Fleet Masterclass with Coast Founder Daniel Simon
This episode of Fintech Layer Cake podcast features a masterclass on fleet payments with Coast Founder Daniel Simon. Listen to the show on iTunes, Spotify, or your favorite podcast app and find the transcript, below.
Intro
Welcome back to Fintech Layer Cake, where we uncover secret recipes and practical insights from fintech leaders and experts. I'm your host, Reggie Young, Senior Product Lawyer at Lithic. On today's episode, I chat with Daniel Simon from Coast, the modern financial services platform for the future of transportation, which includes fleet cards and related fleet products.
We get into it more in the episode, but fleet payments are a fascinating specialized use case where vanilla commercial cards just won't get the job done. But just because use case is specialized doesn't mean that it’s small. Fleet payments make up more than 10% of total US B2B card spend, which is a massive amount. Recently, in March 2024, Coast raised $25 million in venture capital and $67 million in debt financing and has now raised a total of over $56 million in equity from firms Accel, Insight, BetterTomorrow Ventures, BoxGroup, Avid Ventures, and other leading fintech investors.
Fintech Layer Cake is powered by the card issuing platform Lithic. We provide payments infrastructure that enables companies to offer their own card programs. Nothing in this podcast should be construed as legal or financial advice.
Full Transcript
Reggie Young:
Daniel, welcome to Fintech Layer Cake. I'm really excited for our conversation today because a lot of my colleagues at Lithic have been working hard on building out some of our fleet capabilities. As a result, I've come to appreciate that fleet payments are a very deep rabbit hole that one can go down. I think not everyone in fintech is familiar with fleet payments. So maybe let's start with the basics. What exactly are fleet cards? And somewhat related, what's the typical customer? Because I think when I hear fleet, my brain immediately jumps to trucks and semis, but I know there's a lot more to it than that. Let's start with those fundamental basics. What are fleet cards and payments, and who are the typical fleet card users?
Daniel Simon:
Yeah, thanks, Reggie. I'm really excited for this conversation as well. Thanks for having me. Love the podcast. Yeah, let me give you a high level on the category that we're operating in. Basically, if you run a business in the US that has a fleet of vehicles, and to your point, that could be the $800 billion trucking business that everybody else thinks about, but critically, it's also plumbers, landscaping crews, HVAC installers, school bus companies, you name it. You have a commercial payments need. That's analogous in a lot of ways to the need that’s solved in other businesses by your American Express corporate card, or if you want the venture capital-backed examples by Ramp, or Brex, or Divvy, each being able to give your employees something to pay for job-related expenses.
When those expenses have to do with the vehicle, which can be maintenance or gas is a big use case, and the employees are your drivers, you have a bunch of specialized needs to prevent unauthorized transactions and abuse and fraud by those drivers. It's like a mobile workforce in the field. There isn't the same level of trust. You want to make sure they're buying the right grade of gas. They're not going into the convenience store of the gas station to buy Cokes and smokes. They're not filling up their personal car with a company card or doing other wacky stuff with it.
A lot of the features that you need to monitor and enforce those controls historically were really natively built into the Visa and Mastercard open-loop network protocols. So what the incumbents in the fleet payment space did is that they built their own proprietary closed-loop networks off of the Visa and Mastercard rails, which they've integrated over the course of decades now with the hundreds of thousands of gas pumps across the country, which is obviously a pretty big moat for a guy like me who's trying to break into the business.
And by the way, these companies are not small. There's a few of them in the US. They add up to something like $35 billion of enterprise value across them. They have sometimes 60% EBITDA margins. And they’re just wildly profitable, and there's basically absolutely nobody else in the space. What's been exciting to me is there's been technical and regulatory developments over the last few years, which make a really compelling case, like why now that somebody come in with superior, tech-forward, customer-centric products to challenge those guys.
On the tech side, there's so-called Level 3 data. The detailed line item information that the incumbent closed-loop networks rely on to do their thing, that's stuff like product type, grade of gas, unit of measure, quantity, tax breakdown. That data in just the last few years is now being passed from something like 98% gas pumps to commercially issued Visa and Mastercard open-loop cards. So the exact same data the incumbents get is happening in the exact same real-time way, but it's enough to start to build something.
Second, you’ve got the modern card issuing platforms, like you guys at Lithic, that allow you to do pretty sophisticated and bespoke transactional risk assessment and decisioning without a huge upfront investment by start-ups. It's a minor point, but it's worth mentioning. And finally, there's vehicle data. For both regulatory as well as commercial reasons is the increasing ubiquity of the telematics devices. Like the box that plugs into the data port of the onboard computer of the vehicle pulls out information like precise GPS location, speed, braking, fuel, odometer, gauge readings, whatever else. It sends it via cell signal to a cloud platform, where a third-party API consumer, like me, can get at it.
What it all means together is that between the vehicle data that I can get in near real-time from the telematics vendor integrations and the detailed line item data I'm getting from the point of sale at the gas pump, I can now build a superior product that provides a best-in-class experience for both the driver and the fleet owner or manager, the one that manages the control, security, visibility that’s buying this product category for in the first place.
I can also integrate into the operating lines of these businesses, so basic expense management, basic accounting integration. Think about Ramp for fleets or Brex for fleets if you want to have an analogy. I can do it on open loop. I can do it with Visa and Mastercard. I don't have to do the crazy capital-intensive thing of first having to build a network of relationships and integrations with the fuel brands and truck stops and gas stations. I can market directly to these half a million fleets in the US. I have at least half a dozen vehicles that need this product. And that's super duper exciting.
And then just to answer your question about trucks, you're right, this happens all the time when people hear about my business. They hear about, oh fleet, you mean those big trucks, right, like a combination tractor trailer, all this stuff over the road that you think of when you hear the word truck. That is a really challenging market to profitably sell this kind of credit and payment solution to, and I can go into the reasons why.
At Coast, where we really focus is on vehicle fleets with light and medium-duty vehicles, so the plumbers, basically, home services, pest control, alarm companies, HVAC, electrical, landscaping, local delivery, limos, school buses, forest construction, all kinds of vehicles that are parked in the same wad at the end of every day. Because for those folks, they're not buying fleet payments products because they need a few pennies off on a gallon of gas or because they need a few days of credit float. They're buying because when you give the plumber who works for the company credit card, when they take the van out to go do their job, you need control, security, visibility, reporting, you need software. And that's basically what we sell.
Just to give you a sense of the market, the fleet payments space, there's $120 billion being processed on these commercial fleet fuel credit cards for businesses in the US in a given year, which by the way, it sounds like a staggering figure. It's more than 10% of total US B2B card spend. Half of that is on the 3 million or 4 million combination tractor trailers and heavy-duty trucks you think when you hear the word truck. The other half is on the 35 million heavy pick-ups, box trucks, like Mercedes Sprinter vans, Ford Transit vans. And that is actually where the incumbents built their empires. All of the margin and opportunity, to a great extent, is there. And so for us, fleet is about so much more than trucking, and we live in another part of it.
Reggie Young:
Amazing. So many follow-up questions and avenues I want to go down from that answer. I love your point about a lot of the developments in tech, those happen with smarter vehicles now. It's something I hadn't really thought of prior to preparing for this conversation. But I'd been thinking about fleet from the kind of pure cards of payments, but you're totally right that when you can plug into a smart vehicle, that can tell you how much gas is allowed in that tank and how much it's currently filled. Fascinating opportunities for fraud control.
I want to circle back. You mentioned that it's hard to sell into those bigger, more semi-type trucking companies. That's just a harder market for fleet cards. Why is that?
Daniel Simon:
Yeah. It's a few things. In the US, a lot of that long-haul trucking business is individual owner operators. It’s like the guy with a truck or two or three. They get the jobs from a load board or freight broker. And they're super sensitive on the price of gas. It's a huge part of their operating expenses. The incumbents to the fleet payments business have upstream relationships with big oil brands and truck stops. They pass on big rebates that a merchant funded. So a start-up is at a structural pricing disadvantage.
These folks aren't buying software and controls as much. And also, that's a really challenging credit category. The margins in that business are very thin. And spot prices for shipping will go down, gas prices will go up, the margins turn upside down, people go out of business all the time. Whereas in our part of the market, markets can go up and down, toilets are still getting clogged. These are good margin, established businesses that are looking to buy software. And the Coast customer is a prime customer. It's an established business.
To give you a sense, our typical customer at the median is a $2 million to $4 million revenue, 12- to 15-vehicle HVAC installation business, let's say. We went [past that] above. But we close deals every single week with companies that have $10 million, $20 million, $50 million, $100 million of revenue, sometimes in the billions. And by the way, it's almost always on sales cycles that I mentioned in several days, because we don't need to educate people on the product category. They're using solutions from the incumbents already. They’re always satisfied with those solutions. And when they’re looking for something new and better, we raise our hand and say that we've got it.
And for those folks, again, they're buying for the software. They're buying for the security, the reporting, the visibility. For them, the things that they're trying to solve for is they want to know that their drivers are buying diesel gas for the company truck and not going into the convenience store of the gas stations to buy chips and snacks. They want to know that they're filling up the company car and not the family vehicle. A lot of the time, these are newer companies. They're still smaller. We're their first fleet payment solution. Maybe they just got 9 or 10 vehicles, and they've had their first incidents of this kind of employee abuse, and one of their buddies in the industry told them about this product category. And then they find us, and we introduce them into the world of fuel cards. Or if they're larger, they're almost always already using one of the common solutions. By the time you have 10, 12 vehicles, you end up having a fuel card. Everybody needs this in the product category. And like I said, they're not always happy with this, in the incumbent.
We think of ourselves as the modern iteration within this category. And so people are coming to us. But yeah, it's a different value proposition. The incumbents, by the way, to your question about trucking, they got into the trucking business eventually but through M&A. Each one of the couple of major incumbents end up buying a trucking payments business, but the products are entirely different. The financial services are entirely different. The fee structure is entirely different. Because you're serving a very different need and use case than the commercial fleet control and software and visibility use case that Coast is meant to serve.
Reggie Young:
Interesting. That makes a lot of sense. You've already touched on- we're close to seeing the most pull, the typical use cases. And you covered a little bit about what makes fleet cards harder and different than a traditional vanilla commercial card. I'd be curious how those differences, those unique aspects of fleet needs actually manifest in Coast's product experience. What does it look like for your customers when they come into their dashboard or give out cards? What's their actual experience?
Daniel Simon:
Yeah. So let me actually say a little bit more about the unique needs in the fleet category and tell you how the product actually works to fulfill those unique needs. The thing that unites all of our customers, which could be like chauffeur-driven limousine companies, it could be non-emergency medical transport, it could be a lot of the trades businesses in home services and construction, etc., what unites all of them is that they have a field workforce. A majority of the personnel are out there with the company vehicles in the field. And that's a low-trust use case, which is pretty different from I'm a start-up and I'm giving my VP of sales the Ramp card.
And so you've got these situations where you’ve got different guys, they’re switching vehicles, they’re sharing cards, and you need visibility at the level of the vehicle, at the level of the driver, the combination thereof, the line item detail on the purchases they're making. You want to make sure that people are buying the right stuff, like I said. And by the way, the creativity of people trying to get around those kinds of controls is absolutely wild. But we found at Coast that fraud is absolutely the mother of invention. Common solutions will have things like, oh, we’ll limit you to only two authorizations per day at a gas station or something that.
So what the employee will do is that they'll pull the commercial vehicle up to the gas pump. They're using incumbent product for one of the authorizations that they're allowed to do. They'll fill up the commercial vehicle. And without replacing the pump, it's the automated fuel dispenser, you've got the wife behind in the family car, they'll fill up with that same purchase. Or a variation of the same thing is they'll put a bladder on the gas tank of the vehicle so they can overfill it and sell the excess, or just sell to the next guy behind them in line using the company card.
People are wildly creative in terms of abusing this stuff. And this is why you need solutions that are very specific to this kind of employer use case. General commercial cards, they can't solve this. There's an invitation for abuse and fraud. Now at the same time, I'll say that folks like Ramp and Brex have developed really compelling and innovative solutions for expense management and card payments. But they're for more of these horizontal kinds of use cases for big corporates, for venture-backed start-ups, but doesn't work for the field use case, which is literally hundreds of thousands of mainstream kinds of businesses in the US. The solution for this has to be vertical specific, and that's where Coast finds its focus.
So to answer your question on how that manifests in the product, so what we do is we don't send people today cards that are specifically printed with the names of individual employees or with vehicle identifiers. Rather, we send people a stack of plastic cards. They're all entirely fungible. They've got arbitrary IDs that are printed on them, so ABC 123, 124, 125, etc. You can keep them in a drawer in your office. You can give them to your driver employees to keep in their wallets. You can put them in the glove box inside the vehicle. Doesn't matter, it works the same way.
You get into the vehicle at the beginning of the day or when you're starting to do your routes. You text ABC 123 to Coast when you pull the card out of the glove box. That's what it says on the front. We say, oh, is it Reggie, because your boss put you in the system with that phone number? Yes. Are you still driving a Mercedes Sprinter van, license plate XYZ? Yes. Okay. Now all of the transactions you attempt to authorize on that card are going to be mediated through the policies that apply to you, that apply to that vehicle, and the combination and the line item detail, etc., until you check into a different car and someone else checks into that one, etc. You can lose it, you can break it, it doesn't matter. You can just pull out another one, just check if that will work the same way. It's super duper secure because you can't just pick it up off the street and use it. You need to text certain things in order to sign into it. It's got a chip in it. In terms of skimming, it's actually a very good fraud control.
And by the way, what I just described works over SMS, because when you think about it, a lot of the employees or even contractors or temporary workers of these kinds of businesses, they're not going to necessarily engage with or comply with downloading and installing some kind of specific native African thing, but everybody texts. We've got people who are using predictive T9 on old dumb flip phones, and it works beautifully. We are actually rolling out this quarter a mobile app for those tweets that can and want to use it to have a richer experience, but we want to have this universal, lowest common denominator that works for everybody.
The other thing that we're doing is we're getting the Level 3 data that I talked about before from the point-of-sale systems for relevant merchant categories. So when you make a purchase, we'll tell you, you bought regular unleaded gas, this many gallons, this was the price per gallon, this was the tax breakdown, which you can use, by the way, for fleet-specific tax reporting purposes, etc.
We also do things that really matter from a telematics point of view. This is what I was talking about before that you commented on, which is you can do things, like for instance, and Coast does these things, if you've got telematics devices installed in your vehicle, you can say, hey, you're checked into Mercedes Sprinter van license plate XYZ, why are you attempting to authorize a transaction at a merchant that I know is geographically too far from the current real-time GPS of the vehicle that you're supposed to be driving? I can decline that. I can flag that. Or why are you attempting to purchase more gas than your fuel gauge says? You have empty capacity in your tank at the time of the transaction. I can decline that. I can find that.
So it's really very, very specifically designed for the needs of these kinds of companies and their fieldwork, their use case, with deep integrations with the rest of the operating stack that's relevant for this category. And we really work to just nail that use case.
Reggie Young:
I love it. I love the text point, too. I have way too many apps on my phone. And if I had to download additional ones for work, it's just a lot of friction. Makes a lot of sense. To your fraud point, the most inventive, creative fraud stories I've heard in fintech are all fleet cases. It's always some kind of fleet abuse. You're totally right, people are so creative, they will find ways.
Daniel Simon:
Here’s the thing. I think that 90-plus percent of your employees are going to be honest, trustworthy, loyal people. But there's always this sliver of them that, first, is really frustrating to have to deal with because their dishonesty means that you need to have this whole oversight regime over everybody else who's just trying to do a good job. And it creates an atmosphere of mistrust. It creates friction in the relationship. But also, you kind of wish that that sub-10%, that single-digit percentage that's not being honest, those are incredible, creative feats of imagination that you wish that they would apply to just doing better work, but they apply the fraud. It's always interesting to watch.
Reggie Young:
Yep, definitely. So you've talked a lot about, or you've mentioned it several times, the legacy fleet providers out there. I'd love to dig into that a little bit more. What does Coast do that is different? Obviously, you talked about some of the SMS capabilities and product experience and whatnot, but what are some of the other core differences you see?
Daniel Simon:
The fundamental foundation of the incumbent solutions, because you need this level of data enrichment in this category to understand what people are actually buying and to be able to attribute purchases to particular employees and to particular vehicles, which aren't features, like I said earlier, that I really built into the protocols, the Visa and Mastercard open-loop networks, they built their own closed-loop solutions. And what that means is they don't run, for the most part, on the Visa and Mastercard rails. They only work with the merchants who have explicitly done the work to integrate their proprietary solutions as alternative payment methods.
And by the way, all these were developed before the ubiquity of mobile phones. They use an antiquated system for collecting data about transactions by prompting for information from the user. And that will [dial pad] that's on the gas pump prompting you for information. So they might ask for your driver ID number, or your vehicle's VN, or your individual PIN, or your odometer reading, or other kinds of information like trailer number, etc.
That's not ideal for a few reasons. First, drivers and technicians who are out there in the field hate the experience. It just sucks. Second, the quality of the data ends up being really poor. A driver gets out of the cab of the vehicle in the freezing cold. They’ve forgotten the odometer reading. They hit 9999 on the pump. And now all of a sudden, you have no idea what the miles per gallon makes sense on that transaction or what have you.
And the cars from the traditional systems, the vehicle also gets messed up because they're traditionally assigned to a particular vehicle, but then they can get misplaced into a different vehicle. And then the purchases are incorrectly attributed. And then you don't know what's actually happening with your fleet. You can't make decisions about it. And it's insecure because it's super simple for drivers to share PINs with one another and the like. And that's exactly what ends up happening in the real world.
Coast has reinvented the whole domain from the ground up, starting with the premise that everyone's got one of these. Everyone's got a cell phone. And so we have got that SMS experience. Now we're enriching it with the mobile app experience for those people who have pretty used that. And they talk to you about that workflow, which is running on text. The system is more secure than traditional approaches, first, because people, again, need to start using authenticated [inaudible] and the use of card. And then our customers tell us that provides them with way more reliable data and understanding of the total cost of ownership of their vehicles because they can attribute the purchases appropriately to what's going on with their fleet and their employees’ spending behavior, which allows them to make better decisions about their fleet, which is one of their most significant assets.
We also talked about the connectivity to the different kinds of telematics vendors. We're also connecting to fleet management software at Fleetio, which is a really important part of our customers' operating stack to help them understand that TCO, that total cost of ownership, of the assets and their vehicle fleet. All this together ends up creating better data control, security, visibility for the fleet manager and a more convenient experience for the driver. It really makes a difference for our customers who can focus less on manual monitoring of their fleets. They don't need to go do spot checks of odometer readings in the parking lot overnight or whatever because they're getting that data reliably from Coast. They trust it when they're trying to stop waste and abuse. And they can spend more time on actually growing their business.
Another part of that, by the way, is that Coast, unlike those proprietary closed-loop solutions, partners with Visa. And Visa, I think the old tagline is we're everywhere you want to be. What that means is that we have universal acceptance. In fact, as we speak, we're accepted wherever Visa is accepted, which is more or less everywhere. That means that your drivers can focus on getting to the next job. They don't need to go to a particular gas station that happens to accept your particular kind of alternative payment method that you use for controlling your fleet spend. You can go where gas is cheapest. You can go where it's on your routes. You can just focus on getting more done.
So for us, that's a transition to open loop, which is possible now because of the work that Visa has done to get the merchants to pass that kind of data over the last several years to commercially issue Visa cards in the fleet space and with Coast software, obviously. It's an expense management solution designed for the space on top of it. That really has allowed us to move very quickly into market to compete with some of the incumbent closed-loop solutions. And we just think that it's a superior reimagination category.
Reggie Young:
Yeah. I don't think folks appreciate how much of fleet capabilities the card networks have built out. Over the past five years, it's going to open a lot of doors for Coast for sure. Previously chatted about the interplay between some fleet product aspects that are specialized and others that are more commodity. You kind of hinted at some of these specialized functions, right? There's a lot of unique fraud vectors that you need to have specialized controls in place. But there are also aspects of the product that are more commodity-like. How do you think about the interplay of those two aspects of a product as part of Coast’s strategy?
Daniel Simon:
To me, it's a super interesting way to think about strategy for growing a vertically specialized payments business. We started with a fuel card, only working for gas and only a gas station. We got to understand our customers’ risks and transactions and behaviors better. And we started to give them super-precise controls in the software to set policies about who in your fleet can spend how much and where and when and other different categories of field purchasing, so parking tickets, tolls, and car washes, parts and maintenance, picking up extra supplies at Home Depot when you didn't get them at the warehouse, etc.
And that's really taken off because in the past, our customers using these closed-loop solutions, which only worked at the gas stations that actually did the work to integrate them, for all that other stuff, they would need some kind of a second program, either a general purpose corporate card, which is an invitation for abuse and fraud in this category, or a cumbersome system of receipts and reimbursements. By having one platform that still has a really precise control and visibility, that's a no brainer. That was none of our volume a year ago. It's like a new cohort is 30% growth, super fast now.
The real prize is to say, hey, Mr. Pullman Company owner, if you're shopping online for inventory from supply houses, or you're buying Facebook ads for your plumbing business, put that on Coast as well. You get the same reporting and visibility that you love for the field expenses, but you'll have a single pane of glass for all of your businesses’ card expenses, and that's really landing. We've got customers, I can think of an example, we have a national commercial construction e-check business. They've got 200 employees, 125 years old, they put 2 million bucks annualized fuel spend on Coast and 5 million of other stuff. Because they'll spend 90,000 bucks online for a single inventory purchase for a construction project, they'll put it on Coast. And that, for them, gives them all the sorts of tools and visibility that they've actually gone to really appreciate from the field expense category.
We don't go to market with a general purpose expense management product, like a Divvy or a Ramp or something like that. That was a much more expensive piece of mindshare, if somebody's already in a buying motion saying, hey, I want a monitoring expense management solution, I want a commercial card. And it's really lower margin because everyone's really competitive on prices, on rebates back to the customer, in this kind of a cutthroat, horizontal category. Rather, we have a point solution. People are searching for a fleet card, fuel card. There aren't a lot of people who've got it. And pardon me for saying so, I've got the best one. I sell them that. I'm able to cross-sell them that commoditized stuff, as you put it, in a really compelling way because of that wedge of the fuel product.
You look at our customers. Our customers are spending 3% to 5% of their revenue on gas. But they spend 15% to 30% of the revenue on stuff that they're already putting on credit cards generally. So there's a theoretical 5 to 10x upsize opportunity for any one given customer. Not going to win all American Express's business away from these folks, but I'm going to win some, and it's going to make the payback economics for our company look incredible.
So you can go beyond card spend, by the way, and into things like accounts payable automation, bill pay on other kinds of payment types outside of card, like wires, ACH, etc. And there's other financial services solutions. The list is actually quite long in terms of what you can do, payroll, business bank, insurance, maybe even vehicle leasing and financing. The idea is that this very vertical-specific, tailor-made, specialized solution of the fleet payments product can be a wedge to build a more holistic financial services platform for the industry, and that's super duper exciting.
I'll say one more general point on this, which is there's obviously a lot of talk in fintech about vertical SaaS plus financial services like in B2B, and it's a really compelling piece. And I think there's actually two angles at which you can go at it. Most people think about it as you start a software business. You can start Mindbody for booking appointments. You can start Shopify for building online storefronts. And then you layer in financial services as an additional route of monetization. And that obviously has worked well for those folks. Shopify started as software for the storefront. And then you want to accept payments to get paid for the stuff that you're selling online, click the button, Shopify gets a cut.
But there's another angle to go at it. That's the payments-first angle, and then you build software behind that. And the best example I can point to is Toast. Toast starts with a basic payments acceptance tool, but that’s really vertically specific. That's really designed for particular categories. It’s for restaurants. You can drop it, you can get it wet, it still works. That's the wedge. And then they build all this other software for managing your business behind that. So the idea of using payments as a vertical-specific wedge to get much more of the actual revenue per customer to capture more of their payments file, to do more for their operating lines, that is the approach that Coast has been taking, and it's been working so far.
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Reggie Young:
Super smart strategy, right? You start with your strength as a wedge, the specialization. As we talked about earlier, a specialized use case doesn't mean a small use case, right? Fleet payments are a huge, huge industry. So super smart. And no need to pardon yourself. I agree, Coast is probably the best fleet card on the market right now.
Somewhat related to product specialization, I know you've talked a little bit about the interest in partnership specialization opportunities in fleet. What kind of partnerships are there? I know, for example, you've mentioned field services management to me before. I'd love to hear you explore this a little bit.
Daniel Simon:
So it turns out that there's a ton of companies that sell to the Coast customer. There’s the telematics vendors, some of which are Excellent, Samsara, Azuga. There's fleet management software that I mentioned before. Companies like Fleetio are out there. And it's not just them. And by the way, we integrate with all of those folks I just mentioned. It's also legacy retail in the auto parts and maintenance category.
We have an amazing partnership with Discount Tire. Discount Tire, a $10 billion, number one independent tire retailer in the US, mostly consumer business. But they've got hundreds of millions of dollars fleets business with perfect customers for Coast, 40 vehicles at the median, light and medium duty. They've got 20,000 of these businesses, and they are now selling co-branded Coast cards with the Discount Tire logo on them to their customers. Because they're smart, they know that they want to diversify revenue to high-quality repeat business revenue, which means they need fleet services offerings, and that means a fleet card and they want to be selling the Coast cards to their customers. We've now done a similar partnership with [Senado]. And we are looking to go down the list on national retailers in auto parts and maintenance to help them drive loyalty to their businesses.
The field services management category that you talked about is extremely interesting. So everyone knows ServiceTitan, at least in the venture-backed world, as the platform for helping businesses who run residential home services to operate their businesses. These are the kinds of software that allow you to schedule jobs, to manage your customers as a CRM, to do dispatch, scheduling, accept payments from customers, etc.
But it's not just ServiceTitan. There's actually a huge category of these that in total is much, much larger. For instance, we're launching later this month with BuildOps. BuildOps is a commercial construction FSM in the way that ServiceTitan works for the home residential services. There's folks that are more industry specific. PestPac is a pest control FSM. It's owned by WorkWave. I believe that WorkWave is a $400 million revenue business that is growing very fast. And it's just one of the few in the category of just pest control, and it's like this in every other category. And the customers of these businesses, they operate their entire operation on these platforms. And so these platforms are now realizing that all the customers operate vehicle fleets, which means that they need fleet solutions, which means telematics, and that means fuel card. And that's where Coast comes in. So we're very excited about the BuildOps partnership. We're hoping to templatize that and take it to others within the category.
And it's even the OEMs, the car manufacturers, Ford, GM, they own captive finance companies, where you go to the back of the dealership, and there's a guy who will give you a loan or a lease, etc. They also similarly want to diversify the high-quality repeat business strategy. Ford wants to have a relationship with a fleet business. They always buy a transit van when they need to have a new work truck. So there's an opportunity to work with those folks as they're providing fleet management services, which we get to do, but we certainly are moving in the direction of those conversations to distribute the product.
All which is to say all these folks need fuel card products. None of them want to specialize in being this kind of financial services business and B2B. I don't know ones that necessarily deal with- ServiceTitan wants to deal with credit and risk and capital markets and operations and servicing collections, all crazy legal and regulatory clients I'm sure you're very, very familiar with. That goes with being a payments and credit business. And we do it for a living. Our opportunity to work with some of these folks to distribute the product, to make their product stickier to their customers is, in my opinion, really compelling. If you're a software company, you've got this great relationship with this customer, you can push a financial services product through your channel, if you're working with somebody who actually knows what they're doing in the space.
Reggie Young:
I love it. I think, yeah, partnerships are a very underappreciated avenue for growth and just general effectiveness. And for a lot of fintech start-ups, I know both Bluevine and now at Lithic, we have some kind of unique thought that's put into partnerships. Fintech operators, if your company isn't thinking about those sorts of things, you should be.
Daniel Simon:
Our partnership’s lead comes from Bluevine, by the way.
Reggie Young:
Amazing. I’d love to see it. In preparation for this podcast, I poked around Coast’s website a little bit, and the site mentions that fleets can save 9% when they switch from an existing fuel card to Coast. What's the magic there? How are they able to save 9%?
Daniel Simon:
Some of it is just really basic rebate stuff. We start with a $0.02 per gallon rebate for fuel purchasing that we give to customers anywhere they buy that comes out of our own pocket. But we also have a large and rapidly growing merchant network of tens of thousands of locations that provide additional rebates. If you go to any 7-Eleven or Speedway in the US, you'll get $0.07 off as a Coast customer. If you go to any Casey's or Cumberland Farms or a number of others, you get $0.06. Any RaceTrac or RaceWay or Exxon Mobil for that matter, you get $0.04 off, etc. But that's not really the core of it. It's a great feature, and it provides a lot of value for our customers. But the core value proposition is, as I've said before, the control, security, visibility, and reporting. That, combined with the universal acceptance that I talked about before on the Visa network, makes a huge difference in terms of our customers’ bottom line.
It's funny, as part of our application, when you want to use the Coast product, our customers need to provide their stated monthly fuel spend. And then they get onboarded. And I see that they're not spending what they said they were going to be spending. And so I yell at my head of sales, and he yells at the account executives, and they call up the customer. And the customer is , no, no, we rolled it out to our whole fleet. It just turns out that we were getting completely [inaudible] before we rolled it out.
I talked about some of the wacky stuff that people do for abuse. The controls that we have, the visibility that we have, the reporting that we have, the GPS integrations, all the stuff that I talked about before, plus the convenience of universal acceptance to stay on your routes and to go to the cheapest place, combined with the rebates I was just talking about, it just means that you end up spending less than competing solution. And that is the value proposition to our customer. It's saving money, but it's also saving time. That same survey that you referenced that we conducted, that showed that customers are saving 9% on their fuel bill switching from another fuel card solution to Coast, also said that they're saving 16 hours a month in terms of reconciliation and oversight processes because of the automation that comes in the Coast expense management platform.
So we're trying to give people savings in terms of their fuel bill, but we're also trying to give them time so they can focus on growing their business, which is why they got into the business that they're in to begin with as opposed to yelling at the drivers about why they bought the wrong grade of gas. That's why we’re there, to help them obviate.
Reggie Young:
I love it. That's huge. Companies are moving their cash for an additional 1% of interest yield right now. They could also move their fleet to Coast and save 9%.
Daniel Simon:
Your mouth to their ears.
Reggie Young:
Before Coast, you co-founded the consumer fintech BNPL, Bread, which ultimately sold to Alliance Data Systems for $500 million in 2020. Now you're operating in more commercial fintech space. I'd love to hear what are some of the key differences you have noticed between building a consumer fintech and now building a commercial fintech.
Daniel Simon:
Yeah, that was a really awesome experience building Bread over the course of six years. Before going into consumer versus commercial, if you'll indulge me, I actually think it's interesting just to talk about what it was like starting a fintech company 10 years ago when I started Bread versus today. A lot of what's actually changed is the infrastructure and tooling and the ecosystem of solutions surrounding fintech. A lot of what we take for granted today simply didn't exist back in 2014. There was no Lithic in 2014. Maybe there was a privacy.com, but certainly nothing for card issuing. There was no Stripe issue for that matter.
I started a credit and payments company in the first half of the 2010s and started one in the first half of 2020s. And the difference is like night and day. Back then, we had to build absolutely everything from the ground up, credit decisioning, fraud decisioning, AML and KYC compliance framework, enhanced diligence and ID capture and authentication, and sometimes very difficult and cumbersome integrations with legacy upstream risk data providers, batching the money movement over ACH in all directions, the payments reconciliation, settlement reporting, the dispute and chargeback process and case management. You're tracking receivables assets, if they moved from one credit facility to another, auditing, versioning, security. It's just an enormous compliance burden for a start-up that was also taking PII and bank info.
The problem with all of that was- and we built it all. You can build it. We built it at Bread. But it's really difficult. It takes a lot of time to watch stuff. And you always need to devote a team and money and time and attention to fixing and maintaining it all. None of that was what made us special. What made us really special was designing beautiful, simple, engaging experiences for payments for both merchants and consumers in the particular e-commerce use cases that we were trying to facilitate. The rest should have been a commodity that we could purchase, but instead, it just dragged us back. It was always like ball and chain. It's so much [inaudible] product now.
You've got solutions for decisioning from folks like [Alawyer], Oscilar. You’ve got Modern Treasury or or Column for payments and money movement APIs. You’ve got folks like Persona for ID verification. You've got BGS, Very Good Security, and Basis Theory for security and data tokenization. You've got Finley for credit facility management. You've got tons of point solutions from Stripe, from Lithic that allow you to get some market just much more rapidly and efficiently. And most importantly, once again, you can just focus on what makes you different and special to your customers and not on the commodity enablement infrastructure. That, to me, has been a real delight, frankly, doing it the second time around. I feel like doing it in 2024 is on easy mode compared to 2014. That's been great.
And then to your point on commercial versus consumer, it's interesting because a lot of the experience from the one is translating for me to the other. If anything, I've taken a lot of my consumer-focused fintech experience and tried to apply it to a commercial product. For instance, the application I mentioned that people have to go through in order to use the Coast product when you want to sign up is really, again, if you allow me to say so, beautiful and seamless. It precedes, just like the Bread application, in multiple stages that ask prospective customers for more information progressively so they can get drawn into our funnel, is directly influenced by what was designed at Bread. In a lot of ways, what I wanted to do with Coast is to create experiences that are so delightful and that you would expect for the very best in consumer financial technology brands, and bring them to business applications for plumbing companies and HVAC installers and folks like those.
Working in the commercial space, it gives you a little bit more room from a regulatory frameworks perspective than what you have in the consumer space, which gets a lot of focus and a lot of stringency. But we still operate as if it was a consumer company from a crisis management system perspective because we just think it's a strength. I think that the next evolution of fintech in a lot of ways, you see how much the interest has gone from the consumer side of things to the commercial side of things. I think it's going to be all about bringing the innovations and customer experience that's been invested in for consumers into that commercial context. And I think the Coast is at the vanguard of a lot of those developments.
Reggie Young:
Yeah, it makes sense. The typical answer I get is, oh, it's less regulated, but that's a much more interesting, much more useful view, consumer-grade experience. More and more like the commercial products, whenever we’re seeing the commercial card programs, we're talking about Lithic, they're just getting better and better and better. There's so much innovation happening on that side. To your point, it's all lessons learned on the consumer side. Some of them aren't hugely novel innovations. It's just taking standards on consumer and applying it to commercial.
Daniel Simon:
Yeah, I would say if I was coming at it from the other angle, if I was coming at it from, hey, let me build a commercial product with an experience that looks like what you would get from the incumbent fuel card providers, I'm not going to even get into that. Even if you were just trying to think about what you would get from a commercial product from one of the major banks and try to bring that here, I think the experience that the customer would have would be very different from what they get today from Coast. Our NPS is around 70 right now. I want it to be at the 80s. But it's not a bad start. And that's the category where NPS is uniformly negative, in some cases, absolutely, deeply negative. And to me, that's a really important fact because I want people to be delighted by the product, and I'm influenced by my experience on the consumer side of the house.
Reggie Young:
Love it. You mentioned compliance a second ago, compliance and legal and regulatory stuff. I know you've said that one aspect of Bread and Coast that both experiences had in common is your intentional strategy around compliance and how you view it. What exactly has been your approach there?
Daniel Simon:
Coast has invested really heavily in compliance since day 1, just as we did at Bread, by the way. And by the way, it's funny on the VC side of things how much has changed in the 10 years I've been building companies in this space. It used to be like you would talk to your investors about all your investments in compliance management. And the investors would be like, this is boring, why are we talking about this? We're supposed to be talking about growth. Now conversations start out, how you’re approaching clients because everyone's obviously seeing some of the horror stories.
To me, building a financial services company, really having a handle on compliance is a competitive strength. It's a strategic differentiator. The regulatory wind always blows eventually, and not everyone's left standing when it does. And you want to be one of the ones who is. It’s the price of admission in fintech, in my opinion. Bank partners expect it. Regulators expect it. Fintech companies rely on bank partners to make their businesses possible. Coast does. We have an excellent relationship with Celtic Bank of Utah. These banks are regulated. Those regulators want to see investment in money laundering and KYC, KYB, fair lending, complaint management, everything else around the delivery of financial services.
In the last 15 years of fintech, plenty of venture-backed tech companies and their bank partners have sometimes played fast and loose with that regime, and many have paid a, frankly, existential price. I've always felt this was an area to invest in from the beginning. By the way, in both companies, I brought in what I think of as top-notch in-house counsel to the team at single-digit headcount, which I think is pretty different from how a lot of companies approach it. I don't know if Perez from Bread, he's, in my opinion, one of the leading figures now in fintech bank partnerships with the Alliance stuff. My general counsel here at Coast has built a super robust and scalable foundation for a commercial fintech business. And even though we're an early-stage company, we've got Scott, director of compliance with 30 years of experience, who, by the way, spent time at your current employer, Lithic, at one point.
To me, these investments aren't luxuries, in my point of view, for fintech companies that will last. They’re foundational and they're critical for growth and longevity. Sometimes people still ask, why are we spending so much time on this. I'm just like, because it is just such a fundamental seed of who we are.
Reggie Young:
I love it. The lawyer in me just needed to cover that point on this podcast recording. I think you’re right, it is a strategic differentiator and it's not a sexy thing that fintechs are going to put on their websites to get customers, but they also won't be able to stay in business if they don't invest in it. So it's super important to have that strong foundation.
Daniel Simon:
We're a start-up founder. We're in a risky asset class to begin with. We do it because it has a lot of return if you get it right, but it's very risky. And I think that the best start-ups can identify the existential tail risks of their business and chop off that kind of risk. And to me, the regulatory environment for financial services and the bank partnership structure are within that category of that essential tail risk. So investments in robustness there, I think, will allow you to really focus on the risky aspects of the business that you sign up for, which is acquiring customers, keeping and growing them.
Reggie Young:
Looking more forward, looking ahead, what's the road map for Coast this year following your recent fundraise?
Daniel Simon:
Our product road map is super long and pretty ambitious. We're currently working on more and deeper telematics integrations, more functionality based on the telemetry we're getting from the vehicle, more and deeper accounting systems integrations to really be better embedded into the financial and operational workflows of the back office of our fleet customers. I mentioned the native mobile app for our customers, drivers and technicians, richer features for the back office, card expense management around virtual cards, shared team budgets, a bunch of enterprise-focused features around roles and security because we're going more and more up market. We're finding ourselves selling to vehicle fleets that have 500, 1,000, 1,500 vehicles. We want to make sure that we're serving their use cases appropriately, and much, much more. That's on the core concurrent product.
In the later part of the year, we plan to further enrich our product features, particularly towards the partner orientation based on what you were talking about before with regards to some of our distribution channels, with better embeddability, a full-feature API for integration that partners can leverage, more co-branding kinds of features. So really make sure that we treat our partners as a customer constituency right alongside our customers.
As we look into 2025 and beyond, we think that we can provide more financial products that work well alongside our core card offering. I talked about accounts payable automation and bill pay that goes beyond card into different kinds of payments. And particularly as we build partnerships with suppliers and vendors, who actually matter to our customers in the transportation services and construction trades, the supply houses who will supply the inventory for an HVAC construction project, etc., moving that volume onto Coast through partnerships with them to provide discounts and rebates back to our customers. Honestly, there's just so much to build, and we're just getting started.
Reggie Young:
That’s definitely an exciting product road map. Excited to see all these developments roll out. Last question before we wrap up, is there anything you've been thinking about a lot lately that you think people aren't talking about enough?
Daniel Simon:
I can speak to what I see as trends in the fleet space. One that I think people- this is not answering your question directly, but one that I think that people sometimes talk about a little too much as important is electric vehicles and the impact that they're going to have in the commercial fleet space. The way that we've approached EV, the way we look at it is Coast is the financial platform for the future of transportation and the trades. Whatever form the energy that powers that transportation happens to take. So today that's unleaded gas or diesel going into the gas tank of an internal combustion engine vehicle. Tomorrow, that could be charging an EV battery.
And we are doing stuff in EV even today. Because we run on the Visa rails, our customers use our product. Visa is accepted at charge point operators for public charging when they're on the road. And some of our customers operate mix, both ICE and EV fleets, ad we serve their use case universally. We're also working with Visa as they're developing new standards for those charge point operator merchants to provide that same degree of enriched data that we get on the fuel transactions. I was talking about how we get gallons and grade, all the breakdown there. To do that on the EV side with kilowatt hours, with time plugged in, max charge level, all that stuff, so we can extend our promise across all different categories of energy for a vehicle.
But the point for me is we see that the adoption will happen to EV. It’s just going to take time. There's all these pronouncements that you hear from governors and CEOs, that everything's going to be EV in 2030. All these folks are going to be out of office by the time anyone's held to account on some of these things. And if you look particularly in our part of the market, when you talk about a 20 or a 50-vehicle fleet in the trades businesses, it’s very, very, very rare that they're actually purchasing EVs right now. The total cost of ownership for the EVS is still higher than what you would get from an internal combustion engine vehicle.
And so what you see is a lot of it happening in the enterprise fleets, particularly in pilot programs, but not downmarket where a lot of Coast’s SMB business lies. And so we see the way that the world is going, and we're going to be in the right place when it gets there. But we've got time to figure it out, despite everybody always saying, well, what about EV? Aren’t all of these things going away? They will. it’s just going to be a while.
The other thing is I just think that in the category that we're in, people think of these main street trades businesses as somehow stuck in the stone age. To some extent, they are. There is somebody printed out a spreadsheet both with the vehicles and who's driving them. When there's a change, they just cross it out with a pencil. There's a bunch of that. Digitization has been happening in these industries to a very great degree. I talked about folks like Fleetio, folks like Samsara for telematics and vehicle intelligence, BuildOps and all the other FSMs are really modern, vertical SaaS tools for people to operate these businesses. And these systems integrate with one another. And obviously, Coast integrates with all of them. It’s the focal point for control and visibility within your fleet organization to provide better security, data quality, better decision-making. All these tools give people more efficiency and growth and profitability.
There's still a long journey for this very massive sector of the economy to go through to get to a place where it looks like your start-up and my start-up in terms of digital tooling, etc. It's happening. Once again, I would say that for me, seeing where the world is going, we just want to be in the right place when it gets there, and then we think that's where we're going.
Reggie Young:
Love it. Daniel, if folks want to get in touch or find out more about Coast, where should they go?
Daniel Simon:
Coastpay.com, C-O-A-S-T, like East Coast, West Coast, pay, P-A-Y, so coastpay.com. They can shoot us an email. They can speak to someone from the sales team particularly. You’ve got a vehicle fleet, let me know. Or obviously, if you're a partner who wants to sell to fleets in collaboration with Coast, then we'd want to work with you. So Coastpay.com, shoot us an email.
Reggie Young:
Awesome. Thanks so much for this masterclass in fleet payments. Appreciate you coming on.
Daniel Simon:
Thanks, Reggie. This was super fun. I really appreciate you having me on.
Thanks for listening to today's episode of Fintech Layer Cake. If you like listening to the podcast, please leave a review on Apple Podcasts and Spotify to help other folks and fintech find the show. The podcast is powered by Lithic, the modern card issuer. If you're hungry for more content with hard-to-find fintech insights, check out our other episodes as well as the blogs and other information we have at lithic.com. Thanks for listening.
