Exclusive Q&A with Sr. Pago’s Barrett Lyon, Technical Advisor
Mexico has a traditionally cash-based economy, with a huge population uncomfortable with using banks due to many factors. Sr. Pago, a Mexico City-based payment solution provider, is mixing up payments and banking to change Mexican consumer habits for the better.
We chat with Barrett Lyon, a cyber-security legend who serves as a security and networking advisor to Sr. Pago, about the vision of the company, and how payments can drive positive change for Mexico.
Kevin Xu: Let’s start with some background on Sr. Pago and what difficulties Mexico creates for payments.
Barrett Lyon: Sr. Pago is a payment company based in Mexico City. So, it’s kind of a unique place for a startup. But in Latin America, there’s a huge piece of the population that just doesn’t trust banking. And there’s almost 80 percent of Mexicans who don’t use a bank account. What’s kind of interesting about that is, most people get paid on a prepaid ATM card. So they can take this ATM card and use it to buy stuff, or just withdraw the money. And that’s created this weird situation in Mexico where you get a payment card, but you want to go buy some food or something from a local vendor. They don’t have any means to take the credit card payments because they also don’t have a bank account. So, you have a lot of people with money on these cards but they can’t use it at any non-chain type of store, and there are a lot of restaurants and places that just won’t take cards because they don’t have bank accounts themselves. It’s created this problem within Latin America. So the idea with Sr. Pago is that, you buy the card reader, which attaches to your iPhone or whatever smartphone you have, and it also comes with an ATM card that’s tied to the reader. So as you take payments, it’s actually depositing the money into this prepaid card, so you don’t really have to have a bank account. You don’t have to go into a bank; you don’t have to open up an account. And one of the major issues in Mexico is that once you have a bank account, you have to file your taxes monthly. So it’s a hugely discouraging thing for a lot of folks to just stay in the cash model. The reason the Sr. Pago system has come about is because the Mexican government is trying to encourage people to learn about banking to see the benefits it could bring to their lives. So what they’ve done is they’ve actually created a legal means for this type of service to exist. They’re allowing people to open up these ATM cards that get these deposits on them, without actually doing any of the traditional banking requirement. So it’s technically a new kind of savings account that the Mexican government has created and is supporting. So this will be the first payment system that’s taking advantage of that, and it has the opportunity to change the financial structure of Latin America quite a bit. So it’s a pretty exciting service, and the team is great. I’ve spent a lot of time in Mexico City with them, and they really are… it feels like a startup right out of Silicon Valley.
Yes it all sounds very, very exciting. What do you see, are the regulatory differences between, lets say, the US and Mexico?
Well I mean, obviously the tax structure is completely different. So we don’t pay taxes monthly (laughs).
It’s a lot easier to open up a bank account in the U.S. It will take you thirty days to open up a savings account in Mexico, or any kind of bank account in Mexico. You can’t just walk in and walk out with a bank account like you can in the U.S. So it’s kind of tricky, there’s a lot of red tape and legacy stuff going on in Mexico, and all throughout Latin America. And in Latin America, the cash culture is very prevalent. So its an interesting thing, you’re looking at a new technology that’s taking advantage of some new laws but also, at the same time, sitting very well with millions and millions of people. So it’s a lot different than something like Square, which is just a payment-processing tool for you, that you can just sign up and attach it to your bank account. It’s kind of like Square designed specifically for the Latin American culture.
Sure. For Sr. Pago, are you classified as a bank, are you regulated like bank?
No, because of the particular type of account there is no requirement to be operating like a bank. However, it is a specific type of savings account, sanctioned by the government but it doesn’t put us in all the regulatory situations that the rest of the banks have to deal with. Although it does give us some pretty neat options. It’s kind of amazing to take somebody that sells flowers on the street, that has been pretty much doing a cash business most of their life, and give them a payment tool like this, so that they can also start forecasting what their sales are like, tracking their sales, tracking all the specifics around their business. Which they have never seen before, or had the ability to do. And that’s an automatic side effect. Once you’re able to see trends in people, what they’re buying, purchasing habits and things, we can also do microloans and things like that to the customers. So there’s a lot of neat things that we can do that are new banking and new lending products, that come out of this kind of payment system.
I’ve read that you guys have seen a lot of investment interest from VCs and I could see why because I think, if you can get people interested in taking payments with mobile devices, getting them interested in setting up bank accounts, you could potentially pivot your business to offer investments, actual bank accounts and things like that. What do you see for the future of Sr. Pago?
Yeah so that’s the idea. So we want to take this tool that people get comfortable with and understand how it works. And then be able to expand it and take people beyond just taking payments. What’s beautiful about that is that this type of payment account, this type of savings account, was architected by the government. The whole idea was to do exactly that, allow people to have a nice soft way to get into the banking infrastructure, and learn about it, and build trust with it. And then from there the different kind of products we can offer people is pretty unlimited.
Could you give me a background on Mexico’s smartphone adoption rate, and the kind of numbers you’re seeing currently?
Yeah. So right now we are in beta, and the beta process is processing just shy of a million monthly transactions, which is pretty good for a beta service.
The adoption rate for smartphones in Mexico is extremely high. So it won’t be very difficult to get the application to people. And as far as the unit itself, we’re going to be selling it in places like Best Buy. You will be able to just buy the package, it all comes together, and it takes about fifteen minutes to get the account set up. So right now we’re finishing up all those partnerships for distributions and things like that. The other interesting thing is that we have a pretty amazing partnership with MasterCard. MasterCard’s one of our very large partners and they’ve been helping us through this process quite a bit as well. So I think its a model that they’re very interested in seeing if it works, and if it does, its something that MasterCard and Sr. Pago will be repeating in a lot in different countries.
That’s exciting. Lets talk about you, how did you get involved in Sr. Pago? And what’s your history like, in the financial services sector?
My history is traditionally internet security. So I’ve done mostly internet security companies. My last company was acquired by Tata Communications, and the company before that, a security company, was bought by Prolexic in Boston, just shy of a half a billion dollars. And I met Pablo (Pablo González Vargas, CEO of Sr. Pago) and he just seemed to be a very interesting person that just had the passion for startups. And so we became friends and started talking about his work and his businesses, and I said hey, I want to be involved.
Cool, very cool. I think that’s it for now. Do you have any last comments?
No, I’m just really excited to see this work and for me it’s really neat to see innovation happening outside of Silicon Valley. The Latin energy and twist on all the design has been really fun. It’s been a breath of fresh air for me.
What’s an example of the Latin twist?
Everybody talks to each other in Silicon Valley, so it’s a very, incestuous town or group of companies. Everybody does software design the same way, everybody does graphic design the same, and because Silicon Valley is so busy, it just doesn’t seem like things get done very quickly at some of these startups. And then you see a nimble team in Mexico City, and the graphic design is being done and it happens the same day, very quickly. Everybody working on the app is just completely dedicated to it. The work culture is a little bit more comfortable and upbeat and I think as a result it comes out in our product too.
Barrett Lyon, Technical Advisor, Sr. Pago
Barrett Lyon is the founder of four companies, including Prolexic Technologies (acquired by Akamai for over $400M), Defense.Net (acquired by f5 Networks), XDN, Inc. (acquired by Fortinet) and BitGravity, Inc. (acquired by Tata Communications). He is a pioneer in the fields of security and networking and will be advising Sr. Pago in these areas.