Investsmart Article, page-3

You can Splitit yourway

Spiro Pappas is the Chairman of Splitit - a recently listedbusiness on the ASX which offers the ability to purchase items using a creditcard and the capacity to split the payments over several instalments. AlanKohler spoke to Spiro to find out how the business works, who's behind it all,and how much cash the company is burning through.

Spiro Pappas is theChairman of Splitit, the absolute phenomenon that is sort of a competitor toAfterpay; but not really - it does a different thing.

The point about Splititis that it listed a couple of months ago at 20 cents and is now $1.65 (onTuesday 12 March, 2019), so it’s been by far the best performer in the marketso far this year and it’s got a market cap of around $260 milliondollars.

The best way to explainit and the best thing to do is to listen to the whole interview, which is avery long interview, I must say, because there’s so much to explain about itand I thought it was worth really going into.

But I suppose the bestsimple way to explain it is that it’s PayPal on instalments.

PayPal allows you tobuy stuff online just using your credit card and that’s what Splitit does,except that you do it over instalments using your existing credit card, sothere’s no credit checks, you’re just basically using your existing limit andit’s instant and it’s interest free.

For shoppers, it’s away of spreading your payments out without paying interest to Visa andMastercard, and that’s covered by fees to the merchant. But the best thing todo is listen to Spiro. Here is his explanation of how the business works, whatsort of cash burn they’ve got and who’s behind the company.

Here’s Spiro Pappaswho’s the Chairman of Splitit.

What a fabulous coupleof months you’ve had… Unbelievable!

Yes, it has been apretty amazing couple of months. As Chairman of the company – I mean it’squality problem, don’t get me wrong, but I’d like to see some stability. This is a long game for us and we want to see the shareholders rewarded andwe’re happy to have happy shareholders and we’re very, very focused on doingwhat we’re supposed to do. And it’s hard as you can appreciate, but we’revery, very focused on the day job of onboarding merchants and really sort ofdriving onboarding the best talent. Keeping the thing focused on that isthe focus.

No, I get it. You’ve got people buying shares now at $1.69, I mean, Christ, they’re going tobe demanding.

Yeah, and look, Alan,I think the key thing is – hopefully I’ll walk you through the business modeland while we are truly complementary to all of what I call the consumerfinancing solutions that are out there in the instalment payments base, you’llsee that the game we’re playing is a fundamentally different game. It’s aB2B proposition, not a B2C proposition, so it’s really a B2B2Cproposition.

Right, well why don’tyou start by walking me through the business model – not the business model, somuch as how the thing works, because I must confess I’ve been sitting here fora while trying to figure it out and my head’s hurting now, I just actuallycannot understand it.

Alan, how familiar areyou with the Mastercard and Visa schemes and how they operate?

Well, I’m a cardholderfor a long time, so I’m hoping you can educate me as to how you – because youseem to be an overlay on top of Visa and Mastercard.

Right on themoney. Firstly, let me start by saying that instalment payment solutionshave been around for eons. They used to be store cards in Myer orwhatever else, Walmart… Around the world, big department stores had theirown sort of lay-by service, etcetera… What we’ve done is obviously – entre intothe digital era, we’ve been able to sort of fast-track that. But in somecountries just interestingly, particularly those that went into a deeprecession and they wanted to promote a consumer-led recovery, probably 30 to 40years ago Israel developed their own instalment payment solution, so didBrazil, so did parts of Europe – Greece has one, Turkey has one…

This is across thewhole country, you mean?

Yes, but let’s takeIsrael, they had their own, what I call a ‘closed loop’ instalment paymentsolution because they had two major banks, Bank Leumi and I forgot the otherone. But one was a major Visa bank, card-carrying bank, and the other onewas a major Mastercard carrying bank, and they ended up creating what I calleda closed ecosystem. They basically partnered up and agreed to share thespoils end to end. Then because they controlled the issuing end and alsothe acquiring end, they were able to create an instalment pay solution thatworked across the country.

That’s a solutionwithin a country, but try to do that in a place like the US where you’ve got1,500 issuing banks and 1,000 acquiring banks, it just won’t work, right,corralling all of those people. But what Splitit does, is it does thatwork for Mastercard and Visa. What we are is a card agnostic scheme thatsits between the merchant and the payment gateway or processor that hangs offthe acquiring bank, basically the acquiring bank being the bank that providesthe merchant their banking services. Then obviously you’ve got theissuing bank who issues within the Visa and Mastercard scheme. Theissuing banks are the people that issue the credit cards to the end shopper,and so the whole system and the flow of money and the way it all gets regulatedis what Visa and Mastercard do.

Their customers, ifyou like, and their members are the issuing banks and the acquiring banks, andthey exist to facilitate both the credit card transactions and debit cardtransactions to police, if you like, this regulated industrial strengthsystem.

But what do you dothat isn’t being done already?

Okay, so if you thinkabout it, Mastercard had their own instalment payment solution and it probablystill exists, but because by the virtue of the fact Mastercard – basically,their primary focus is on administering the rails and providing the services tothe banks, not the merchants. They don’t have the end interface with themerchants. The solutions that they’ve provided are either presale orpost-sale. What Splitit does is it provides an enabling technologydirectly to the merchant.

Number one, it’s cardagnostic between Visa and Mastercard – and hopefully in the future others likeChina Union Pay, etcetera – and what it enables you to do either online,instore or via your mobile phone, if you’re hooked up with the merchant usingSplitit, we sit between the payment gateway and the merchant, and at that magicmoment at the point of sale, we enable the merchant to drive more sales, biggersales in a frictionless way with their end customers, their end shoppers.

I don’t understand –why does the merchant need that? Because if I want to buy something for$500 bucks or $300 dollars, I just have my card and then I key in the pinnumber and that’s done. I mean, what are you doing back to the merchantthat he or she needs done?

Yes, Alan, it’s reallyhard for you and I to understand because that’s the market we’ve grown up in,but in Brazil for instance, where it’s been operating for decades, 80% of allonline credit card transactions are done by instalment and there’s a very goodreason for that. As consumers become more credit savvy and more savvyaround how they use their finances, they’re less like you and I, i.e. we justpay off the monthly balance at the end of the month and don’t incurinterest. What they do is, if you’ve got a lumpy item that you need topay, for instance, your kids school fees or elective surgery or a familyholiday, instead of paying it all upfront on your credit card and then nothaving the capacity to make other purchases in that month – i.e. it’s a cashflow management tool.

But see if I buy alumpy amount on the credit card and I don’t pay it off at the end of the month,obviously I’m incurring interest.

That’s right.

When I start paying itoff over time, over 12 months – if I pay it off over 12 months on my creditcard, I’m incurring interest.

That’s right.

Your plan is interestfree, so you’re converting an interest payment situation into interest-free,right?

Correct.

Somebody’s got to wearthat margin, somebody’s got to wear that gap?

It’s themerchant. We only ever charge the merchant and it’s not dissimilar towhat Afterpay and others do. All the consumer financing solutions chargethe merchant and in addition to that they also charge a monthly fee to themerchant, and they also charge if there’s late fees which is obviously as youknow, contentious, they charge the shopper late fees. In our case, wenever charge anybody other than the merchant, we never charge more than 2% tothe merchant from our end. We have two models, so let me qualify that2%.

Where we’re passingthrough the instalment payments to the merchant on their normal cycle from thecustomer, from the shopper, we only ever charge 2% to the merchant. Whenwe’re using a factoring arrangement, i.e. we borrowed the money through acredit provider to upfront the payment to the merchant, we’ll only ever receiveour net 2% fee on average, but we’ll pass on the cost of the credit aswell.

Are you doing much ofthat one?

Yeah, at the momentit’s 60% on what we call the basic plan where it’s just a mirror payment and40% upfronted, where we’re paying what we call the fully funded upfront modelto the merchant. But in time, as this captures hold with big merchants,we think that that will flip the other way, so it’s probably going to be 60/40the other way in the future.

Your 2% fee covers theinterest on Mastercard and Visa, does it?

The fee that Visa andMastercard charge, they will continue to charge all the participants that theycharge. What they call their merchant services fee and their interchangefees etcetera…

But what about theinterest? Because if someone’s splitting it and paying over 12 months orsomething, then aren’t Visa and Mastercard looking for interest on thedelayed…?

No, no, becauseremember, the party that issues the card is the issuing bank. They issuethe credit card and they’re the people that charge the interest.

Who’s taking thecredit risk?

Well, all these sortof new innovations, other alternative payment mechanisms, digital wallets, yourGoogle Pay’s, your Apple Pay’s, but also your instalment plan solutions likeAfterpay, etcetera, because they are the merchant of record. We’re neverthe merchant of record, but they are the merchant. Basically, tracking isgoing off the rails of the credit schemes into alternative payment mechanisms,that’s what I mean. What we do, we’re an enabling technology layer thathelps bring traffic back on the rails of Mastercard and Visa. Does thatmake sense?

Yes, I’ve got it, andyou’re doing that by facilitating the process, making it easy for people?

Correct, and this ishow we do it. Let me use an example with say, a $1,200 purchase, becausethe average order size for us – and this is actually another very importantpoint. Unlike Afterpay, which is an incredible business but focused onsmaller ticket sizes and it’s sort of effectively one product, it’s afortnightly payment product that extends out to, I think from memory, 6-8weeks, I can’t remember exactly, and there’s a lot of copy-cat products like them. But it’s captured the hearts and minds of millennials and it’s smaller ordersizes to say, $100 to $150 dollars, and they are the merchant of record andthey’re taking the credit risk.

But they charge forit, right?

And they charge forit. That’s their model, it’s a B2C model and it’s all about making surethey’re in, and they’re doing a fabulous job of getting out to the merchants inAustralia and it’s early days but they’re making some good headway in theUS. In our case, by virtue of sitting on the rails of Visa andMastercard, we’re obviously global day one. We have the potential to sortof – we’ve processed transactions in 27 countries, the core focus initially,because this company only launched – they did a soft launch in the US in 2016, butliterally they only really began in earnest in 2017. Pretty small team,they bootstrapped the business, I think their total marketing spend was acouple hundred thousand dollars in that time and they’ve done over 100,000transactions and over $100 million dollars’ of volume just through the sort ofplucking the fruit from the tree type of strategy, the lowest lying fruit.

Now, they’ve obviouslygot some capital behind them, a listing, a decent size market cap, it’s givingthem the credibility and the global recognition with merchants. But theway it works, to answer your questions, is – let’s take a $1,200 dollarpurchase, three monthly instalments. The way it works is a customer paysfor their purchase using Splitit and we create an instalment plan, beginning ofday one. Then on the first day, typically, the first instalment’s paid,the first $400 of the three instalments for a $1,200 dollar purchase. Wethen take a hold on the remaining $800 dollars on your card. No differentto what you do when you go to a hotel and you stay there for a few days andthey take a hold on your card. In effect, we have a first charge on that$800 dollars, ahead of the bank. Then, before the end of the first monthobviously the customer makes their next instalment payment. The hold,under the normal chain of events, the hold reduces from $800 to $400 and thenthe final payment, the third instalment, the following month, the hold reducesto zero.

Now, if after thesecond instalment, or if the customer doesn’t pay the second instalment then itjust reverts back to the issuing bank and to your point at the beginning, itbecomes like a – they start charging them like they normally would with anormal credit card transaction where they’ve missed and they haven’t paid thebalance in full after a month.

I see, so it actuallydoes convert to a normal credit balance?

Correct. Oursweet spot, Alan, if you step back and look at this – and I should havementioned right at the beginning, I don’t know whether you know my background,but I’ve spent 28 years in banking in Sydney, London, New York, Singapore, andmost recently I was the senior executive running the corporate institutionalcoverage side of the business and all of the lending products for thosecustomers for National Australia Bank. Afterpay and Zip Money werecustomers that were onboarded by my team, so I’m very well familiar with theirmodels and in the case of Afterpay, we were the first bank to provide them witha loan.

I’d left NAB in themiddle of last year, Splitit was brought to my attention as an investor,pre-IPO, and I looked at this model and I interrogated it through my lens as abanker, as somebody who understands all the regulatory issues and all of thesensitivities, and what I loved about the model was it’s globally scalable dayone, point number one. Point number two, it delivers a solution at thatmagic moment that the merchant and the customer need it at the point ofsale. The approval rate – in effect, you’re utilising pre-approved creditlimits from the issuing bank on your credit card, provided you have sufficientavailable credit limit.

Let’s say yourpurchase is $5,000 and your overall limit is $50,000 and you’ve utilised maybe$10,000 of your limit, so this will take you up top $15,000 or less becauseyou’re paying some of the purchase upfront. Let’s say it’s fiveinstalments, you’re paying $1,000 upfront, but you’ve got a lot of availablecredit capacity, that’s the point I’m trying to make. For that type ofborrow, this is a very great solution because there’s zero friction, unlike theconsumer financing solutions. This was always the Amazon model and thePayPal model. One click, you get approval. In our case it’s aninstant approval, because you don’t need to apply for a new credit loan. You don’t have to download an app.

From the shopper’spoint of view, what you’re doing is you’re sort of spreading your payments,interest-free, right? Instead of having to pay it off in the month to getinterest-free, you can pay it off over a longer period and still beinterest-free, right?

Precisely, Alan. You’re hitting the nail on the head and I think the key thing here is, it’s notgoing to be for everything, but for lumpier items, so $1,000-plus typically –I’ll give you an example. Our CEO wanted to take a family holiday inEurope, go skiing with the family. He’s obviously running a business thateffectively, it’s his business and he’s not getting a big salary, and soeverything he’s got he’s pouring back into the business, so cash flow is anissue. He used the instalment payment plan so that he can effectivelybudget for his family holiday over say, three instalments, or I think in hiscase it was six instalments, rather than pay it all in one month and end uphaving a cash flow problem.

But you still have tosign up the merchants, right?

We still have to signup the merchants…

As you say, you’rekind of almost instantly global because you’re using Visa and Mastercard, youactually have to physically supply the merchants and you’ve only signed up Ithink less than 400 at this point, whereas Afterpay signed up 23,000.

Yes, the key pointthere is it’s active merchants and there’s a couple of points there,Alan. You’re right, we basically only began in earnest from 2017, from astanding start. There’s now probably comfortably over 400 activemerchants, to your point, but the key word is active. We’ve got moremerchants than that, we’ve got well over 1,000 merchants, but unlike Afterpayand Zip Money, etcetera, we don’t report every single one of them. Weonly report the ones that are active, because that’s what we care about. Remember, our business model, it’s more like a B2B2C business, not a B2Cbusiness. If we’ve got really active merchants, big global brands thatare in 20 countries, that’s obviously going to drive a lot. Provided,we’ve got the right merchants, all we need is 1,000 to drive a very, veryexciting business model, do you follow me?

And because theamounts are lumpy, typically over 1,000 Aussie Dollars per transaction, unlikeAfterpay which is probably $100 per transaction – many of our transactionscould be $20,000 - $10,000-type luxury item purchases on your creditcard. Mastercard tends to have double the limits of Visa, forinstance. You could have a wealthy, what we call a super-prime creditcard borrower from the Middle East coming to London and using his Mastercard,could have over a $100,000 limit. That’s just one extreme example, butwe’ve seen purchases that have been $20,000, up to $30,000. It’shard to get your head around, but it’s a very different business model toAfterpay where the goal is to sign up tens of thousands of merchants and go forbroke with them. And they’ve done a fantastic job, don’t get me wrong,hats off to them!

Our business model isvery targeted, we want – with 1,000 active merchants but really good ones whoare in multiple countries, our solution is tailor made for them, particularlyif they’re in high-margin businesses, dealing with lumpier purchases. Like, I’ll give you an example. We signed a sporting equipment companyout of Canada and soon thereafter a number of other of their competitorsjoined. We signed the largest online bed mattress manufacturer in Europecalled, Simba, and that was a huge success and the average order size hasincreased by more than 100% and our financing option ended up providing themwith 10-15% of their sales in quick order.

As soon as theircompetition got whiff of that, they obviously jumped onboard as well. James Allen, the, if you like, signature brand or the prestige brand for theSignet Group, the largest jewellery retailer in the world, James Allen is theirpremium online brand. As soon as they signed up they saw immediatetraction as well, an increase in average order sizes and overall sales, sothat’s been another success story, and their competitors immediatelyfollowed. Of course, we’ve got to onboard the merchants, but there is asort of a halo effect here, because we are the only one that can offer a globalsolution day one. If you’re a big global brand and you want to be able totap into people’s Visa and Mastercard available limits, then we’re the onlyreal option for you in a card agnostic way, which is what the merchantswant.

I can see a future,Alan, where we can happily coexist with all of the consumer financingsolutions, but they can’t happily coexist with the other. One will eatthe other’s lunch, but we’re not fighting that game. We’re basically –when you go to pay you could have your existing channels like Visa andMastercard, credit and debit, then PayPal and then ourselves. Visa andMastercard by instalment. Then an alternative payment methodology, sowhether that’s Afterpay or somebody else, because Afterpay deals with smallertickets and it is really complementary. In fact, when we get merchantssending us through their $30 to $50 orders and they’re sort of lower margintype business, we just refer them. At the moment, we refer them to thelikes of the Afterpay’s, because that’s just not our sweet spot.

You mentioned the CEObefore, can you just take us through who’s behind this company and what’s theirbackground?

Yeah,absolutely. That was the other thing that attracted me as a pre-IPO earlystage investor, the two co-founders are Israeli, but they’ve got collectivelyover approaching 50 years’ of experience in enterprise sales with globalexperience. Gil Don, the CEO, has over 20-odd years of experience insales and management for US corporations. He previously served as theregional manager for one of Dell’s product divisions, and was also served astheir Vice-President of sales for a leading technology system integrator for abig global cyber-tech company as well. Very well versed in the technologyand platform based, SAAS based solutions and the sales of those to majormultinationals.

Who’s the otherperson?

The other person isAlon Feit and Alan was a veteran of the financial services industry. Boththese guys are well into their 50s, so they’re not your typical Israelistart-up type entrepreneurs. Alon’s basically been in the financialservices industry for more than 25 years and he was a CEO of Mastercard inIsrael and then Brazil. Then he also served as the CEO of a big consumerfinancing subsidiary in Israel and then served as an executive director ofUnibanco cards, the biggest bank in Brazil. He’s got very detailed andrelevant experience with the schemes. Obviously, I gave you a little bitabout my background as Chairman.

The other people thatwe’ve assembled on the board have, again, global experience and strongexecution capability with relevant global skillsets. Thierry Denis, oneof the NEDs who’s based in Sydney, spent more than 20 years building Ingenico’sbusiness, he had a very distinguished career at Ingenico which is the largestpoint of sale terminal business in the world emanating from France. Hebasically was the MD who built out their business in North America and thenAustralia and South East Asia and became a strategic adviser to the board atIngenico before he retired.

Dawn Robertson is aworld-class retailer. She used to be the CEO of Myer well before privateequity got involved and it was actually making good money. Then she movedback to New York because she’s from there and she’s got over 27 years’experience in leading retail businesses. She was a CEO of Bloomingdales.com, Macey’s Online, Stein Mart, Old Navy… She launched the Sean John brand in the US as well.

I remember Dawn.

Yes, so she’sobviously a great retailer and visionary leader in the online… If you remember,she’s been the one sort of talking about online and retail embracing onlinewell before the whole disruption happened with Amazon, etcetera… MarkAntipof is the other recent NED appointment. He was a senior executive inpayment software technology in financial services industries. His mostrecent role, he spent half of his career at Visa and his last role there was,he was a Chief Commercial Officer, so the most senior frontline executive inEurope for Visa, and he just left them in December and joined our board andobviously advises on a bunch of other big multinational companies aroundpayments. Then to complete the picture, we have Michael De Franco, he’ssort of the guy – as we’ve built out our omni-channel capability, he’s our sortof mobile telephony guru. We’ve got somebody who understands the point ofsales, so on the physical instore type of solution supremely well inThierry. We’ve got a great retailer in Dawn, a visionary one. We’vegot Mark who obviously covers off the schemes with Alon, the co-founder, onefrom Visa, one from Mastercard, and we’ve got Michael who’s a mobile telephonyguru, and we’ve got Gil who’s a very, very seasoned sales executive, andmyself.

To complete thepicture, all of the growth that we’ve had from 2017, Alan, to date, until endof last year that was reported, was done with a combined marketing budget, Ikid you not, of $200,000. It was all inbound. Now we’ve just raised$12m and unlike the consumer finance solutions, we don’t have all of these latefee – because it’s a B2B model and because we have a sort of a first chargeranking and we’re not running the same credit risk, i.e. we’re an enablingtechnology. We can front-end to drive sales and growth withmerchants. We can invest most of that money we’ve raised in addingfeatures to the products that make them really attractive and reduce frictionwith the merchants and provide sort of more seamless integrations,etcetera. And most importantly, onboard merchants faster with really goodsales and marketing.

Let’s take Afterpay,for an example, last year they reported $25 million dollars in late fees. Let’s just be generous and say that there were 365 business days last year andthe average order size was $100. If you do the math that means there wasbasically $5,000 phone calls that needed to be made today to chase up peoplewith late fees. Obviously, that’s a key part of their business mode, it’sa B2C model, they’re taking the credit risk so they have to do that, and I’msure they do it well. But we don’t have any of that because we’re anenabling technology. We’re never the merchant of record, we’re neverlending the money, we’re just facilitating the instalment payment solution onthe rails of Visa and Mastercard.

I get that, I justwanted to know how much of the company Gil and Alon own?

It’s meaningful. They’re both substantial shareholders. Last time, in the Prospectusreport it was roughly – Alon was just under 10% and Gil was just hoveringaround 4.75%, around that. But most importantly, they have performanceshares, so Gil, just to give you an example, for his performance shares, athird of his performance shares – he signed up to a milestone that he has tomeet in 2021 which basically requires him to increase the transaction volumeten-fold, so go from $100,000 to $1 billion dollars in transaction volume, forhim to meet those performance shares milestone.

It’s not based onshare price, it’s based on transaction volume?

Correct.

Can you just take usthrough where the company’s at in cash flow terms at the moment, how much areyou burning?

I think the burn rate,Alan, is – we don’t provide that number in there, you’ve got to sort of gleanit, but basically it was operating at around $350,000, obviously we’veonboarded some recent executives and are growing the business and I’ll talkabout the recent executives that we’ve onboarded because it is about onboardingthe right talent and the right leaders. Let’s say we started, wereprobably operating at around $350,000 dollar burn per month. By the endof the year, it’s probably going to ratchet up to about $750,000. Inorder to – if you look at those numbers, basically in order to breakeven on acash flow cycle, the last report, we’re operating for the last Q, on an averagevolume of about $10.25 million per month. We need to get to about $35million per month to breakeven. If you look at the trajectory and the waywe’ve been growing, if you look at what Gil signed up to in terms of his ownperformance milestone hurdles, that should give you a sense of how confidentmanagement is that they’re going to meet those targets.

Of course. Whendo you think you’re going to breakeven?

Look, I think, Alan,it’s a fair question but the challenge we’ve got is, in the absence of anyother developments it’ll be relatively quick. If you look at thetrajectory – obviously, I can’t forecast, I’m not allowed to, but in reasonableorder you’ll see that you’ve got to take a view on how quickly we’re going togrow from $10 million plus a month to $35 million plus a month.

I suppose the moreimportant question that concerns you, operating leverage – I mean, it’s reallya question of what sort of money are you going to be able to make in five orten years, I guess.

Yes, it’s a veryscalable platform. As we touched on earlier, we’re truly global and so,we’re playing a very different game to the other consumer financing solutionsand most importantly, Alan, I’d rather be in our position than the consumerfinancing solutions. Obviously, the Senate Inquiry came out and said thissegment of the market is going to be regulated, so we don’t know what thatmeans. If Labor gets into power it might mean something very different tothe Liberals, for instance. But one thing’s for sure, there’s going to bemore regulation, not less, and that could, for them, for the consumer financingsolutions, that could present quite a challenge and hence why I’m guessing there’sa race to try to diversify into other countries. But every regulatoraround the world is looking at this as well because it’s been a bit of aphenomenon.

I imagine your biggestthreat would be competition, surely. I mean, if you’re doing somethingrelatively simple over the top of Mastercard and Visa, then surely anyone coulddo that?

Well, these guys hadthe foresight to apply for the patents in all the big markets and then patentspending around the world in 2008. They lodged the patents and as soon asthey received the major ones in the US and Europe, etcetera, in 2012, theystarted investing in the technology. They spent well over $10-12 millionon the technology from memory and counting – this is US Dollars. Thebarriers to entry are far greater than you’re indicating.

What do the patentscover?

The patents cover twothings, they cover two aspects. They cover the underpinning technologyand most importantly, the methodology and the payment process as it relates toinstalment process. If anybody else in the countries where we havepatents or patents pending, if anybody else tries to do what we’ve done,utilising this pre-authorisation in the first charge or the first call on thathold that we take, then they’re in breach of our patent. It’s not justthe technology, it’s the methodology. The other point, Alan, the pointthat it’s easier to replicate than obviously the patent protection, but it’sstill very, very hard to achieve, in order to get onto the industrial graderails of Visa and Mastercard, you need to be approved as a third party serviceprovider. It took Splitit four years to get to that point.

Why aren’t you thesame as PayPal?

That’s a greatquestion. We could be, for instalment payments we could end upbecoming. When people think about instalment payments…

Actually, PayPal isnot instalments. You’re the same as PayPal, except you’re instalments,right?

I didn’t say that, yousaid that. [Laughs]

PayPal are going tobuy you.

I didn’t say thateither.

No, of course youdidn’t! [Laughs]

And I’m not allowed toproject or forecast or do anything of the like, but it’s interesting, thesenior executive that we hired in Australia is a gentleman by the name ofAndrew Pipolo. If you do your homework on him, you’ll see that he has fantasticexperience. He basically was the MD of PayPal in Australia when itexploded under his leadership back in the mid-2000s. Then he did such aphenomenal job, because they were owned by eBay at the time, the CEO of eBaysent him up to Japan to build out the business there because that was a bigbusiness for eBay up there. He became the MD of PayPal in Japan and builtit from zero to a $20 billion transactional business.

He wrote the playbookin Australia and Japan and he executed on it for PayPal. That’s thesenior executive we’ve just hired to run Asia-Pacific for us out of Sydney, andin North America we’ve hired Nathan Mairs from Klarna.

We’re obviously goingto assemble a team, we’re going to use our money wisely and most of it, as Isaid, 70% of the proceeds will be focused on front end sales andmarketing. The rest will be on product development and new productdevelopment, just making the product work better and better, in mobile phoneand a whole bunch of other applications, to reduce further friction and make iteven more user friendly for global adoption. There’s a very thoughtfulprocess here and we’re going to go laser-like into those industry verticalswhere we see great adoption, high margins and higher order sizes. That’sour sweet spot. And our target audience – and I don’t want to be quotedon this, but I’ve heard from when I’ve gone and spoken to investors, thisinvestor basically said we are a instalment payment solution for grown-ups.

It’s been fascinating,Spiro, I really appreciate you giving us so much time and it’s beengreat.

No, Alan, thank youvery much for the opportunity and thank you to you and your viewers.

That was Spiro Pappas,the Chairman of Splitit.