for consumer brands, because there’s such a big flow of money in and out uniquely, like let’s just take that.
$20 million consumer brand with a 10 % margin. know, there’s 20 million coming in, $19 million or $18 million going out. And if you can optimize the 20 million in and the 18 million out, and while the cash is there, and the peaks and spikes that yield interest, that’s probably like three, $400,000 worth of value, which is like 30, 40 % of your margin. And that’s really hard to do unless you have a dedicated partner that really understands what you’re trying to do.
Stephen Brown (32:52)
Gotcha. and I mean, there’s so much complexity to ecommerce and we decided to specialize in this world about nine years ago is when we started down that path. We had a few brands and we’d kind of done everything. There’s so much complexity when it comes to money with ecommerce. The ways that money gets into your business, it’s more than just Shopify. Everybody knows this. Like you have to provide PayPal. You have to provide, ⁓ you know, Afterpay or whatever your… ⁓
forgetting the name of that category of product is so that to your customers you have to provide sometimes you have to do them you know there’s a sense like make it easy for the customer to pay so you go out and you get every method of payment and each method have it has different payout methodologies each sales channel has different payout methodologies you know Shopify kind of fans out into how you’re how they pay Amazon’s got the two-week thing ⁓
Samir (33:33)
Yes.
Stephen Brown (33:47)
Everybody’s a little bit different. And then if you layer in wholesale, there’s all sorts of weird dynamics and that’s just the money in. money in. And then there’s a lot of dynamics going on. I know you guys have some stuff around ads. And one of things I’ve seen customers talk about over the years is like they want real time accounting. And I’m kind of like, I don’t know how realistic that is because there is a level of basically applying accrual-based accounting.
Samir (33:54)
Yes
Stephen Brown (34:13)
principles, which is not what the I’ve talked about on the podcast before, but accrual based accounting is where most business owners get lost. But a real time understanding of cash, that is absolutely critical. And I feel like what you guys are trying to do is understand that and you’re you’re doing that with the lens of what these this these businesses are doing instead of trying to put a lens on for every type of business under the sun.
Samir (34:13)
Yes. Yes.
And that’s exactly right. And I think that what most people get into ecommerce because they love the product or they love the marketing, very few get in because they love the cash flow finance part of it, right? But unfortunately that’s really critical. And what we’re trying to do is say, can we give you the real-time visibility into cash as you mentioned, but really show you what it’s costing you to get the money in, it’s costing you to get the money out, what it’s costing you for your loans, what it’s costing you, what you’re making on your yield, and then helping you optimize that as
you really can’t hire other people to do optimize it for you. It’s expensive, it is not worth it. But beyond the visibility, which I agree is essential, the next question is then what can you do to help me minimize the cost and minimize the cost of maximize my yield, minimize my interest. And that’s really where we try to work as closely as possible to say like, let us help you do those things. And sometimes people are amazed by the dollar figure that’s cash in their pocket that they can get from optimizing this.
And it’s like, you know, it’s just, it’s like found money that they’re not optimizing today. And that’s where I really find people say like, wow, I can make a couple of hundred thousand dollars a year up to a couple of million dollars a year because I’m just not optimizing this in the way I should.
Stephen Brown (35:49)
Gotcha. Let’s wrap up talking a little bit about the industry. We both have focused on a specific industry. It’s been a tough couple of years for these businesses. How are you feeling about consumer products and ecommerce today and looking ahead? are some of the thoughts that you guys are having and some of the conversations you guys are having with anyone at Highbeam about the industry?
Samir (36:13)
Yeah, look, I’m an optimist. I’m long-term bullish on the industry, partly because if you macro, the U.S. economy runs on consumer spending. Consumer spending is tied directly to consumer goods. And the growth in consumer goods increasingly comes from emerging consumer brands, DTC brands growing, scaling quickly. That’s the engine room of creation of value for this U.S. economy, essentially. Now,
I think larger and larger companies like the CPG holdcos are really becoming holdcos where they’re acquiring brands, looking at the smaller brands to grow. I think to answer your question, big picture of macro, think is always, things might change, but it’s quite positive. Now in the short run, there’s always, what I find is a lot of these businesses, they don’t have a buffer to be able to manage through,
tariffs or something unbecoming. There may be long-term positive, but they don’t have the buffer. And that’s really where I see even healthy businesses getting wiped out because the buffer didn’t exist. I think there the question really is like, one, how do you create that buffer to be able to outlast the ups and downs that might exist? And then two, I think sustainable brands that are really founded on the key fundamentals of your building something someone wants, there’s brand value, they love the product, those things are eternal.
You know, I found a little bit of something on the meta algorithm that spiked for two months, but the product isn’t great and people don’t really love it. Those are ephemeral and those businesses won’t succeed. But in some ways you want the marketplace to not let those businesses succeed. So I think that my advice may be too strong a word, but what I’ve seen is businesses that can take somewhat of a long-term view and build a buffer and plan for the next year, two years and have a sense of how they can outlast a little bit of that are the ones that survive and the ones that
are most susceptible to kind of the short-term variation of the businesses that don’t have that buffer or don’t have a plan or just try to hope for the best. And it’s hard as a small business owner to keep track of all of these things. And so I think that’s part of the challenge of this segment, but it’s a very long-winded way of saying I’m a long-term optimistic, but of course there’s short-term issues and that’s just the reality of where we live.
Stephen Brown (38:23)
And in my perspective, feel like ⁓ ecommerce has enabled great product ideas to test, to find a hold before they have to go out and scale. Because selling wholesale is really hard. I think there was a lot of the early ecommerce ⁓ businesses that were doing arbitrage. You had the drop shippers. That was kind of one of the big things.
But really in my mind, it’s making it easier for innovation. So people that come up with really great ideas, just think about it, lot of traditional consumer products, they get into a stable state and they don’t innovate. And so what I love is seeing companies that have, hey, there’s a better way, there’s a better idea. can, you know, there’s ways to make that idea into reality and then to get traction with selling online.
And so in my mind, those who are more innovative, who have a really strong product mindset, ⁓ it’s gonna be a great, continue to be a great place to succeed. I do think with the challenges we’ve seen around tariffs and cost of marketing and all of the other things ⁓ do require a higher level of financial sophistication.
which is why I think it’s great to see companies like Highbeam and others who are trying to provide better tools and the ability to operate more effectively. So I am with you as well. think I’m long-term optimistic. I just think we’re going through a shift into a new wave of ecommerce.
Samir (39:55)
And I think that even to that point, with every new wave of, you mentioned the early waves, like as people got mobile devices, it turned out that they were discovering products on Instagram and Meta became the dominant way for how people discover products and advertising. before that, the web was new and there’s going to be new channels and new ways to connect with consumers. I really believe these businesses are going to be at the forefront of discovering new ways and who knows in an AI driven world how that looks like.
I’m confident that those are the businesses that will crack the code first and will experiment and will find innovative. This is the innovation engine of the U.S. economy. Like I think the tech hype and all the VC back in Houston is one thing, but as I go back, like the U.S. economy runs on consumer good spending on consumer brands. The innovation engine of that is rooted in DTC. That is where the best ideas come from when it comes to products. That is where the best ideas when it comes to marketing, that is where it’ll continue to come from.
And I think we should celebrate it. I think that’s the part where people that are excited to go build and scale there ⁓ should continue to do so. And then I think if you’re focused on the fundamentals where you have a product that you love, you have marketing that you love, you’re to go find those things. You know, there’s no gimmicks and easy shortcuts in this stuff in the long run. But I think with those tools and that’s why we exist, we’re excited to support that ecosystem. think my mission or what I really view as why I feel so kind of like
proud in some ways to be able to build high beam is like our customers are people that are really trying to build businesses and bring things to life and there’s optimism. It’s hard. It’s hard to bring these things to life. And it’s harder still if you don’t have the right financial management around you. And that’s the part where, you know, uniquely for this segment, that is a critical need that we can hopefully help with. But for people that are focused on their own products and marketing as they scale this, think that, you know, that sense of optimism is what gives me hope. And it’s why I love talking to our customers like
I used to be in enterprise sales, ⁓ both at AppNexus and earlier, and it always wore me down when I talked to some like SVP of procurement, that I’m sure you’ve previously actually done this, but when I talked to a brand founder, who on the surface, their business might not be doing as well as some enterprise company, but they’re still optimistic, they’re positive, they’re trying things, and that’s great. I feel like we both get to work with those people, and that’s part of what I think makes me happy and energized and kind of ready to build.
Stephen Brown (42:01)
⁓
Awesome. If somebody wanted to connect with you or Highbeam, what’s the best way to do it?
Samir (42:13)
Samir at highbeam.com, S-A-M-I-R, and our website is highbeam.com.
Stephen Brown (42:18)
Awesome, thanks for joining today.
Samir (42:19)
Thanks so much, Stephen.