“Charging your customers once they have been educated in a free-of-charge model is not easy”

Interview #8 with Chicfy’s CFO Arturo Ruiz

Creating a marketplace from scratch is relatively easy nowadays. However, creating one from scratch that gains traction and increases its customer base consistently, has a clear revenue model from the very beginning, and has been built without raising funding from investors, isn’t quite as simple.

Today we talk about Chicfy’s journey — Chicfy being the leading marketplace for clothing in Spain, and one of the more promising startups in Europe — from the unique perspective of its CFO and COO, Arturo Manuel Ruiz Álvarez.

How would you describe Chicfy’s business model?

When Chicfy’s CEO Nono Ruiz founded the company in 2013 together with Laura Muñoz, their idea was to create a second-hand fashion marketplace for girls. This business model already existed in some countries but was a pioneer in Spain.

Putting the focus on a particular sector and targeting a specific segment have allowed us to build an essential element of our business: the creation of a social network and a community around this marketplace.

Do you consider Wallapop and eBay as competitors then?

Not really. On eBay, for instance, you find tonnes of different products in which both buyers and sellers transact, but there is no further interaction beyond that. There is no community. We wanted to build closer relationships amongst girls, a place where they could interact.

When we started in the Spanish market, we had no competition. This scenario is very positive since if the business starts getting traction you can easily own the whole market. Moreover, being the first meant that everything is much cheaper regarding marketing and acquisition of users i.e. conversion is much higher. Trying to enter an existing market is more complicated since people don’t have many incentives to change their current app if it’s working for them, especially if the newcomer has not reached a certain level of popularity yet.

On the downside, the public neither knows your company nor are they familiar with your business model. In that situation, it is crucial to put the focus on educating people, especially replying to questions and concerns. But once you go over this, the market is very much yours. In fact, coming back to your question, these educational efforts suggest that Wallapop and Chicfy are not opposing forces, but complementary. If Wallapop succeeds, Chicfy will benefit too, so I definitely hope that they do very well.

Many marketplaces are free of charge. How does Chicfy monetize its service?

Broadly speaking, there are two different models of monetization in the marketplace business. Wallapop represents one of them. They have created and developed a platform without charging their users, using the money they raised from investors. This allows them to have a short-term hyper growth strategy even if they have no revenue. The idea then is to rapidly increase their customer base first and find the way of monetizing it afterwards. This is a smart strategy since it could help you to win the market. But there’s also an associated risk in this model that relates to the difficulty in charging your customer once they have been educated in a free-of-charge model. I’m curious to see how the execute such strategy.

Since we did not have the money at the beginning to follow this model, we had to charge a fee to keep investing in customer acquisition and to continue growing. Obviously, such growth is a bit slower but more stable. However, we have more certainty, particularly on the way that we will be profitable in the future.

How does Chicfy intermediate between the users? Are you a mere peer2peer platform?

In our model, the seller’s products don’t pass through us before being sent to the buyers, i.e. in contrast to other marketplaces; we don’t have our own warehouse. What happens when a transaction takes place is that the seller receives a sale notification, and then, we give her a code to send the product to the buyer that can be used at the post office to make the shipping free.

So apart from managing this process with the post office, we also track the shipment so that the product arrives at the buyer when needed. Moreover, we guarantee the verification of the users to prevent potential fraud — such as a seller posting a fake product or a buyer using a stolen credit or debit card — therefore generating trust on both the demand and supply sides.

Regarding your career at Chicfy, how and when did it start?

I have been working at Chicfy since 2013 when the company was only one year old. Part of the code was already designed, and they had just completed our first transactions. At that moment, Nono contacted me, while I was working at EcoPayz — an eWallet and electronic payments company from the UK — managing fraud control, where I learned how to build an eWallet and controlling system.

And doing that was my goal when I entered Chicfy, even though I’ve ended up leading the financial management, payments, accounting and the operations direction. So, step by step, I’ve been creating most of the protocols we have in place, from fraud through contact with brands.

Why did you start building an eWallet system?

When anyone buys in Chicfy with a card, all the money passes through us first. Then, if everything is correct, we make a transfer to the seller. Currently, we cannot deposit these funds into the seller’s ‘Chicfy Account’ and allow her to accumulate her balance to make purchases directly on the platform with that money. These restrictions are mainly due to money laundering regulations. To address this issue and to offer this service, we are about to sign a partnership agreement with a bank.

Why do we want customers to have their own balance? First, because we had many petitions from users asking that instead of paying them their balance owed after the sale — which they receive several days after the transaction — they would prefer to have access to the funds in the platform and buy something directly with this money.

We see that such improvement would be welcomed by the users while we can reduce the barriers to conversion significantly since there is no need to make transfers to their banks. With this new system in place, they won’t need to receive the money and make the purchase with their card again. We will be able just to tell them, “you already have the money in your Chicfy balance, you can make the purchase right away.”

What have been your biggest challenges since your arrival to Chicfy?

Building a system from scratch designed for massive use. I’ve built an internal ERP for managing the ‘controls.’ Right now, I’m downloading regular consultations to see the daily transactions as they happen, and from there, I start making reconciliations. With this new ERP, I’m creating all the system to include each user data sheet by their unique ID, their entire transaction history, and more.

We have more than 1 million clients that are managed by a 26-person team. Because the controls are automated, I can work alone in both the finance department and operations. Although this year we’ve been audited by Deloitte, we are externalising our accounting and labour matters with the auditor BDO, with me sitting with them every week to review everything we send them.

At some point, we would love to connect the back-end directly so that our accounting records would be automatic. However, I ruled out that choice at the beginning because when you have high growth, you need to be agile to make changes and tests. That’s why such kind of automation is a bit dangerous since it could create turmoil, and adding noise is worse for the auditing. When your product is better defined you can automate, but always with the spirit of simplicity in mind. When you demonstrate during an audit that the data are easily understandable, you generate trust. That’s why, for now, we’ve opted for more transparency and simplicity.

What is Chicfy current situation and where is it headed?

To see the current state of Chicfy, I would recommend searching for us in Google Trends. Since we published the viral TV ad ‘Chic para mí’ (Chic for me), we doubled our user base in 5 months, which has now exceeded a million users.

On the other hand, around 10 months ago we started with “Pequefy:” a Chicfy for babies since it was relatively easy for us to replicate our model, and it was not a distraction from our core business. It’s going pretty well since it’s growing even faster than Chicfy when we started.

Regarding the direction of Chicfy, we follow a pretty straightforward strategy: listen to the community. Chicfy is alive, and I don’t think we need to impose a fixed direction, but to try to channel what the community wants through the analysis of users’ behaviours. That’s why every day we implement new changes — some of them bigger than others –and test how to keep improving our platform.

Finally concerning the market: at the moment there is no limit for us in Spain. The growth is brutal, so in the short term, we don’t plan to undertake relevant strategic changes. That said, everything evolves so quickly that maybe the day after tomorrow the opportunity shows up and we enter new markets; who knows?!

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This post was previously published at Kantox’ Blog

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