Redpoint Office Hours Recap | Every Company Is a Fintech

With Medha Agarwal and Kaz Nejatian

For last month’s Office Hours, Medha Agarwal and Kaz Nejatian discussed the future of embedded finance and learnings from Shopify Capital’s journey. Some of the key takeaways from the conversation include:

• Start with user empathy. Always ask yourself, what can we do next to help our users succeed? If you build the best tools, the monetization will come.
• Think through your prioritization of offerings like a software problem, not a finance problem. The thing that solves most problems for most of your users is the answer.
• Don’t get jealous of other people’s business plans or business models. Your natural business model probably works best for you.
• Do what will add the most value for your customers. If you add products based on ease or margin you risk building an amalgamation of disjointed products.
• Avoid solving all problems. Partner with companies that solve the problem well rather than building everything yourself — and partner earlier than you think you should. Don’t waste your time building something from scratch that someone else is doing well. That way, you can focus on bringing something new to it.
• Optimize for product, not revenue. The goal should be to find a product that works, not to find two basis points of margin.
• Judge your success of product market fit by penetration among users.
• The first step you take when building a product really matters. Listen to your customers, know their pain points, and build empathy for them.
• When looking to build new companies, spend your time exploring things that are not possible today. Your failure rate will be high, and that’s OK.

The conversation confirmed that we are still early in the evolution of embedded fintech solutions, and a lot of exciting things are on the horizon. The full transcript of the conversation, which has been edited for clarity, is below.

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Medha and Kaz on Airmeet

Travis Bryant: Good morning, afternoon, and evening. Welcome to the October edition of Redpoint Office Hours. We’re thrilled to host a conversation with Medha Agarwal, an investor on our early stage team and Kaz Nejatian, who is the VP and GM of Shopify Financial Solutions to talk about how every company is becoming a Fintech company. We’re thrilled to welcome you both to what promises to be a fruitful discussion about every company being a Fintech. So with that, I’ll turn it over to Medha to take it away.

Medha Agarwal: We’re super excited to have Kaz here with us today. He is the VP and GM of Shopify’s Financial Solutions team, which includes Shopify Capital. Prior to Shopify, Kaz was the product lead for payments and billing at Facebook. Before that he was the founder and CEO of Kash, a payments technology company. So, suffice to say, he knows quite a bit about Fintech.

Kaz Nejatian: The thrill of money and computers is all I’ve done my entire life, so you’re going to have to put up with me.

Medha Agarwal: We’re excited to hear about it! It’s great to have you here. Just for context, our audience is largely operators, so we’ll focus the time on getting your thoughts on how best to approach embedding financial services into companies. To start, I think it would be really great to learn about the Shopify Capital experience. It’s a broad question, but curious to hear a little bit more about where you are today, what’s gone well and any lessons learned.

Kaz Nejatian: Yeah. Shopify Capital is our attempt to answer the following question: What can we do to unblock growth for our merchants? If you think about the world of finance and companies, the part of it that’s least well understood and least served just happens to be our merchants.

These are small, medium-sized businesses that are usually direct-to-consumer, that are usually digitally native, right? And most people don’t want to fund these businesses because they fundamentally don’t understand the risks, they don’t understand the businesses. It’s really weird for a loan manager in a bank branch to understand that business.

Now, like if the founders of Gymshark if when he was delivering pizzas he had gone into a bank and said, “Hey, give me funding.” They would have said, “What the hell is this thing? Please go away.” Which is typically the answer banks give to our merchants. “What the heck are you talking about? Please go away.” That’s what Shopify Capital is about. We think of it as a way to be on the same side of the table as our merchants to help them grow. The last few months have actually proven that we’re on the right track with Capital. My mom is actually a Shopify merchant.

Medha Agarwal: That’s awesome.

Kaz Nejatian: She has a home decor store just north of Toronto. When COVID hit, she picked up a phone and called up her traditional bank and said, “Hey, I need help to get through whatever this is.” The bank officers sent her a note saying, “Hey, could you please fax over your last five years’ taxes and your next five years’ business plan.”

That’s just not a thing our merchants have. The next five years’ business plan? What the heck are you talking about? Fax it over? Even if she had done it, even if she had succeeded in finding a fax machine and completing a business plan and Lotus Notes, they would have said, ‘Here is a loan that requires you to give us a personal guarantee on the loan,’ which is an insanely stupid thing. It’s just not fair to our merchants. Banks fundamentally understand large businesses and they understand individuals. They have no idea what this small business thing is. They treat SMBs like individuals, which is a massive failure, or they treat it like big business, which is also a massive failure. I think we’re in a special place with it. So far, so good.

Medha Agarwal: Since you started, is there anything that you’ve learned that surprised you about the types of products, or the sequencing, or the reaction of your customers that could be interesting for our viewers?

Kaz Nejatian: Yeah. I mean, there are a couple of things that are super special about Shopify. Our merchants don’t really think of Shopify as a software solution or financial services. That’s just not the relationship they have with us. Shopify is where they go to work. It’s a place they go to every day to run their business. Everything else becomes a sub-part of that. Shopify Capital is to our merchants like the water cooler would have been to some guy working at the Sears Catalog — whenever the Sears Catalog was a thing. I think it’s a fundamentally different relationship we have with our merchants.

The second thing is, it’s when you’re outside Shopify, it’s really like you spend a bunch of your time thinking about, ‘Aha, Shopify should go do the following 17 things.’ That’s just not how we intuitively think and we don’t think of it as like why don’t we use this opportunity… There’s no BCG two-by-two grid that we do. The way we think about products is like, ‘What are the things we can do to help create more entrepreneurs in the world and help those entrepreneurs succeed?’ The framework is a different one, which usually tends to lead to significantly more merchant-aligned products. We don’t spend that much of our time in the way you would if you were a bank. Does that make sense?

Medha Agarwal: Kind of. Do you mind talking, maybe related to that is, if I’m an operator either at an early stage startup or a later stage company and we’re thinking about embedding financial services into our platform, what would be your advice for how to think about when and how to do that?

Kaz Nejatian: Let me give you some examples from Shopify that I think are different stages of the thinking but also tell the same story. Payments. When Shopify launched, it did not have a payment solution. Shopify did not come out of box with payments, they had to go get a payment provider. That was the case for many years. The company got to a point where the next growth problem for our merchants was payments, right? If you were on the internet in 2012 trying to start a store, you had many problems before payments. Inventory was hard. Storefront was hard. All these things were hard.

It just so happened we hit up things like, Oh payments is the next hardest thing that our merchants spend a lot of time on. When we collaborated to start Shopify payments with Stripe, which has been an insanely great partnership and we’re big fans of them, it was because it was the next thing to solve and it just made sense. It wasn’t because it was the next most profitable thing to do.

Same with Capital. When we launched Capital, it literally wasn’t because we’re like, ‘Hi, this Capital business will be profitable,’ or ‘It will have a high margin.’ It’s surprising how little I care about those things. It was because our merchants weren’t getting the funding they needed.

That’s when we did Capital because it was the next blocker to merchant success.

We will soon be launching Shop Pay Installments, and to launch it in the U.S., we will be launching it with an amazing company called Affirm that’s based out of San Francisco. That’s the same thing. It just so happened that alternate payments were a growth factor for our merchants that weren’t being handled well in the real world, because the solutions weren’t that graceful. We knew we had to solve that. That just tends to be how we think of it. What are the things we can do next to help our merchants succeed better? Everything we’ve done has just followed the same pattern.

Medha Agarwal: That’s great. Some folks that are attending today are trying to figure out which offerings to prioritize, and in what order? They’re thinking through payments, banking, financing, insurance, and they feel like at the outset, all offerings that are potentially missing in their software platform or their marketplace. Do you have any thoughts about a framework you use at Shopify or that you would advise them to think through on how to prioritize those?

Kaz Nejatian: I think of it as a software problem rather than a finance problem. We prioritize these things the exact same way we prioritize other software problems we have. I think the answer is different for different startups at different stages. You can’t build this thing because payments are easy or insurance is easy. In fact, it is likely that none of those things are easy. You can’t rank them in order of easy to hard and say, ‘Ah, that one is easy and high margin,’ because that just isn’t a thing. It doesn’t stick. Honestly, I think if you’re not careful, you will turn your product into a NASCAR car with a bunch of logos on top of it and none of them will get any adoption.

The financial solutions products we launch have insanely high adoption. They get taken out by our merchants in very massive numbers. We’ve announced that we’ve done more than a billion dollars in financing through Capital predominantly. If we are a VC firm that would be a relatively good sized VC firm. However, it’s not because we said, ‘Hey, there’s a billion dollar market here.’ It just was the next problem.

My advice to startups that say, ‘Hey, should we do payments or should we do payroll or should we do insurance?’ is,What is the thing that solves most problems for most of your merchants or your users? I think that tends to be the right answer. And I think the wrong answer tends to be, ‘Hey, I have a bunch of users. Let me just add stuff on top of it,’ because that doesn’t work.

Medha Agarwal: Say I am an early stage company and I have identified the next pain point I want to address. Do you have any best practices or watch-outs as I add my first financial services product? Also, what mistakes to avoid and what will help it succeed?

Kaz Nejatian: I mean, I think the mistakes tend to be big strategy mistakes. People get jealous of other people’s business models. It’s really easy to say, ‘Ah, so and so has a nice business model. I’d like to adopt that.’ That just tends to work out poorly. I lived in the Bay Area for a while, where every startup pitch was, ‘I will go build a bank.’ Banks aren’t that great at being banks. Why would you want to do that?

I think that tends to work out really poorly. To folks building startups, I would say ‘Don’t become jealous of other people’s business plans or business models.’ It just so happens that your native business model probably works best for you. These services built on topic are just unblockers of that original flywheel, which is how we honestly, that’s just how we think of payments, Capital, everything.

Medha Agarwal: Got it. That’s super helpful. Maybe we can move into some tactical questions. A bunch of folks are pretty deep in thinking through how to do this. Some of the questions we got included, how do you think about build versus buy? How did you decide and how do you advise people to think about which route makes sense?

Kaz Nejatian: Let me make a plug. In my head, I still think of myself as a startup guy with an office and pizza boxes. Shopify is a startup-friendly company. There are companies that are not startup friendly. Some of the bigger tech companies are just not things you want to pitch to because A, they won’t use your product and, B, even if they end up using your product, they’ll end up collapsing you under a weight of crap. That’s my pitch to folks building startups.

We want to spend our time focusing on merchant-facing problems. We think we’re the best at building this place merchants go to work, not the best at moving money around. We just try to find world-class partners with whom we can align and be on the same side of the line. We have a few hundred partners in the payment world that serve our merchants, have apps for our merchants.

Look, it’s not like we have engineers growing on trees at Shopify. Although we do have a degree program that actually trains engineers from scratch, we don’t have enough engineers. We try to build the least we can, and we try to partner as much as we can with similar type companies that solve the same problem.

It just so happens in the stuff that we’ve seen thus far in our payment product, in our type of product, in our installment product — including our balance of banking product that we’re launching later — we have been able to find good partners across the board. That’s part of the magic of Shopify.

The way I think of Shopify is this. If my mom went to a bank and tried to get a payment service, that experience would suck for her. But if I aggregate over a million merchants and I go to the bank on their behalf, that experience generally turns out to be really good because we’ve just created this union of merchants who can negotiate. We like to think of our team as one that can negotiate really good rates for our merchants and build really good products for our merchants. That’s the other part of how we think of it is that there are things that we can use today that existed or are better.

Medha Agarwal: Good point. I think most startups are also resource constrained and also lacking as many engineers as they wish they had. If they’re trying to think through looking at a bunch of providers or potential partners, do you have advice and suggestions for how to evaluate and prioritize who to work with?

Kaz Nejatian: I can tell you what not to do. First of all, we love our partners. If you find someone who’s our partner, the odds are we like them. I think the thing folks shouldn’t do is spend all their time trying to optimize for revenue rather than product. That always works out poorly. The extra two basis points you save on something where you just try to go and negotiate with some old world company to get the extra two basis points end up costing you hundreds of millions of dollars in opportunity because your engineers have to put up with a dude that built something on mainframes rather than a modern tech company.

There are companies out there who’ve taken the pain away. Like COBOL is a real thing. Most banks run on it. You don’t really want to spend your time optimizing for basis points. We deliberately do not do that. We pick the best products we can and try to avoid optimizing for margin because we care about the product. I think that if a company the size of Shopify does that, I think every startup should do the same thing because the goal is to find a product that works not to find two basis points of margin.

Medha Agarwal: I think that’s really smart. It’s optimizing for the long-term versus the short-term. It sounds like several folks are thinking about building in-house versus creating a marketplace or trying to balance the two, which is very related to what you’ve done at Shopify. What do you think the right balance is?

Kaz Nejatian: I mean, I think it depends a lot on what you’re doing, just like how we think of it at Shopify. We actually deliberately avoid solving all the problems. We don’t think that’s our job. We have a very rich app store and financial services partners who we think do a really good job solving some problems that we deliberately don’t solve.

We spend a bunch of our time building a platform so that they can build things on top of it. If you aggregate all Shopify merchants in the U.S, Shopify is the second largest online retailer in the U.S, right? We have lots and lots of merchants. You can use lots of different solutions from our app store. You can use Shopify Email or not. You can use Shopify Payments or not. We have all of these solutions.

The goal of Shopify products is to solve, for the 80% of merchants, the thing they need to add a box to get started, not to create the custom workflows or help them build custom solutions because we have partners and developers that do that. It’s been true for Shopify from relatively early on, by the way.

Shopify has had payment partnerships for as long as it’s had Shopify payments. It’s had apps for a very long time. I think other companies that do a really good job of this, I think PLI does an amazing job of this. If there are a thousand engineers who want to start working on financial services tomorrow, I want 200 of them to come to Shopify and 800 of them to go build apps for Shopify. That’s what I want the division to be.

I want the ecosystem to be bigger than us, because that’s the only way it maintains it. I think folks actually wait too long for that.

Medha Agarwal: That’s super helpful. It sounds like you do it earlier than you think. What advice do you have for how to do it well and do it right when you’re so early? Under a hundred thousand merchants, that was pretty early in Shopify’s trajectory and the power that you can command. How do you think about setting it up for success and doing it the right way when you’re so early in your arc?

Kaz Nejatian: If you think of Shopify’s DNA actually, this whole developer side of Shopify has been in our DNA. We’ve had theme developers in Shopify forever. It’s just been part of what we do. The company is much better off building a few platform pieces that work really well than just build the use case. I think you can just get started with any one of those things.

In the financial services world, there are a bunch of options. I will use our partner Stripe as an example. They have an amazing out-of-box solution that honestly I’ve spent my life doing. I hacked my first credit card terminal in the nineties when I was a teenager. What they do with Connect is magic. It’s just a magical thing that just works and it’s crazy. You don’t need to rebuild that from scratch. It’s just not what you should spend your time doing. I think that part of it is just people get obsessed with building platform-specific, something I actually don’t think you need to.

Medha Agarwal: Yeah.

Kaz Nejatian: My son has just crashed the meeting.

Medha Agarwal: Tell him he’s welcome to join! OK, so I have thought about doing this, we’re committed to adding financial services. How should I be thinking about what success looks like? What KPIs or key metrics are going to determine whether there’s product-market fit?

Kaz Nejatian: Yeah, that’s actually a really good question. My advice generally is that we think of it in terms of penetration among merchants. How many of our merchants are using this thing we built? We try really hard not to move on to the next thing until we have product-market fit on the first thing.

Let me give you an example with our Capital product because I just love that product so much. We spent four years on Capital not launching into new markets. We launched the first market and just stayed and worked on the product over and over again. This year we just tried to launch U.K. and Canada in the middle of COVID. We launched two countries in four weeks because our definition of product-market fit is different than most of the people in our space. Just working is not good. We’ve spent a lot of time thinking about penetration and how merchants attract with something.

I actually think in our space, most people move off the product way too early, which is why so many things out there are just terrible.

Medha Agarwal: An early stage company or most companies don’t have the same ability to spend four years continuing to iterate, testing and waiting for product-market fit. Do you have thoughts or advice on tactics that you’ve learned to accelerate that, or key signs that, ‘Hey, we tried and failed, this was the wrong product and we should try something new.’

Kaz Nejatian: To be transparent, I probably have bad advice on this because I think the way I used to think about it was very lean startup-y and the way I think of it now is very different. I think part of Shopify’s magic is that Shopify is significantly more deliberate and surefooted.

Let me give you a perfect example of this. If you’re a user of, I’ll pick Instagram. If you use Instagram, odds are very close to a hundred percent that you are currently in a test group for some experiment.

That’s not how Shopify works. You’re almost never in a test group. We don’t run that many A/B tests at Shopify. We spend a lot of our time thinking about building the most stable thing possible so that we are significantly more sure footed than the average software company. That’s partially because of how Tobi built the company as this deliberately slow but high-quality building company, and partially because I think there’s some Canadianism there that has seeped into the product.

Medha Agarwal: How do you then gain conviction that that approach is the right one? Is it user interviews? Is it a framework?

Kaz Nejatian: Yeah. Look, there are quite a few people at Shopify who are Shopify merchants, who work at Shopify who are merchants. We use this stuff. I have a store. My mom has a store. Lots of people on our team have stores.

Medha Agarwal: What do you sell?

Kaz Nejatian: I won’t plug the store because I think that would just be terrible, but I sell horse stuff. I sell horseback equipment and horse stalls, etc.

Medha Agarwal: Very cool.

Kaz Nejatian: Yeah, it’s my sister-in-law’s store that I took over. I’ve never been on a horse, but she loves horses. I like tech. So, it works out really well.

Medha Agarwal: Awesome. Sorry, I derailed your answer.

Kaz Nejatian: No problem. We build conviction by having significant empathy because most of the problems our merchants would have, we have had. And it’s hard. There was a company that I was talking to a while ago and they were like, ‘Look, we’re not our users. We don’t really know what their problems are. So we try to A/B test our way to the answer.’

I think that’s usually terrible advice because I think you end up minimizing your world because the first step you take really matters. If you A/B test after a first step, you’re continually wheeling yourself off product-market fit. We built significantly more empathy before we build than the average tech company.

I don’t think that’s the right answer for everyone. I think you should do the thing that works for you. You do you, but for us, we are significantly more deliberate.

Medha Agarwal: No, that’s helpful. Do you have any strategies for driving penetration of our software customers or our marketplace customers to using our financial services products? Obviously there has to be product-market fit, but I think there’s a lot of innovative and interesting things Shopify does and others can do to help enable that transition too.

Kaz Nejatian: Yeah, we spend a bunch of our time on top of funnel in terms of our product thinking and most of the financial solutions — actually all the financial solution products we’ve launched — live within the product. You never have to leave the product to go get a thing that we’re offering you. In fact, that’s like the magic of Shopify Payments.

Most people who use Shopify Payments or majority of them don’t think of Shopify Payments as a thing. They don’t think this is a thing I’m choosing to use, they just think of, ‘Oh, I use Shopify.’ It’s just part of it. Same with our fraud tools, our tax tools, or even Capital to a large extent. They don’t really think of it as a different thing.

It’s very embedded, whereas our app stuff is deliberately separate. If you go to our app store and try to use any of the financial services we have, either in the app store or as partners, they’re very deliberate departures where this is no longer the main thing. Now you’re choosing to change the main thing. For us, it turns out that our best sales team is the product.

That’s not bashing our sales team. We have a merchant success team, they’re very good, but we do build a lot of this into the product. Where you interact with it is something we spend a lot of time thinking about. Did I answer your question? I don’t want to hand-wave on it, but I don’t have a more detailed answer.

Medha Agarwal: No, it’s helpful. I think it leads back to a question we were talking about earlier, which is, how do you balance your own products versus the marketplace? It sounds like it was a very deliberate choice to make it a seamless experience when you’re on the Shopify platform, but very deliberate to make it clear that you’re leaving Shopify to go to the marketplace. How would you think about where to put those lines?

Kaz Nejatian: I mean, the truth about it is, if it adds complexity, it probably should be an app. It probably should not be part of Shopify. If it adds significant complexity to a merchant, it probably should not be part of Shopify core. That’s how we kind of think of it.

There are lots of things I want to launch. I’m a financial services nerd. I’ve spent my whole life doing this. I would love to launch everything, but it just so happens that we can’t really think of how to launch some of these things in a way that avoids the insane complexity required to add them.

That actually becomes a guideline or trip wire for our teams. If the thing you’re trying to build the pixels required is seven clicks deep, maybe you shouldn’t build that. It’s different and your bank app is the app we’re desperately trying not to build. Statistically, think of the average bank’s front page, that’s what we’re trying not to build.

Medha Agarwal: It’s interesting you talked about earlier that you think about all your financial services products as a software problem and prioritizing just like you would on any of your other features. I think from the outside, it feels like building an e-commerce platform is very different from offering loans, especially when it comes to the regulatory environment.

How should software companies, as they’re thinking about moving to adding financial services, think about navigating that environment versus the original market they started in?

Kaz Nejatian: Yeah. So, let me give you a two-part answer to this. The first part I have to start by saying this, I’m a lawyer, I’m not your lawyer. I was also a very bad lawyer. Don’t listen to this advice as a legal advice.

I actually disagree with what you said that Capital isn’t part of offering an e-commerce platform. It just feels to us like it is because if you think of it this way. We built really good cross-border tools so you can sell the things you want to sell across borders. We built really good FX tools so you can manage conversion rates for your merchants. We did those things so we can help our merchants grow.

And as Capital was honestly a blocker for many, and it still is a blocker for many of our merchants. If you’re starting Medha’s Handbags out of your house, there comes a point where you need to go to a warehouse if you’re successful. If all warehouses in the world said, ‘I don’t want to store your handbags,’ your store can’t really grow because there’s only so much room you have in your living room.

That actually, by the way, is the case, which is why we have the Shopify Fulfillment Network. It still is the case with capital, which is why we have Capital. It’s as much part of a growth of our merchant is being able to ship something from Canada to U.S or U.S to U.K.

I actually think it’s very much within the funnel. It just so happens that as the funnel gets bigger, the things you have to solve change. Now, the regulatory part, look, I have zero desire to be a traditional bank. That’s just not what we spend our time doing. It really isn’t. Unless there’s a problem in the stack that someone else isn’t solving, we don’t spend time solving that problem.

Now, lots of times we have to go solve problems deep in the stack because no one else is solving it, but normally that is not the case. I think of regulatory issues the same way as I think of server problems. We’ll solve them when we have to, but we try to avoid solving them if we can have someone else solve them for us. We’re no longer standing up servers in our basement. Right? Someone else can solve this problem.

That’s how I think of regulation too. If you want to be in the P2P business and you don’t want to use a partner to do that work, you’re going to have to get your licenses from the state of Texas, and all the best to you. There are times where you don’t have to do that because there are really good partners who can solve that problem.

Medha Agarwal: Yeah. I think that’s good advice. OK, so you looked around, maybe for X you found a partner, for Y you feel like you have to do it yourself. Each financial services offering has its own bag of risks. How did you at Shopify and how should our listeners think about building risk expertise into their organization?

Kaz Nejatian: Yeah. There’s a joke in banking, at the end of the lifecycle of every funding product is a term loan. At the end of the lifecycle of every software company is a risk product, that is just how it works. We allow merchants to have access to incredibly sophisticated tools. Risk has been a part of how we think about it generally.

I remember when we were running my startup, Kash, I remember thinking, ‘I wonder what would happen if we just opened up onboarding and had people onboard?’ It just so happens that a million headless browsers onboarded the next day. There’s a really good story in PayPal Wars, the book, about how PayPal almost collapsed, and as a result Max Levchin basically overnight invented CAPTCHAs. I think that’s a real thing that Max had to go solve because that question of ‘is this a good person or not’ is a gating function to everything else. You have to get good at that, and you can’t seem to outsource it. At least I have not been able to find a way to outsource it.

Medha Agarwal: Yeah. I think that’s a good point. Related to that, and maybe other parts of risk too, how did you, and how should other companies think about hiring more bodies to solve the problem versus trying to solve it via the product?

Kaz Nejatian: By more bodies you mean like more ops folks reviewing things?

Medha Agarwal: Yeah. Right. There’s this Silicon Valley trope of having smart generalists who are great at product, right? That can iterate their way into better rates and features over time. Then sometimes you just need humans in the loop. How should they think about balancing those two?

Kaz Nejatian: I think we’re better off than a lot of folks. A really good way to think about it is Uber and Lyft. Uber and Lyft have to solve a human risk problem. There’s a human middle basically a hundred percent of the time, I think, at Uber and Lyft for driver onboarding.

This is a really hard problem to solve. The magic tends to be the intersection between product software and humans. You want as much heavy lifting software as possible, but at some point human beings get involved. I think you can over-optimize for software here where really you build the type of software that is built over time and gets better at it, but I don’t think you get away without human reviews, at least yet. Unless one of you has a startup that solves this problem, in which case pitch me. But I don’t think that exists.

Medha Agarwal: Well, I think that transitions really well into a couple of questions I have just about general trends in this space. Do you have a point of view on the role AI will play in financial services over time, both today and in the future?

Kaz Nejatian: I mean, yes, I have lots of thoughts about it, but none that are fully formed.

Medha Agarwal: Maybe related to it, and you had the plug for, ‘Hey, if you’re doing risk well let me know.’ Do you think that there are interesting areas of opportunity in this broader universe for new, emerging players to play, or said another way, are there companies you wish existed that don’t today?

Kaz Nejatian: Yeah. I think we’re super early in these platform players. I think there’s a bunch of really interesting companies that are just starting to engage on identity and compliance. I think that space is super early because the big traditional players in that space are just so terrible that you can imagine there’s going to be new solutions for it. And there’s good startups in that space, hopefully you’ve funded some of them

Medha Agarwal: Just to be clear, because I think different people define identity and compliance differently, are you talking about KYC and AML or are you talking about something else?

Kaz Nejatian: No, I mean, KYC and AML are part of it, but not all of it. At the end of the day, I need to know Medha is actually a human being and not some computer program at the end of the thing with decent spoofing. I need to do that in as frictionless a way as possible and as private a way as possible without the traditional way of asking you where you lived when you were in third grade. I know there are a bunch of companies doing really interesting work in that space and I think there’s a significant amount of it left.

If you think of even the alternative financing space. You think of companies like Affirm, I think Affirm was started in 2012 and they’re solving a very specific part of our problem, but there’s an entire other part of that problem that isn’t solved. I think we’re super early. I think there’s something to this whole Fintech thing if we just all stick at it for a while, then we’ll make the world a better place.

Medha Agarwal: I’m with you. I’m super bullish on it. I told you we were going to move on to trends but you triggered a question that we often get from companies and think about internally at Redpoint, which is, there’s a balance between offering the most seamless experience and getting to the right answer from an identity fraud, risk perspective. I’m curious what your framework is for how to balance that.

Kaz Nejatian: Honestly, it’s hard. My answer changes on a day-to-day basis based on what we’re thinking about in that space. Because so much of what merchants do happens in Shopify, I can build more trust as time goes on and that just helps us to reduce friction. It’s a real problem, and I haven’t been able to find an easy answer. There are lots of two-by-two grids, but I don’t have one for this.

Medha Agarwal: Yeah. I think that’s fair. OK. Last question. I think we’re hitting up against time, but you’ve talked about large banks and large institutions. You’ve alluded to them a couple of times. Your point of view, we won’t hold you to it, but what do you think the role of large, incumbent institutions is in this future of Fintech that we’re all bullish about?

Kaz Nejatian: Look, we’re not that secretive about it. Shopify entirely is an exercise in extending the Overton window in favor of small players. That’s what the whole company is about. We think the world is unfair to small players and the entire company is a philosophical battle to extend the Overton window in favor of small players. Flat out, that’s just what we do.

I had the luxury of working at a company like that, so I can be a bit more open and transparent about our wishes. We have partners that are traditionally big players. Right?

Medha Agarwal: I’d argue maybe that they’re not going to go away fully. Right?

Kaz Nejatian: Yeah. Wells Fargo was started during the Gold Rush transporting gold nuggets off the California coast in San Francisco. They’ve managed to get through multiple, different worlds and will probably exist for a very long time. They do fine work. They’re my bank. But I think the big players exist for a very good reason and they provide stability that is highly desirable.

To the extent that you’re running a startup, your job really isn’t to do something they do. It’s just to extend what they don’t do and to provide a new thing that doesn’t exist. Right? When Tobi started Shopify, he didn’t say, ‘You know what would be really good is if I could just build the cash register system online.’ That wasn’t the goal. The goal was to make something possible that wasn’t possible before.

Same with PayPal. When you read the story of the PayPal starting, the goal wasn’t to bring a thing that existed and make it 5% better. Turning a dollar into a dollar to two is not what PayPal was started to do. So, I think a lot of your time is spent exploring things that are not possible today. And your failure rate will be high. That’s just honestly what you should get used to as a startup that you will fail significantly and that’s OK.

Medha Agarwal: Yeah. Well Kaz, thank you so much for your time. I appreciate it. I thought it was super helpful and hopefully our viewers did too. Thanks for being a great sport about us pushing into some real specifics about how to operationalize your learnings at Shopify and previously.

Kaz Nejatian: Yeah. I’m happy to be here. Thanks for putting this together.

Travis Bryant: Kaz and Medha, thank you both. That was a really fantastic discussion. Thank you everyone for joining wherever you might be on the planet. We’ll see you in November for our next session.