I think watching you do my favorite. Okay, we're good to go. Good morning. Welcome to Citi's 14th Annual FinTech Conference. My name is Pete Christensen. I'm on Citi's research team covering Digital Assets, some FinTech, and some Info Services as well. Really pleased to be hosting Paymentus with us today. We have Paymentus' CEO and Founder, Dushyant, and also Paymentus' CFO, Sanjay. Thank you, gentlemen. Thanks for coming. Great to have you.
Thank you for having us.
Of course, of course. I remember Paymentus not too long ago coming to the public markets, certainly with our previous team doing a lot of work on the name. Since your IPO in 2021, now you're a billion-dollar company. You're generating cash.
Maybe for those who are less familiar, could you just provide us with a brief overview of your company, maybe why you set up Paymentus, and why Bill Payment excited?
I think that's a great question. A lot of times, Bill Payment doesn't get the excitement nerves going for folks. It's a very exciting business, primarily because if you think about the majority of the U.S. household, spend is towards bills, and that's due to non-discretionary bills. Just to be able to cook, you need water, electricity, gas, and then you're in a home, which most of us are in, apartment or home. You either have a mortgage or a rent, and then you have Insurance Policies related to all of that. Once you start building those blocks up of a typical household, you realize there's a Non-discretionary side of the spend, and serving that economy is very, very important in all times, whether the economy is doing great or the economy is not doing great. We have gone through multiple cycles and continue to grow our business.
From that, I think we saw an opportunity where the providers to the banks, Bill Payment service providers to the banks, were actually letting the banks down. As proven out now in reality, where banks continue to lose their market share, they used to have 70%, 80%, 90% of the share of Bill Payments, is now down to 20%. All of that is, in some ways, from a bank's perspective loss or from a Billing Company's perspective gain through a platform like Paymentus, where we said, "Why don't we give billing companies the entirety of the control of their own destiny? They are the ones who are issuing the bills to their customers.
They are the ones responsible for the collection of the money, and they are the ones who are actually then paying the price if the customers don't pay in time or dealing with the rest of the customers if they've already paid to the bank, and then several days later, the bank hasn't—the Billing Company has not received the money. Why not give them a platform which is holistic, comprehensive, takes care of all aspects of customer engagement and payments related to billing and all customer inquiries and engagement across all channels? That piece is actually proved out to be very successful, where we would go to a Billing Company initially and say, "We will deliver more payments to you in 90 days through Paymentus' platform than all banks combined in the United States." Time and time again, we were able to prove that out.
We also realized that if we can build a successful business, profitable with great unit economics in utilities, starting with utilities, which is the most complex and most efficient part of the sector, we would have an ability to expand into different verticals. Whether it is government services, whether it is insurance, whether it is Property Management, Telecom, and others. If you look at it from where we were to where we are even since our IPO, we now have utilities remains a very big vertical for us: electricity, gas, water, and waste, and so on. We also have a significant piece of our business is now other verticals, that is government services, insurance, and others, and very sizable scale growing rapidly.
More recently, what we've also observed the last several years is we are able to get into companies which were typically out of reach, not only for us, to anyone, because they are used to insourcing, building everything in-house. Paymentus built a platform now with the scale and the size and the ecosystem. It's sort of irreplaceable. It's not easy to create for any organization, regardless of how many floors of programmers you have. We are seeing tremendous attraction there as well. As a result, we are able to provide our figure model of 20% top-line growth, 20-30% adjusted EBITDA growth in dollars, and with great operating leverage, delivering great Operating Incremental Margins. Investors are liking it. Investors are liking the stability of non-discretionary part of the business, but also high growth algorithm and high profitability.
Super sticky, I imagine. What sounds, I think, initially interesting to me is the ability to scale as you conquer kind of like one vertical. You're able to apportion some of that success into other verticals, so on and so forth. Maybe you could discuss that. Also, how should we think about you, Paymentus, on a partnership front, not only from bill perspective, but also maybe on the FI side?
Absolutely. I think the part which was very important for us, and that's why we were—there's a joke in programming and engineering terms where they say, "Sooner you start coding, later you finish." If you don't start, you don't think first, and you start coding, you will probably finish later than the person who spent more time thinking about what they're coding and what they're solving the problem for. We realized that even though Paymentus may actually not be in early 2005, 2006, 2007, 2008, and all those years, which were our formative founding years, we were trying to build a platform for the future. We were saying there will be a time where a lot of these billing companies will have exact same problems. It's not going to be restricted to specific verticals.
The main point for us was, can we actually deliver a top-quality product in small to mid-sized utilities, which was a totally underserved market, but one where they were already way down the path of taking all the efficiencies out of the paper process? We felt if we can actually solve that problem and profitably serve them, then attacking the larger utilities would be easier. From there, you can branch out to other verticals. That played very well. Then we realized that banks who have been largely underserved by legacy providers, by literally—if you can think of it from a bank's point of view, regardless of how many times you play golf with them with a legacy provider, you are still not going to be able to serve the customers unless the customers themselves are getting better service.
We felt that eventually banks will become a lot aware that their service providers have not served them well because there's no real-time connectivity to the Billing Company. We felt that more and more billing companies we create, which becomes eventually on our Instant Payment Network like cell phone towers. The more Cell Phone Towers you have, the bigger opportunity it is for us to attract banks. We have created an Instant Payment Network of the Billing companies we have on our platform, as well as all the other paying in the United States, and go to the banks and say, "Hey, you can now use Paymentus' platform to start distributing your bills." We are trying to bring a little bit of the control back to the banks, and we have been successful at it.
I would imagine it's really crucial table stakes for the banks, right?
Correct. Because if you think about it from a bank's perspective, the most important customer base is the one which has primary checking accounts with them. They make three to four times more from that customer base than the one which does not have primary checking accounts. Bill payments is a very important piece to it from being able to—many of us who use banks for bill payments, you can realize once you have set up all your payees and so on. In fact, I have met various folks who have been decades out of college, and they are still using the same bank they had in college because they have set up some mutual payees and so on.
It's been a long time for me.
That part, you are a very important customer to the bank. It is very important to the bank to get now finally an Instant Payment Network connectivity so they can provide better service to the customers.
Let's tie this now to some of the financial performance that Paymentus has seen since its IPO. Maybe we could take it from the context of the go-to-market. In what ways does being payments and vertical agnostic serve the top line? Maybe more broadly, have the drivers of revenue growth changed since perhaps maybe the time of IPO?
I would say the drivers of revenue growth are there are two. One is the new implementation. We have very good bookings continuing since IPO. Every quarter, we got very good bookings. We are in fact moving into large-sized customers now. Since last year, we started highlighting more on the enterprise customers. Larger-sized customers are now becoming a bigger part of our overall customer base. More of the bookings, but they get implemented on time. In fact, they are getting implemented sooner compared to the implementation phase and the time of IPO. It has evolved over time. Our processes have become much more effective and efficient, and the customers are going live at a better pace now. Those early implementations are also helping us accelerate our revenue growth.
Both the two building blocks, I would say, the new implementations and the second block is the same sources, which is the growth of existing customers. We have this digitalization tailwind which is helping us as well. Overall, the platform is agnostic. We've got a lot of many verticals, around 10 or 12 verticals we operate in. Utilities being the largest one. Approximately 50% of our revenue comes from utilities. Then there are insurance, healthcare, telecom, and there are many other verticals which we are entering into. Some nascent verticals, but we have seen progress in all. We've seen a lot of traction, and the biggest reason for that is that our platform is now resonating more and more. Our platform being agnostic, at the same time, it has a lot of features which are not probably present in a lot of other competitors as well.
We are serving our customers well. We are providing them a good quality service at a very reasonable price. Our product is resonating with the customers and customers who are actually on our platform on a daily basis, making the payments, bill payments, at the same time with our billers or our customers with whom we have contracts, as they are able to provide a very good quality service to their end customers. We are serving this vast community of billers and end customers, and we are seeing significant growth.
I want to go back a little bit to double-click on, I think you touched on the pipeline conversion is getting better. It's accelerating. Is that monetization unit economics that's driving that? Talk about maybe some of the elements there, and then I don't know, maybe at least qualitatively, what's the pipeline look like today versus?
Our pipeline, it looks very good at this point in time on the pipeline. Over the past few years, if you compare, that's getting better. And so is our backlog, and so is our implementation phase, and so is our revenue. The entire machinery, right from identifying an opportunity and recording it in our pipeline till it converts to revenue in our P&L, I think the entire machinery or the sub-processes, they're all working well. I think it's hard to say which process is getting better just because everything is getting better. We are very fortunate to see this kind of progress on our platform and the traction we are getting with all sorts of customers and verticals.
Oh, systems and verticals. Systems coming together.
Correct.
That's a benefit onto itself.
If I may also add one more thing on the Vertical Strategy. If you think about if a company is focused on just one specific vertical, then let's take an example. If we are in Property Management and Property Management only as a company, then you get one consumer and only one time for that particular brand, and that's it because you're not living in two apartments at the same time, by and large. We felt that at some point in time, it would become very important to the buyers of our service that what percentage of a typical household you already deal with? As a result, where do we fit in a typical household's spend? Take an example.
If Paymentus already handles three to four bills just from utilities alone in a given household, and then you add insurance, you have car insurance, you have home insurance, you have renters insurance, a few of those, you have a couple of bills there, you have telecom, another bill, at least another bill there, and you keep adding property management or mortgage, the loans, the car loans, mortgage, you start to build up on it, it becomes very interesting from a long-term perspective. If you were to say five years out, ten years out, what does Paymentus look like? You can start to see how big an opportunity we are talking about here. Sometimes all that gets lost because we as a company are very focused on making sure our investors don't get confused, that there is a certain level of humility in how we execute on our business.
There is also a very important aspect of our investor communication strategy, which is we do not want our numbers to be ever confusing, and we want to tell the story behind the numbers so that the numbers themselves stand on their own so investors can say, "Okay, I can listen to the rest of your story, but at least the numbers are holding where they are." In that pursuit, sometimes you do not look at the five years out or ten years out. What is Paymentus really building? You can take a look at it. If you are serving a big percentage of a U.S. household and a big swath of the customers, on the other hand, as a result, you also have a lot of billing companies, there is a tremendous network effect, which would be a lot more disruptive than what meets the eye right now.
That's interesting. Maybe this might be a good point to help investors understand the biller direct versus the bank-based payments side of the business and how is Paymentus kind of enabling both ends at the end, serving the end user, the client.
Correct.
That sort of thing. How do you think the—obviously, you're helping bill collection improve and things like that. What overall utility are you driving in just bill payments generally by playing in both these sides?
I think if you think about it from a Billing Company standpoint, the Billing Company doesn't care where the money is coming from as long as they get the money. We felt that our strategy has to be all-encompassing. When we are going to a Billing Company, we have to be able to say that every one of your customers who wants to engage digitally with you, regardless of where they are, they should be able to engage with you and get a similar experience. For example, if I'm at a data store and want to make a cash payment versus taking time off away from my work next day to line up in a utilities counter or insurance counter and then make a payment, I want to be able to do it while I'm shopping in the evening.
I want the payment to be effective in real time and get posted to the ERP system of the Billing Company, even though the Billing Company is closed, but the retail store is open, and cash was never exchanged at the Billing Company, but the Billing Company wants to receive that money maybe next day. If we could achieve that, it is a suitable value proposition for a Billing Company. We were able to achieve that through our Instant Payment Network from the biller's point of view. If you extend the same to the bank and say to your customer who wants to send money to anyone in the U.S., whether it is to a small business or to the largest company, we have them all on our network.
Some of them are directly on our network, and increasingly so as they're growing rapidly, we will continue to have those Real-time Rails built. For those where we do not have Real-time Rails, we will send them electronic payments. It will take a day or two, etc. That becomes very attractive for the banks. If you think about the central from an investor perspective, that strategy then is you are having both ends of the candle where you have on one side, you're signing more billers. As a result, you're getting more consumers involved with the business on the platform. On the other side, you're bringing more banks who are also bringing more consumers, also participating in the same ecosystem. That is why in our Public Communications, you will always see us—you can look at our scripts.
We will always talk about that we have a platform and an ecosystem, which is what is driving. If you think from that perspective, it's not easy. It has only taken us 20 years to get here. It's not easy to create these things again and again. It becomes increasingly important for the Billing Company as well as the bank's life. At a scale, we become hopefully an essential and invaluable part of the essential side of the U.S. service commerce and service economy.
I would imagine at least competitively, just by the sheer size of your network that you have right now, you're a must-have. You're not a nice-to-have.
Exactly. I mean, that's where it is building towards and more and more. And if you also think about it from another perspective, from a Billing Company point of view, simple perspective, if you were a Billing Company in this room right now and you were saying, "Look, I am looking for the platform which is going to act as a Central Nervous System for my Revenue Collection, which will be my primary Revenue Collection channel." Not all of the revenue will come from it, but primary and the fastest-growing channel. What company do I want to partner with? Do I even want to take a chance that company will not have the best platform? Because it's a Revenue Collection. This is not about Vendor Payment. This is about handling your customers and your money. Both of those are the most valued assets any business has.
When you look at it from that point of view, you can see from our expanding margins and even you saw in last quarter, even expanding revenue per transaction and contribution profit per transaction expansion. All of that is coming in, although they move around from quarter to quarter. That notwithstanding, the point is that customers see Paymentus as an essential part, which is, to your point, an essential part of the Revenue Collection chain. Increasingly so, it will become more and more important in terms of we have tens of millions of households right now and users as well as businesses on our platform today. As that reach expands, including this year as we are onboarding more and more customers, we become a very important part of the U.S. service economy.
Mission critical.
Mission critical. I think that's what the pursuit is. We are very pleased during the pandemic. For example, we were deemed as a—in most jurisdictions, we were deemed as an essential service organization because we were providing service to the essential businesses.
Yeah, that's a good time to pivot into helping us understand the competitive landscape. I think more importantly, and I'm sure we're going to touch on what we just spoke about a little bit before, but what's on the checklist of your prospects when they're evaluating Paymentus and their solution set? Maybe where does pricing fit into that?
I think so that's where I'm actually, to be honest with you, that's where I was trying to get to that particular point, which is the world has changed totally. There was a time when digital payments used to be called an Alternative payment channel because almost all payments used to come from the physical means. Digital payments were a nice-to-have. It was a luxury. I also put a link on my website and I can get the payments. Not the case anymore. All the efficiencies one organization can drive because of digitalization tailwinds have already been realized. All the customer service representatives have already been moved to different functions. All the branch staff have been redeployed in other areas. If your digital platform is not accepting payment, you are essentially in a deadlock. You cannot function as an organization, especially when you have millions of these payments coming in.
You have millions of users, hundreds of thousands of users. Regardless of the size of the organization, even 50,000 users subscribe to our organization, you are in a deadlock immediately if your system fails. After going through various iterations of selecting different legacy providers and seeing all the challenges and platform autoscaling, the billing companies have gone away from trying to save pennies and have the potential to lose dollars to now saying, "Okay, you know what? We're going to choose the right partner who has the right ecosystem, biggest coverage, biggest cell phone coverage, but also the most reliable platform." If the charge is a bit more, so be it, but we want our Revenue Collection to take place efficiently, quickly, accurately, and continuously.
When we talk about the ecosystem of products that you do have, Paymentus, Instant Payment Network, Bill Wallet, Intelligent Payments Platform, why are, maybe you can talk about some of these features and how the system kind of comes together. Why do you see this combination winning in the marketplace right now? How are we standing out versus the competitors?
Yeah, I think the main thing that billing companies are looking for is a platform. Some of these decisions are multi-year decisions, right? Our typical contracts are multi-year contracts. The reason for that is it's not always driven from us, even though we prefer long-term contracts, of course. Customers also want surety of service. If you think about it from a client point of view, they have just moved away from a Legacy System to Paymentus. Last thing they want to do is a year later, they have to redo the same thing all over again. They're not interested in that. They are looking for a long-term partner as well.
When they are looking for a long-term partner, one of the key things they're looking for is, "How do I continue to get more benefit from the platform I've chosen?" How they define that is, "Can I evolve? Can my requirements continue to evolve? Can the platform evolve with my business requirements? As my business rules change, can the platform change with it? As the technology evolves, can the platform change with it? As AI takes the newer technology revolution right now, can Paymentus continue to provide me that capability?" Once they see all of those, they end up choosing Paymentus because Instant Payment Network is proprietary to Paymentus. Our platform, which we actually—we were very fortunate to take the approach. I don't want to come across that we were smarter than the next guy.
We just had the benefit of doing it for the second time. I built a company in the old style before, which was acquired by FIS and so on. From my point of view, I had the luxury of quickly restarting again and in some ways learning from my mistakes. One of the key mistakes was you cannot build bespoke solutions in bespoke software and hope that 10 years later you'll be able to scale the business. You have to build a platform which is one code base, crowdsource the functionality from your clients in such a way that each of them can see themselves in your platform and teach you how to be that platform. In some way, they have bespoke experience, but not your platform through the functionality of the platform, but not the platform version.
You have one version, one code base, and that is serving all verticals, all industries, all sizes of customers, all types of customers, all business rules. Magic happens as a result of that. Operating leverage starts to take place.
These are the ingredients, I think, that go behind any Best-of-breed product Strategy Approach. It sounds like prospects and potential wins out there are shifting from using platform providers that do a multitude of functions that now are shifting or focusing more on a Best-of-breed Approach versus what Paymentus offers. The table stakes are that important. Is that an accurate read?
Absolutely. Absolutely.
Yeah. That sounds interesting. I do want to talk a little bit about partnerships. How should we think about your multifaceted partnership like with PayPal? How does that differ from some of your other relationships, including some of your banking partners, e-commerce partners, and other participants?
Sure. For us, I think one of the other things we have learned over the years is that having a go-to-market strategy, which is centered around a perfect combination of the balance between direct go-to-market as well as the partnership ecosystem, and both of those entities learning from each other, those go-to-market dimensions learning from each other becomes a central part of our strategy going forward. Partnerships are becoming increasingly more important to us. Our partnership with a partner like J.P. Morgan Chase is where you have—we are partnering with them on the treasury services. They are large-scale treasury clients when they are looking to—yes, yes. We will welcome Citibank anytime on our network. Whenever Citibank wants to choose the best platform, we are here. We are in this office. I can get my team to send the contract right now, and we can sign.
The large-scale treasury clients can actually get deeper engagement with the bank and make more money, actually, along the way. Our platform becomes catalyst. PayPal is in the relationship where as PayPal is looking into more complex large enterprise deals in their pipeline or their customer base, and they want to monetize it better. Paymentus platform becomes a handy. Likewise, our software vendor partners, we have partnership with large-scale ERP systems. Think of us as a company that has—sorry, company that has realized that you want your direct storytellers to have the deep understanding of how easy it is to onboard any type of customer with any size and any vertical onto our platform with any workflows. Combine that with a great partnership ecosystem where there's a warmer relationship possible.
The partners realize that if Paymentus can actually help unlock the opportunity with their existing customer base, it sort of, in some ways, the marriage made it happen. We feel very fortunate that we have a great partnership ecosystem, including with Citibank, hopefully.
That makes some costs, obviously. Sanjay, Paymentus has 2,200 clients in North America, and it seems like we're starting to see the shift maybe towards upmarket kind of solutions. Just wondering if you could speak to that. Is that intentional, or is that just a function of how the landscape is forming? Maybe you could discuss some of the products that are resonating with some of your upmarket clients.
I would say it's mainly the function that our platform is more and more resonating with all sorts of verticals, all sorts of customers, large, small, mid-size. I think the diversity is giving us an opportunity to enter into more verticals. For example, we talked about B2B in our most recent earnings call. It's providing us more opportunities which we did not think of earlier. I think the platform, the ability of the platform, the feature of the platform, and the convenience to the end customers at the same time as the customers, our billers, they both are working in a right manner to give us the benefits of scale as well. Eventually, it's all translating financially. Definitely, you can see the numbers. It's a highly cash-generating business with a very high profitability. Our incremental EBITDA margin this quarter was the record, 61.7%.
We feel good about the way the entire processes are working to get us to different kinds of customers, and obviously all that venture. It's a value proposition to move to scale.
That's right. That's good. We have two, three minutes left. Sanjay, I was just—why don't we cap it off with some of your midterm, longer-term kind of priorities? Where are you investing? Where are you spending your time? Maybe you could paint a little bit of a picture for investors. Where do you think Paymentus is 5, 10 years from now?
Yeah, absolutely. I think we are going to be a very sizable business in 5, 10 years out and just as attractive then as we are now. Just because the mission for the company from an investment point of view is to build a perpetual growth engine. We believe we are in the process of achieving that with all the different components in place. In terms of from an investment business perspective, you want a Management Team who has done it before, knows how to scale the business, but also knows how to profitably scale the business, knows how the competitive waters are, have muscle memory and all of that. We are very fortunate to have assembled one of the best teams ever assembled in, I would take any our Management Team over any other payment company, let alone the bill payment.
Some of the best and the brightest have joined us. If you look at from that to look at our customer base, we have customers in almost all verticals you can think of. For a given household, if there are 12 to 15 bills, you might be already touching almost all of them or the vast majority of them. You layer in there are 130 million or so households in the United States, and tens of millions of them are already using our platform right now. There are five or six million of SMBs. If you think about a small utility, even a small utility which is serving at a locality, both consumer and businesses pay their bills to the same utility.
We are very fortunate from that perspective that our strategy is working out to create a long-term move for the business while delivering values today to our shareholders. I think we can be a proportion for shareholders too or investors to participate in our journey.
Fantastic. Wow. Thank you both, Sanjay Sharma. Thank you. Very compelling story here.
Thank you.
I think we must have you back to track your progress on a lot of these issues, but it certainly sounds compelling. Thank you both for coming, and great to have you.
Appreciate it.
Thank you. Take care.
Thank you. Really appreciate you having me.
Thank you.