Paybotic Is Quietly Building a Financial Services Ecosystem for the Cannabis Industry

Based in West Palm Beach, Florida, where it recently celebrated the relocation of its corporate headquarters, financial services provider Paybotic has been focused on the cannabis and hemp industries since 2013, when it serviced its first cannabis merchants in Colorado’s budding legal marketplace. Paybotic slipped quietly but reliably into the essential role of consultant and/or provider/facilitator of the financial services one needs to operate a business, and ever since it has steadily expanded its client base as well as its suite of offerings it says was custom designed to meet the myriad financial needs of a dynamic new industry expanding quickly if unevenly.

Today, Paybotic offers custom solutions that include but are not limited to debit card processing and PIN-authorized credit card acceptance, ACH processing, check service, gift card programs, merchant cash advances, cannabis banking, insurance, with more to come. New solutions will be announced in the near future, according to co-founder and CEO Eveline Dang, who explained in a recent interview with Cannabis Business Executive that Paybotic has been and continues to be singularly focused on building an ecosystem of financial support for cannabis merchants. It has been part of their DNA ever since she and her partner, co-founder and President Max Miller, decided to start a business together after befriending one another in college.

They were still in school when they started the company, which in the beginning was not involved in cannabis or named Paybotic. “It was solely for payment processing consulting mainly on consolidation of the different and fragmented payment processing systems for non-cannabis retail industries like restaurants, convenience stores, or e-commerce,” explained Dang.”

Fragmentation was a common issue, she added, and explained a typical situation. “I’ll use a restaurant business as an example, and let’s say they also offer delivery services,” she said. “A customer can order on their website for delivery service, and that’s one way that orders would be coming into the restaurant for fulfillment. At the same time, that restaurant may decide that it wants to advertise its business on multiple platforms, like Uber Eats, Grub Hub, or Postmates, depending on where those services are popular. We saw the gaps there, because if you as a restaurant owner or manager had to get orders from all of those different systems or platforms, and there’s no consolidated way, no gateway or intermediary, that can actually consolidate all of the orders for the restaurant regardless of how many platforms they use to advertise, that’s an example of one of the gaps that we saw.”

The services they offered started with consultation and went from there. “Remember, at that time we were still students, and we were trying to develop our business model,” she said. “We offered consulting services, and if the merchant didn’t use any of the services that are part of our consulting services, or they didn’t even go with our proposal at all, we just took that as the opportunity to learn more about the business needs and things like that. Over time – and it wasn’t that long, about a year later – we started formulating the business model where we do charge a small consulting fee if the merchants don’t use our services or our implementation. But if they do use the services and our implementation, the consulting is free to the merchant. So that was the business model, and it was a trial-and-error process in the beginning. Because Max and I were still at college, we took the consulting [work] as an opportunity to learn more about merchants needs and pain points, and then also to do market studies on where the gaps are and how we can help merchants address those gaps in their businesses.”

With that as their foundation, the segue into cannabis was relatively seamless. “The father of Max’s fraternity brother entered the cannabis industry,” recalled Dang. “He started buying and consolidating a couple of retail locations, and that’s how we got the opportunity to go into the cannabis space. One day, we just got a call from the father and were asked to do the payment processing for his retail dispensaries. We didn’t know about the industry, but we took the opportunity to learn and develop, and started getting into the cannabis space.”

They got into Colorado in late 2013 “when it had a couple of medicinal stores, and when the state started legalizing recreational cannabis we were already in that market,” she added. At the time, the company was named Intelligent Payment Networks, or IPN. “When we got into the cannabis space, we continued using the IPN brand for the longest time,” said Dang. “It’s still the parent company, and we’re still doing traditional credit card processing and also high-risk merchant services. We also do traditional and cannabis POS under the IPN umbrella.”

A name change was the last thing on their minds. “We were focused on Max doing the sales, I did everything else, and as more team members were added to IBN, we were still focused on operations and customer support because of our business model, and we didn’t really think about branding,” recalled Dang “The new name came in late 2016-early 2017, when we rebranded as Paybotic with the same staff and the same operations, but to focus on the cannabis industry.”

A Financial Services Ecosystem

Regarding the addition of services to its portfolio of offerings and what the company offers and plans to offer, the current menu looks like a suite of products designed to address a panoply of merchant needs, as if to create a sort of network of services. “Yes, Paybotic is already working towards that,” responded Dang. “Our current suite of services and also the upcoming services that we’ll be launching this year and next year are really heading towards that model that we call the ecosystem of financial services for the cannabis industry. We have been working towards the goal to have an ecosystem where regardless of the vendors they use for their business needs, our merchants have a way to consolidate and streamline their business operations from the financial services side, including payment processing.”

The backbone of Paybotic’s business is the service that keeps the cash flowing. “We started with payment processing, which is how we built up both IPN and Paybotic,” explained Dang. “At the moment, payment processing is still one of the core services that we offer, but we are shifting towards diversifying our services and solutions. Soon we’ll have a couple of other core solutions that will allow the merchant to not only make good use of our solutions, but also the way that we design solutions so that they are integrated.

“With a couple of solutions that we plan to launch this year or next year,” she continued, “whatever services they use from Paybotic or any of its companies affiliated companies will be able to benefit from some sort of integration. For example, financial services can be integrated with payment processing, or payment processing can be integrated with a financing option, given that we make deposits into the merchant and we understand how healthy their revenue and sales activities are, That is one integrated form.

“With financing options,” she added, “we think of settlement deposits from payment processing as a form of collateral. Obviously, we don’t hold it, but we can use a percentage of the daily settlement deposit as a payback method. All of that needs integrated reporting, so that’s another form of integration. One way or another, all of our services have some sort of integration with each other. At the moment we are bringing all of them into the ecosystem and making sure that they have a more basic common denominator, and that is some form of banking and financial services.”

Will banking services continue to be expanded as well? “Absolutely,” said Dang. “We have offered banking for the last few years through its vendor partners, and we are working towards consolidating a more robust solution with more integration capability to offer merchants.”

I noted the addition of insurance, which is often if not always required to get a state-issued license or building permit. “Yes, it absolutely is required,” said Dang. “In fact, depending on specific state requirements, insurance is required before a dispensary or any licensed cannabis entity can open their doors and start operating, but there are different requirements when it comes to insurance.”

“In the current landscape of insurance for the cannabis space,” she added, “what we have observed is that merchants may end up getting policies and not being aware that there are a lot of exclusions in the policies and that critical areas of the cannabis operation are not really covered. They all fall under exclusion. So that’s the situation that we see a lot in the current insurance landscape, and our mission is to provide information to educate, and have conversations and discussions with merchants to really figure out their pain points.

“And then,” she added, “the way we do insurance is that we have enough resources to design custom insurance programs for specific policies as long as we have enough audience. When I say enough audience, it doesn’t mean we need 100 merchants to participate. We just need seven to 10 cases to make a new specific program for the cannabis industry.”

They also provide another frequently neglected service. “You do need insurance to start your operation as a licensed cannabis entity,” noted Dang, “but the thing that is often overlooked when it comes to insurance is the risk assessment that comes with it. What we offer and will continue to offer – and we’re going to market it and reach out to merchants with this – is risk assessment. Now, we typically provide this assessment for free. We have a risk assessment program for the merchants that utilizes the insurance services from Paybotic, and we provide a framework for risk assessment for the merchants where we look at the fitness of their operations from an insurance perspective and provide recommended actions.

“If the merchant maintain healthiness pertaining to the risk assessment model,” she added, “it is not a guarantee, but we will often see a reduction in their premiums when it comes to policy renewals because of them working towards addressing the gaps mentioned in the risk assessment. So that is something that I would suggest cannabis business owners to look at and to explore. Whether they use it from Paybotic or not, it is a very recommended business practice.”

If someone does risk assessment, can they avoid the exclusions mentioned earlier?  “Yes,” said Dang, “when we do risk assessment, it is also done in conjunction with us having information about the merchant and advising them that there are other things that they should also do so that their policies can be covered but avoid those exclusions. We actually have those conversations and point things out to the merchant. Now, the merchant can use our risk assessment services without getting our policies and for that we charge an annual fee. If they get insurance policies from us, that risk assessment is included in the service. But one way or another, our mission is to keep providing more information, educating merchants, and being industry advocates.”

From Small Operators to MSOs

As large companies have developed in the space, are the services Paybotic provides to them different from the ones it provides to small businesses? “We actually currently service several MSOs,” affirmed Dang, “including some of the largest in the United States. It is very different indeed, and we don’t apply the same thing to different merchants. It’s the same solution, but the approach and the implementation are different. How this solution works, the pricing remains the same, but the way we approach and tackle the best solution together with the merchant is completely different, especially if you’re talking about a small dispensary or a small business compared to an MSO with 50 locations or something like that.

“Our specialty is actually sustainability and scalability, and we never take on a new client if we don’t think that we can do a good job for them,” she continued. “We also never take on a client if we don’t have enough conversations to understand their needs. There are both short-term and long-term needs, and long-term needs could change, but that’s exactly the reason why we invest in our support and customer relations teams, so they can continue to have those conversations with the merchants to learn about their new business needs and any changes in their businesses.

“I can give you an example,” she added. “When we start a relationship with a new client, on one side is the single store and on the other side is an MSO with multiple locations. In this capacity, it will be different. A single store might be looking for not simply a cost-effective solution, but it could be something like immediate funding, which could be the same day or next day, something you typically see from a smaller business. With MSOs, I’m not saying they don’t want funding immediately, but if they have to wait one or two more business days so we can consolidate all of their stores transactions and then make a lump sum deposit, but separate them by store so it’s easier for accounting and reconciliation, it doesn’t cost them that much, and it may be a priority for them more than receiving the funds one day earlier.”

Regarding integration, I asked about Paybotic’s ability to integrate with the range of POS platforms on the market. “We do have integrations with a number of dominant and most popular POS out there,” replied Dang. “We are continuously working on getting more POS integration on board, and through our API we are able to integrate with any custom POS or any ERP system from merchants that have their own proprietary software. That is actually an easier case, but our integration team is working diligently on bringing more POS integrations on board.”

Some MSOs, like Curaleaf, have recently been winding down their businesses in some states and picking up in another states, adding stores here or there depending on the state of the market. How does Paybotic deal with that flux in the industry, and is it along for the ride?

“Absolutely,” said Dang. “With MSO’s, we typically know beforehand what their business plan is when it comes to expanding, scaling back, or refocusing their business in some states. A lot of the MSOs that we service typically like to give a heads up to my team or the support team where they have a dedicated customer relationship manager: ‘Hey, we’re planning on opening two new stores in these two areas. We don’t know exactly how many registers we will need, but it looks like we’ll need 10 registers for each of the locations.’ We only need that, because when we start working with our merchants in the first place, we check in with them every other week and ask about those things. Over time, as we develop our relationship, the merchants start telling us [about changes] even before we check in with them because of that trust and confidence in our team’s ability to help them scale their business or accommodate their needs.”

That consideration extends to the holidays. “For any of the holidays, whether it is an industry specific holiday or holiday seasons that we all celebrate, a month before the holiday our team would already be reaching out to the merchants and talking to them about sending them some additional backup terminals that they can put in the back or behind a counter,” she added. “We don’t expect any of our terminals to have any issues, but just in case there’s an emergency, they can pull out a plug-and-play backup unit at no cost to the merchant. Obviously, we beef up our customer support during those times, but we always try to make sure that the merchants get everything they need from us and more. The way we look at it, if anything goes wrong with a merchant’s terminals or they have any difficulties with processing, during that time it doesn’t just hurt the merchant’s business, it hurts Paybotic’s as well. The merchants can feel that we always make sure that if there are ever any issues with specific terminals, we’re more than on top of it; we’re actually ahead of them.”

What about so-called cashless ATMs, a common practice that spawned headlines recently when Visa reportedly issued a memo prohibiting their use. I observed that dispensaries in the area discontinued taking cards at the register only to return to business as usual within a few days. For Dang, it was a simple issue of consistency and redundancy.

“The downtime, uptime, longevity, and scalability of those solutions depends on the operator of the solution, and the operation really has a huge impact on the delivery of the solution,” she said. “I’ve seen a number of solutions come and go, and the organization that operates the solution is the most important factor. As long as they know what they’re doing, and they have the operations to support it, the merchant shouldn’t be experiencing any issues. Once in a while, there may be an intermittent service situation, but companies that are experienced in navigating the space will usually be able to restore service in no time.

“We always make sure that we have redundancies for the merchants,” she added. “If there is any service interruption with one of our back-ends – a gateway situation or a sponsor bank situation – we always have redundancy, which means always having another one up and running for the merchants right away. That’s for the merchants and also for their consumers, so they don’t really experience any problems at all, and it’s how we are able to deliver the longevity of the solution to the merchants.”

I asked Dang how long it took Paybotic to expand its market share, and also what it has been like providing financial services as the industry saw its plenitude of capital essentially dry up.

“To answer the first part of your question, we have a team here that always looks at where the industry is going and how fast the industry is going, and actually monitors state activities,” said Dang. “In the beginning. it did take some time. Our first states where we had customers were Colorado and Oregon, and then California. In that period, a lot of our work came from word-of-mouth referrals. We focused on doing a good job, and that’s how we got merchants to keep referring other merchants to us, and it’s also how we built-out our referral partner network and our independent agent network. Over time, as we built up our portfolio and had more financial resources, we developed a market research team in-house. They always look at where the industry is moving, and we now get into new state markets very early on and establish our position there. For the last few years, we’ve actually been able to acquire market share in new states very easily due to being proactive.

“There are a lot of payment processing solutions in this space,” she added. “Our solution is one of them, and we focus on a couple of things – cost effectiveness, compliance, sustainability, longevity, and scalability. Those are the five things that we focus on, so as we moved from the period of excessive capital to not enough capital at the moment, it didn’t really affect our margin base. The one thing with us is that we believe in growing our business with our merchants. So, with equipment costs, for example, if the merchant has a piece of equipment that breaks, we typically send them a replacement, because we believe in not just customer service but we believe in a long-term relationship with our merchant.

“Also, we don’t just have one service that we offer to the market,” she noted. “There are services and solutions that we offer to the merchant whether that merchant uses, for instance, the audit services from us or not. That customer service will allow us to keep the relationship with the merchant and keep engaging with them, and we hope that they will lean on us for other services, whether it’s just for constructive advice, consulting, or ending up utilizing our audit services. That is our core philosophy, and every day our team members go to work, they get reminded that that is what we are working towards.

“So, from the period of lots of capital to no capital, at least on the payment processing side, we don’t really see much of a change in our customer base because of the way we function and operate towards our merchants and markets,” she concluded. “We know that as capital shrinks, people still need to expand as more states go online or start giving out more licenses. The need for expansion is there, and it keeps growing. As we have conversations with merchants, we know that there are growing needs and that is why we decided to start the capital side of the business, the financing services. And we do actually incentivize merchants that are currently using any of our audit services that if they are using any of the financial services we offer we have already done our underwriting on them. We have a very enhanced due diligence monitoring process for them, so we know their business activities, their financial health, and that actually makes it a lot easier to offer them any sort of financing services at very favorable pricing.”

While financial services offer the greatest return for Paybotic, “payment processing is how the merchant started with us, and payment processing is really what keeps the merchant with us, but the way that we can enhance our relationship with the merchant are with financial services,” said Dang.

Future Financial Services

2021 was a record year for Paybotic, which said it experienced year-over-year revenue growth of 93 percent for the year, compared with almost 42 percent for 2020, 16 percent for 2022, and the same percentage YoY growth projected for 2023. Did that indicate that as the industry goes, so goes Paybotic, which will need to find its own sustainable course in the years ahead?

“I’m happy to answer this question, and in fact this is the most exciting part,” said an enthused Dang. “The cannabis industry is experiencing a normalization period after soaring results during the pandemic. As you know, during the pandemic cannabis was deemed essential, and we saw cannabis purchases skyrocket, and that’s where we saw great growth not just for the industry but also for our organization. Right now, even with the normalization period, the industry continues to grow, but we are seeing a little bit of a slowdown in growth.

“Market activity remains high and promising in 2023, in my opinion,” she added. “But the one thing I do see is that our industry is characterized by dynamic revelations. Whether we like it or not, we have to prepare for them, and that’s exactly what Paybotic and its affiliated companies have been doing. We think that federal legalization is a matter of when and not if, and that’s why all of our business initiatives building an ecosystem of banking and financial services for the merchants allow us to stay sustainable and continue scaling our business despite the dynamic changes in regulations or with federal legalization.”

Or the lack of changes. I asked Dang about her reaction to the failure to pass any SAFE banking legislation and noted that Curaleaf had two strategic plans in place – one of SAFE passed, and one if it failed.

“We also had planned for a passing situation and for a non-passing situation,” she said, and explained, “As a business that has been in this space from the very beginning, we know that we always need to have plans in place for these situations, because the market and regulations and all of that keep changing. But we were also ready if it passed. Then it would just enable more and more solutions for our merchant base and give them more options. With the current situation, there is an opportunity for solutions to continue coming out, just not as many as we had hoped if it had passed. But we’re not concerned about it because we’ve been preparing for this, and it doesn’t affect the pace, the launch, or the progress of our solutions.”

Dang takes a similarly relaxed approach to the competition. “It is competitive, but we’re not afraid of competition,” she said. “For entrepreneurs, it’s not challenging or exciting without competition. Without competition, I don’t think it makes a market at all. So, yes, we continue seeing more competitors in this space, but with our history in this space and our reputation when it comes to solution-based and customer service, we’re not concerned about it, because at the end of the day, as long as we keep doing a good job and we stay true to the core values we provide to the merchant – cost effectiveness, compliance, sustainability, longevity, and scalability – that’s what the merchants look for.”

Expanding on that point, she added, “In an industry where things change quite often, merchants, especially after they’ve had a fair share of experience with multiple vendors, look for vendors that can provide them with sustainability, longevity, and scalability. And so, the work that we do speaks for itself. We’ve had merchants that loved us in the past, and then they came back to us, so we believe that it’s normal, and we always like to welcome the merchants, and we’ll continue working with them to make sure that we address any of their business needs and things like that. The team at Paybotic truly believes that as long as we work hard and deliver all of the things that we say we will deliver to merchants, then competition is really not an issue for our organization.”

Big Finance?

As mentioned, Paybotic recently moved its corporate offices to West Palm Beach, Florida, a commitment not just to the area but also to its future in the industry. “The new corporate office was an exciting move for us,” said Dang. “We are continuing to add more talent to the team. As our business keeps growing, there is always a need for increased bandwidth so that we can make sure that the quality of the work that we do for our merchants doesn’t get impacted. That’s one reason for adding more talent to the team, but another reason is that we work diligently to add services and solutions that we can market to our target audience to make sure that at the end of the day we have an ecosystem of financial services that we’re hoping to build. That’s why we are bringing onboard more and more talented people from all over the place.”

As some cannabis companies start to focus on their international footprint, was Paybotic also eyeing opportunities in other countries? “Not at the moment,” replied Dang. “We have thought about it, and we receive a lot of requests from international clients. We want to focus on doing a good job in the U.S. markets first, but yes, there have been some serious considerations about expanding our business on a global scale.”

Does that mean Paybotic is preparing for the day when Big Finance comes calling as either competitor or suitor? “The idea is to build a portfolio of financial services clients that is so sticky that if any of the market conditions change, that just makes our portfolio more appealing and attractive instead of reinventing the wheel,” replied Dang. “Obviously, there are a lot of variables here, but that’s why we work towards the ecosystem. The other reason for us having a suite of solutions and services is that they are how we will stay competitive on all fronts, including with pricing and everything else. If merchants use bundled services from us, it gives us margins to bring down their pricing in some areas because there is revenue coming in from other solutions that they also utilize from us. In that way, bundling services to us is the way to go, and will allow us to stay competitive, and that’s how we plan on preparing ourselves for any changes.”

Does that include the day when Uber Eats and all the other delivery platforms start delivering cannabis to consumers? “All options are on the table, but that’s obviously one of the things that we’ve thought about, and that’s also a good direction,” said Dang. “Our job is to make sure that we prepare our organization for all of those options, and obviously, for a company like Uber Eats, if and when they decide to enter the industry, I would imagine that they will want to partner with a company that already has a sticky portfolio instead of going out and acquiring merchants individually and organically. So, like a distribution channel, we also make ourselves a very good candidate for major partnerships when more technology companies enter into the space.”

In fact, added Dang, there is no need to look to the future for the solutions the industry will need to incorporate into businesses to bring the cannabis industry up to par with other businesses. The future is now.

“The cannabis industry is still growing and there are a lot of technologies and lessons learned that it has taken from other legacy industries, whether it knows it or not,” said Dang. “And we already see patterns similar to the restaurant industry. For example, if you run a cannabis retail dispensary, you probably want to list your dispensary on marketplace or directory platforms like Weedmaps, Leafly, and similar places, and some of those platforms already allow consumers to go look up the dispensaries and then also start ordering for pickup.

“It is exactly the same model that we’re seeing with the restaurant industry, where people order on Uber Eats, Grub Hub, and all of those platforms,” she added. “So, it’s not like it is something that is going to happen. There is already a huge need to consolidate or to create an ecosystem in cannabis where things move more fluidly and cohesively for cannabis business owners.”