Founded in 2011 by Cyril Chiche and Antoine Porte and launched in July 2013, Lydia is the leading mobile payment platform in France with over one million users, a number that is growing by more than 2,000 per day. Users have doubled in the last 12 months. Transactions are growing even faster than users, tripling between January and September of 2017.
Lydia began as a mobile P2P payments app, allowing users to send money to and receive money from other people instantly and for free, but now allows more types of transactions including in-store and online. Lydia was initially likened to Venmo, which has garnered attention for its plans to issue a debit card. But Lydia beat them to it by more than a year.
In 2016, the company introduced a MasterCard customers can use to withdraw or spend their Lydia balances. The Lydia MasterCard can be used in stores, for online payments, and at ATMs anywhere in the world. It is managed via the app. The connected MasterCard and a personal IBAN (international bank account number) turn Lydia into a mobile current account. It costs $10 to acquire and carries a monthly fee of €3.99. There are no overdraft charges.
Lydia has also convinced several major retailers and e-merchants to accept Lydia mobile payments, including Franprix, the leading city-center food store chain. There is a separate version of the app for merchants called Lydia Pro, which turns a phone or tablet into PoS system. Making mobile payments via Lydia is free for consumers; fees to business clients are 0.7% for face-to-face transactions and 1.5% for remote or e-commerce transaction (excluding taxes). Several more merchant announcements are promised in the coming weeks.
In mid-July, Lydia announced that French users of Lydia will be available to use Apple Pay in connection with their Lydia accounts by the end of 2017.
Cyril is Lydia’s CEO. He and his team have raised a total of €11 million (roughly $13 million). The most recent round was for €7 million in July of 2016 led by NewAlpha Asset Management and Oddo BHF. The firm calls Paris headquarters and has 40 employees.
Q. Cyril, what’s new at Lydia?
A. There’s quite a lot that’s new. The first new thing is that Lydia is now available in four more countries – the UK, Ireland, Portugal, and Spain. That’s quite big news for the company.
Another new thing is that major retailers in France and e-commerce websites are starting to accept Lydia as a payment method. The first one was Franprix at the end of June and since yesterday, you can pay on Cdiscount – Cdiscount being the second largest e-merchant in France after Amazon. That’s pretty cool news, as well!
Q. Do you intend for Lydia to become a ubiquitous payment solution?
A. It’s actually a little beyond that. When I say beyond, it’s hard to be beyond ubiquitous, of course. If you think about it, a ubiquitous payment solution is actually a current account, because a current account is nothing more than account management, in-out management, and methods to make payments in any situation. We already have the account management and in-out management, and all the onboarding, reporting, and regulatory stuff.
You have two ways to become a ubiquitous payment method – you have everyone in the world accept your specific payment method, or you become a current account with multiple payment means associated with it, which is where we are heading.
Q. How does Lydia make money?
A. The revenue model is a combination of several things. On the mobile payments side, we take a fee on transactions. The fees are taken on the business side. We also have a monthly plan for people who are choosing to go with the Lydia card and current account, though it’s not yet named as a current account, but that’s what it is. You have a bank account number where you can do wires in and you can receive your salary and you have a card that you can use to pay, or withdraw your money from an ATM, anywhere in the world. So basically, that’s what it is, though we are going to repackage it and rename it. That’s €3.99 per month, everything included.
Q. How does that compare to what consumers in your markets are paying currently?
A. It’s very difficult to compare because most customers today have a bank account but they never know what they are paying for it. One day you get an overdraft for €5.00, but because you didn’t have an overdraft authorization, it’s not like the bank didn’t let you go under €0.00 – they let you even though you did not have an authorization – and now they’re sending you a letter for €14.00. You go on holiday in another country, you withdraw your money from the ATM, and they’re going to charge you €6.00. If we compare public price to public price, we are a little cheaper than what you might pay at your bank, although some banks do entirely free cards.
The truth is, if we compare what the banks are actually charging their retail banking customers for their current accounts, then the average that people pay to their bank per year is greater than €120.00 and what we charge is basically €48.00.
Q. One of the first hurdles to adoption is undoubtedly trust. What steps has Lydia taken to prove trustworthiness?
A. I’m going to give you an answer that you probably haven’t ever heard from someone in my position. People in my position will talk to you about technology and algorithms that they put together to make sure fraud is limited, and of course, we’ve done that. People in my position will talk to you about having a license from a central bank, and that means that you’ve been audited and your processes are clean and blah, blah, blah, and, of course, we’ve done that. People in my position will tell you that they’ve done a lot of video and other content to explain to people why it’s safe, and we’ve done that.
But the truth is that this question about security is indeed a concern, but not really. What it is is a way for you to ask me, “Am I the only one to do it? Because I’m not an early adopter.”
Let me tell you a very interesting story about that. At the very beginning of Lydia, for the first four or five months, every person we would talk to would ask if it is secure and safe. And, of course, we were just starting and we had no brand people could relate to and no users. The questions meant something.
At one point, we made flyers and posters for an event that we would distribute and post. We added the line: “Authorized by Banque de France”. Then, someone on my team who has nothing to do with marketing suggested some A/B testing. I’m thinking, “What do you want to A/B test with, Bank of England? He said no, why don’t we test it against “Seen on TV”? I thought he was out of his mind. All the biggest scams can be seen on TV. People going to jail for Ponzi schemes are seen on TV.
So we asked people which phrase gave them more confidence. Four times more people said “Seen on TV” gave them greater confidence. Then we pushed the testing a little further, and added the logos of the various TV channels we’d actually appeared on and then the ratio was seven to one.
When people ask you if its secure, they want you to tell them that everyone else is doing it so they’re not taking a risk by doing it, too. If all your friends are doing something, you’ll do it, too.
Q. Some 70% of your customers are under 30. Will mobile payments adoption necessarily be a millennial phenomenon, or do you expect to see uptake increasing among older consumers?
A. I certainly believe that everyone will adopt mobile payments, but you have to understand that being under 30 is a transitional situation.
You’ve been under 30, I’ve been under 30. It’s not a question of technology, it’s a question of lifestyle. Mobile payments are not a question of technology, otherwise it would have been widely adopted a long time ago. The technology has been working for a decade. The problem is, do you have a need for it? Does it match something you would like to do that is painful with any other available option? That becomes a question of lifestyle.
If your lifestyle is to do everything in real time and on your mobile, and having friends across the world, of course it makes a lot of sense. If your lifestyle is more closed – you don’t move a lot, you don’t have friends around the world, you don’t do much on your phone except emails and calls – then maybe it will take more time to attract you to mobile payments.
It’s not a question of generation, because we have people who are 92 using Lydia. It’s really a question of lifestyle.
Q. Lydia uses text messages for P2P payments but in-store payments made via the app require the generation of a QR code to be scanned by the merchant. How did you settle on a QR code as right for mobile payments?
A. Why did we pick this protocol, this way to transfer information about a money transaction? We picked the protocol because they were the most ubiquitous ones. QR codes can be displayed on any smart phone. NFC is only present in a few. More and more, true, but not all. If you want to build something that will be ubiquitous, you have to choose ubiquitous technology. That doesn’t mean that we are QR code fanatics. We also use Bluetooth Low Energy – BLE. And, we’ve just announced that we’ll be a partner of Apple Pay and you’ll be able to pay by Apple Pay by the end of the year. We just choose the technology that was most appropriate for what we want to do at scale.
Same for texting. Sending a text is something everyone can do.
Q. What about the merchants? Can most French merchants (and now these other markets) accept QR codes today without upgrading their point of sale equipment?
A. It depends. They do require a software upgrade to integrate the Lydia API, of course. But it doesn’t mean that every merchant has to do it. It means that every manufacturer has to do it. Which is different story.
On the other hand, there’s the hardware. Some shops will have a bar code scanner that wouldn’t read phone screens. But, more and more people will show up with loyalty cards on their phones, and coupons, and so many other things. So they are getting equipped with bar code scanners for phone screens no matter what.
Q. Do you still guarantee all payments?
A. Of course.
Q. What has your experience been with fraud?
A. It’s insane that the people in charge of the payment are not responsible for it. That is a scandal, honestly. You are asking people that are sales people, that are shop owners, that are small e-merchants who are not payment specialists to do a job that payment specialists have trouble doing! The business has been conceived so that these poor people who are not experts are actually responsible for the fraud and pay for it. It’s scandalous!
We don’t believe it should be this way. We think it’s unfair. We are experts – it’s our job to fight fraud. We know the payment system better than the merchants that are choosing Lydia, so we assume that we would do a better job at fighting fraud and we will make our customer happy by doing so and guaranteeing the payment. So they have one less problem to manage and they can concentrate on their business.
Up to now, the fraud rate we’ve been experiencing is 0.02%. It is low, but we have a lot of information on your device, where you are located, and many other things. We do a lot of security checks when you add your card, when you use your card. We have algorithms, all these things that any company should be doing – or is doing, if they are a serious company. It comes down to how serious you are and how concerned you are about fighting fraud. Most of the companies that handle payment and don’t assume the fraud risk, they don’t care. They don’t pay for it. We do care because we pay for it.
Q. As a consumer, are my Lydia balances covered by the French deposit guarantee scheme (and now the national deposit schemes of other nations)?
A. No. Do you know why the national deposit scheme exists? It’s due to the specific rights that the banks have and the business model of retail banking. They convert deposits in to credit, with leverage. The average leverage ratio today at large banks in France is around nine. So, if you deposit €100 at the bank, they will lend, depending on their leverage ratio, around €900. The problem is that if all the customers of the bank go to the bank and ask for their money, the bank goes bankrupt. They don’t have it.
We don’t have that capability. Every single cent that sits with us with us is available at any time, so there is no need for state coverage.
Q. How many French merchant locations can accept payment via the Lydia app today?
Q. What has been the uptake of the “Payer avec Lydia” button?
A. The “Pay with Lydia” button is for e-commerce. This is actually something very new. It is taking off in pretty amazing fashion, but it’s only been a few days.
The customer journey is really cool. I click on “Pay with Lydia,” and because the e-merchant knows my phone number, I will receive a push notification on my phone from Lydia, swipe that notification, put my fingerprint, done!
Q. What can you tell me about Lydia’s integration with Slack?
A. That’s another cool one. It’s something that I like a lot and that I’m using almost every day.
At Lydia, we like to cook. We have a big kitchen and we are really cooking. We do duck magret and things like that. Every day someone will be cooking and he or she will cook for six, seven, eight people on the team. So you shop, cook, and people will eat. And every time, one poor person has to ask seven persons to send the money via Lydia for the lunch.
So we said, shouldn’t we use something that will automatically reach all these people? And because we use Slack to communicate about today’s menu, we said why don’t we build something for Slack?
Starting from there it’s actually a great project – though it started as a side project – because it involves artificial intelligence. Maybe it’s arrogant to say it is artificial intelligence – it’s more syntax analysis. So we’ve been developing a syntax analytics engine.
It turns out it is something we are now using for iMessage, that we are using for Siri, and we are going to be using soon for our Facebook Messenger bot. It may have started as a side project but it’s become part of the whole product. We were the first company in the world to develop a payment bot for Slack.
Q. That’s group payment. You also have a group savings capability. How does that work and how does that fit your strategy?
A. We believe Lydia is a lifestyle tool. The life of the mobile natives, who are our main customer base, is really a lot about peer-to-peer transactions, a lot about group activities. They share apartments, they share rides, they share holiday houses. It’s a lot about putting together the right tools for the lifestyle of our users.
Lydia Chat is all those things I just mentioned. Slack, iMessage – all these bots are under the Chat umbrella supporting conversational transactions.
Q. Lydia must be awash in valuable merchant and consumer data. What are your plans for leveraging this?
A. I would love to tell you that we have a plan for it, but we don’t. I won’t lie to you and tell you we have an amazing plan. But there is something I can tell you for sure: we will not be selling it for advertising. First, because it is prohibited by regulation of payment institutions here, and second, because from a personal perspective, although we could ask people if it would be okay, I would hate that. Imagine that Visa would send you every day an advertisement for something. You would really come to hate them.
What we want to do with the data is improve fraud management and protection, and develop the right tools and the right services to make our users’ lives easier.
Q. Is this where AI will come in?
A. Yes. Absolutely. Artificial intelligence is already something we are working with from a fraud perspective. Artificial intelligence and fraud are made for each other. Then, we will also be looking at what are the right products and what are our users buying? If we see, for example, that they’re buying a lot of product insurance (buying a phone and then buying insurance for it, buying a train ticket and buying insurance for it) then maybe we’ll co-conceive with an insurer a product that will compete.
Q. After not spending anything on new client acquisition for your first three years, you recently launched your first marketing campaign. How are the results?
A. We only started in April of this year. The results are pretty amazing. Honestly, we’re not spending that much, because we like to learn things before we spend a lot. So far, we’ve been able to achieve numbers that we never expected.
Our advertising cost-per-download is ridiculously low, and the conversion rate is very high. For conversion, I am talking about people going from creating an account to transacting significant amounts. We will keep on learning through the end of this year, growing slowly and trying new strategies, optimizing, and stuff like that. If we can keep these numbers, then at the beginning of 2018 we’re going to be spending a lot of money.
Q. How have you organized for international expansion? Are you running centralized teams or have you created country-specific teams? How will you manage marketing programs in multiple languages and countries?
A. We always thought about being an international company. That was a very smart decision at the beginning. We coded the system so it is ready for multiple languages and multiple currencies from day one.
Maybe because we are French and European, we have this vision that it’s not one size fits all. Payments is a very cultural thing. We are multi-local. So when we open in Portugal, we hire a team made of Portuguese people and we give them the keys in Portugal (although the product is centrally developed). It is fully in Portugal, and so is the customer support and so is every communication we send to them.
Q. Which countries are next on your list for expansion? Germany, I’m guessing, is one.
A. You’re right. Germany and Austria are next. We have no plans on going outside the EU at the moment.
Q. Is regulation for your services consistent across the EU?
A. It is. That’s why we are focusing on EU countries. Regulation, at least, is the same everywhere.
Q. How is Lydia regulated?
A. As a payment account.
Q. Oddo BHF describes itself as an independent Franco-German financial group. As far as I can tell, this is their only venture investment. How did that come about, and what do they bring to the table for you?
A. They are very interesting people. It’s a private bank and also an investment bank.
What they bring to the table is an extensive knowledge of banking regulation which is something very interesting for us. We can ask their compliance people a lot of questions and they are always available to us. We have the chance to deal directly with Philippe Oddo. We are talking about someone who created a company across Europe that employs 3,000 people. Exchanging ideas with that type of entrepreneur means a lot of mistakes avoided.
The last thing is knowledge of Germany. Oddo was a French business for years and years and years. Now, since they acquired BHF, Philippe Oddo is spending more than half the week in Germany. It’s really interesting for us as we prepare the opening of the German market.
Q. What do you make of the recent spate of mergers between older payment processing firms? What’s behind this consolidation?
A. I believe a couple of things are behind this. First of all, it’s a business with very low margins. Payment processing is a very low margin business. Very low margins mean you need high volume. The more volume you can handle the more you can decrease your cost and increase your margin. That’s certainly a very, very strong driver. That’s number one.
Number two is the fact that if you are in the processing business, you know that some of your business is going to go away in the very short term. Let me tell you why. Today, the rails that are used for most consumer transactions card or card equivalent. We run on card rails, PayPal runs on card rails mostly, blah, blah, blah. But that is hitting its peak at the moment. New regulation means that in the coming two or three years you will be able to have instant wire from bank account to bank account, and not only that, but you will be able to initiate that at the financial institution with a mandate from the customer. We at Lydia will be able to connect to the bank account of our customers and initiate a bank wire with instant confirmation that cannot be repudiated.
If I can do that, and mobile payment is widely accepted, why do I need to use the card rails?
Q. What is next on the product roadmap for Lydia?
A. We have a lot on the plate. As I mentioned, we are going to be packaging the current account offering, putting in a lot of things that are currently independent. Also, contactless mobile payment – Apple Pay and other similar products for android, for example.
We are also deeply reshaping our KYC/onboarding process to make it really automated and more efficient, and frictionless. We don’t want to ask you stuff that we don’t need, or that we already know, or that we can get elsewhere. We haven’t worked on that since day one, so it is time to do it.
The last thing is we are starting to work on international transactions, that is cross-currency. Cross-currency is not the same as multi-currency. You have to handle F/X, and blah, blah, blah. It’s a business in itself.
Q. You’ve said, and I’m paraphrasing, that all FinTech startups start with a simple product and that as they add features they will end up offering all the services of a traditional bank, but though a superior interface. Do you still feel this is true? Is your plan to eventually offer all the services of a retail bank, but in new and better ways?
A. That’s still true. We try to put our money where our mouth is.
Q. Paris has ambitions to become a global FinTech hub and the leading center of financial innovation in the EU post-Brexit. What has to happen to make that a reality?
A. A few more speeches by Theresa May.
People relocating to continental Europe out of London is real. I have a lot of friends that are traders who are sitting at bank desks who are coming back to Paris. Citi has just requested a trading license in Paris, which they had 15 years ago but that they cancelled. This movement is actually happening because financial services hates uncertainty. What’s happening in the UK at the moment is pure uncertainty.
Why Paris rather than Luxembourg or Frankfurt? The first thing is that Paris is a ten-times better city to live in. If you have to choose between Paris and Luxembourg, how long would it take you to choose? Financial services is an industry that goes with culture and high living standards, and Paris offers that. That’s number one.
Number two, I believe that Emmanuel Macron’s election changes dramatically the perception that people had of France. He’s not even 40, he’s an ex banker from a top private bank, and he’s a brilliant guy – you can agree or disagree with his positions but he’s a very smart guy. That makes a lot of positives for Paris at this very moment.
Q. As a startup, do you find a good deal of support in Paris?
A. We do. The only thing that is really missing at the moment in Paris is financing from French firms in the €10 million to €30 million range. A few years ago, it was very difficult to find seed money. Now you find plenty of seed money which is helping a lot of people starting their companies and eventually succeeding. You can find – and this has always been available in France – a lot of growth money. But this round A+, B, C type of money is still missing a lot on the French scene, and that’s why most of the rounds in that range are done with English, Americans, Israelis, or funds from the Netherlands which are specialized in that specific part.
But it will change. Honestly, I’m surprised that French billionaires who made their money in tech haven’t already seized this opportunity.
Q. When Compte Nickel was purchased by BNP Paribas, you did not appear to be a fan of the combination.
A. It’s not that I’m not a fan of the combination. There are multiple ways to look at this. From the entrepreneur’s perspective, I’m a huge fan. These guys created something from scratch. They fought the banking system from an angle that had never been used before. They made great success. They saw a huge amount of money in quite a short period of time. Honestly, good job, amazing job, I’m a huge fan.
Now, what I didn’t like much – I’m certainly not the only one and many of their users have been vocal about this – is that it comes after you spend five, six, seven years telling people that bankers are bastards who will screw you. (And that’s why you called your company NoBank before you changed the name.) I’m not that kind of guy. I like to be straightforward with my customers.
The last reason why I was not a big fan of this combination is because I know very well why BNP bought Compte Nickel. They bought Compte Nickel because Compte Nickel was mostly a lot of people who were underbanked. The people who were underbanked, they got sold revolving credit. You know how much money banks make on the revolving credit? Tons. From that perspective, I am not a big fan, either. But that is me as an individual knowing the banking world.
But, again, from an entrepreneur’s perspective, they did a great job because that’s exactly what they planned from day one. When you plan something from day one and you execute this well and you reach your objective? Respect.
Q. Are you hiring?
A. Yes. We are hiring ten or twelve people at the moment.
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