Tapping into the US church market: Pushpay

Alan Kohler here with today’s CEO and it’s Chris Heaslip, the CEO of Pushpay Holdings, the New Zealand start-up that’s listed on the ASX but is actually operating in the United States.  Chris lives in Seattle, has done for the last four or five years.  I spoke to Chris a year or so ago, just a bit more than a year ago, when the share price had just had a huge run up and was nearly $4 dollars.  It had gone up from $1.50 in mid-2017 to $3.90 when I spoke to him last December, in December 2017.  Since then, the share price has been drifting but he’s been pushing ahead with the business, signing up customers and has just announced that they have gone cashflow positive for the first time and he reckons that they’ll stay cashflow positive now.

They’re now making money, the share price is down, they’ve signed up lots of churches – they’re basically a church giving app and service for churches to organise their donations, which is a $130 billion market in the United States because half the population goes to church, unlike here in Australia.  Look, it’s a fascinating business, growing rapidly and just beginning to make headway in the United States and starting to make money now, so well worth paying attention to this company.  Here’s Chris Heaslip, the CEO of Pushpay Holdings.

Listen to the podcast or read the full transcript below:

Chris, the last time I spoke to you, just a bit more than a year ago, you were going along pretty well but still losing money.  I notice that you’ve just announced that you’re cash breakeven and you’re saying that you will be now permanently cash breakeven.  But what interested me about your most recent announcement was that your number of customers was up 4%, but the revenue per customer was up 34%, a huge increase in that metric.  Can you take us through that, exactly what’s occurred in the last 12 months in terms of revenue per customer and the number of customers? 

Well, they’re actually related.  They related to a strategic decision we made some time ago to move away from the smaller customer segment and really focus on kind of larger customers.  So we’ve been signing up fewer but much larger customers since making that move.  Moving out of the small segment allowed us to free up a lot of the customer acquisition costs that we were putting into that small segment and obviously service our larger customers better.  Those larger customers obviously are worth significantly more to us because if you think about a customer with 1,000 attendees, they’re going to have about 10 times the donations of the customer with say 100 attendees.  And so it’s much easier to sign up one customer with 1,000 attendees, than 10 of 100, right?

That’s what we’ve seen play through in the acquisition side.  What’s happened really over the last year is we’ve continued to sign up fewer but larger customers, and some of the smaller customers have churned off of the platform because obviously they are much more concerned about price than the larger ones, and that’s what’s really driven both dynamics, the growth in revenue per customer and also has really allowed us to achieve breakeven through kind of appropriate capital allocation on the segment that’s producing the most ROI for us.

Can you paint a picture for us of the customers that you’re talking about?  You’re talking about large, big churches or groups of churches?  Do you go for a denomination or just a single big church that acts like a stadium?

Well, in the US most of the protestant churches are kind of standalone, meaning they make their own decisions.  They may be part of some type of denomination, but protestant churches, you’ve got to go one by one.  One of the things that happened in the last few months of last year is that we signed up the largest church in America, which has over 50,000 people attending on a weekly basis.  This is what I’m talking about, when we focus in on the larger customers versus the smaller ones, that church has got multiple campuses across their state.  I think one of the things that we don’t appreciate in New Zealand or Australia around church in the US is just sometimes the size and scale of some of these organisations.  Just speaking generally, they can have tens of millions and some even in the hundreds of millions of dollars of revenue that they get from donations each year. 

They have sometimes hundreds of staff and they’re really looking for high quality products.  This is kind of a big trend that Pushpay has been on the forefront of, that security, reliability, quality of product, are key things that actually really matter to larger customers and they’re not looking for kind of cheaper software from kind of mum and pop shop operators.  That’s what’s helped kind of propel Pushpay into where we are today, is that the demands on software vendors in this space have continued to rise as the size of the churches has continued to rise as well.

When you say it’s a church with 50,000 attendees, are you saying they all show up each week at something that looks like the MCG, or is it lots of smaller churches around an area?

It’s a little of both.  Some do have one big location.  If you think of the Joel Osteens of the world who have an ex-basketball arena in Houston.  They would have a lot of people coming to one location.  Others might have one slightly bigger location with other kind of satellite smaller churches around the state or the city.  They might still have one where they had 5 or 8,000 people attend at a go, but they might have smaller kind of campuses where they would have fewer people.  It can be a little of both of some type of mixture.

When you say you sign up the church, can you take us through what actually happens in that case?  Because what you’re talking about is an app here.  Does an app necessarily get put on the phones of all of the attendees or all of the people that go to church, or does the church suggest that they do it?

Well, there’s different ways that people can give and the church makes available numerous different options.  Pushpay was really the first and the pioneer to bring together all the different forms of giving because previous to Pushpay, you would have to have multiple different vendors, one for each of the different types of giving.  One type of giving is online giving, the PayPal type experience in the old-school days.  Where people during the week want to go and make a donation, they would go onto the church’s website and click through a series of webpages and make a gift. 

What Pushpay succeeded in doing and pioneered in doing is bringing that process down to kind of less than 30 seconds, which doesn’t sound like a lot, but if something takes longer than 30 seconds, 85% of people don’t follow through with it.  The kind of convenience, the look and the feel of that, the customisation.  Some of the things that were brought to the market that they had never seen before.  Online giving is one part.  What we do at the end of that is we have a call to action that people can download a mobile app if they would like to, and we find that one out of three people who completes their online gift actually downloads the mobile app and does it on their phone next time.  Because it’s so convenient, you’ve already entered all of your information, why not do it on your mobile device.  You can effectively do that now in kind of two or three seconds, you open the app, put in the amount, your credit card’s already loaded, you can do it with your face or your fingerprint.  We find that most of the giving comes through kind of online or through mobile, and then of course there’s other ways – some people do recurring payments, some have a kiosk like an iPad in the foyer where you can swipe a card and make a payment that way.  Text giving is a smaller option that more kind of non-profits like to use, so you will text a code and make a payment.  Some people write a credit card on a piece of paper, which always struck me as highly insecure, but some people prefer to do it that way.  We kind of encompass all of that… 

What about cash and cheques, I mean do they still send a plate around the audience or the congregation at these things?

Absolutely.  When we look at the market, $130 billion dollars is given to churches just in America each year alone and only about 15% of giving in America is done through digital methods, meaning that the rest is done through predominantly cheques.  Cash is a small portion, then kind of non-cash like stock gifts is a small portion too, but the vast majority of what’s left is through cash.  As we’ve kind of pioneered this online giving space and mobile giving, what we’ve done now is add a fully function contribution module to what Pushpay does.  Churches use Pushpay to receive electronic payments and now they scan all of their cheques and enter all of their non-cash giving into Pushpay as well. 

And then of course we had that mobile app too, so those are the three kind of key product lines that we have, and that’s a big change from about a year ago as we’ve continued to expand and broaden the product offering, so that people can kind of get much more value from that.  The bookkeepers enter all of the donations in and then at the end of the year can hit a button and issue a tax receipt, which obviously is really convenient for them.  Back to the point before though, that only a handful or small percentage of giving in America is digital, so what we would see a huge opportunity as is working with our customers to help migrate people towards digital giving. 

People who use digital giving, give on average 50% more.  The reason is not that they give more per year, it’s that they give more frequently.  Because of course, people are busy and sometimes they’re travelling and so if you’re used to bringing a cheque with you and putting it in the bucket, if you were travelling on one particular Sunday, then your cheque doesn’t come to church with you and therefore the organisation misses out.  Whereas, if you’re doing it digitally, you can do it on your mobile phone from the other side of the world or you could do it at a time which is convenient for you.  Those are kind of the things that we see where people with digital give 50% more and now we’re working with our customers to try and help educate them that cheques are really a liability because people give significantly less, obviously it’s more work to reconcile and all of the headaches that go with that as well.

You’ve got two types of revenue, one is the subscription revenue from the churches where they pay to have access to the software, and the other is the credit card processing fee that you charge, having become an authorised credit card processor in the United States.   Which of those two revenue streams is now the largest and which of them is growing the fastest?

At the moment it’s about 70% on the payment processing side and about 30% on the software side.  We’ve seen that kind of payment processing slightly drift up over time as we’d see more people move towards digital.  As we look out into the future, we expect that trend to kind of continue to drift up over time, that the payment processing will continue to grow.  We’re already the kind of premium vendor in the space and so unless we’re really bringing new products to market, there’s not opportunity to substantially increase our prices on the software side, so the kind of trend will be that the processing will continue to grow over the next few years.

Obviously, if only 15% of the revenue the churches get is digital at the moment, it does seem like a big part of the growth for you in the future is going to be increasing the amount of digital payments that are made?

100 per cent, and I think the challenge with that is that cheques have more persisted in the US than we would like.  I think from New Zealand and Australia, again we would say, “Wow, these cheques must be going away some time soon…” But having lived here for a few years, unfortunately that’s not the case.  A lot of things, school fees or paying your HOA fees or other things like that are only payable by cheques, and so people are used to writing a number of cheques a month and therefore writing one more for the church is their kind of habit.  We want to kind of figure out how to aggressively crack that problem. 

We see it as a huge opportunity but we still find that people like the kind of reassuring familiarity of continuing to write those cheques.  We see it kind of continuing to move up a little bit here and there, but even over the last few years it’s only moved from 13 to 15% being digital.  It’s not moving up as fast as like internet banking has in New Zealand and Australia.

You seem to be saying that you’re also providing a service for the churches to scan the cheques in and you bring all the payments together into the Pushpay system.  Presumably, they’re paying a subscription to be able to do that.  You’re still capturing the revenue from cheque donations.

That’s correct.  One of the of the smart things we do is we write to those people if the church would like us to, we send them an email if they like, ‘Thank you for your cheque, here’s your receipt, click here to claim your account.’  They can see all of their previous cheque gifts and their transaction history for the previous 12 months.  Then, when they get into it there’s a call to action to actually setup a recurring payment.  We’re seeing some good early signs that those cheque givers are open to converting and changing their ways to adopt the latest technology.  It’s early days on that front but as I say, it’s a huge opportunity because if we can take digital penetration to double, we can double a large part of our revenue without having to go sign up new customers.

You mentioned before that you’re the premier provider in this area.  To be honest, I find that amazing.  Why hasn’t PayPal or even the credit card companies or the banks got into this area?  How have you been allowed to do that?

I think for them it’s probably a small niche, even though it’s $130 billion a year of total giving to churches.  From their point of view, they look at opportunities and they see retail and other kind of opportunities where cheques are prevalent and they think that those are much bigger.  But I think there’s a larger reason why, and we say there’s really two things that Pushpay does that are kind of competitive advantages.  One is having the world-class product and we’ve raised money from outside investors and talked about all the products that we’ve made to provide to our customers in just the last few minutes here, but that’s very atypical for the space.  A lot of the historical vendors absent of one kind of private equity company are kind of smaller mum and pop shops, who have these really great intensions but have not funded themselves to really innovate and be world-class from that perspective.  That’s the first competitive advantage.

The second one is that people in this space are very passionate about the causes that they are working for and you have to be able to speak the language in the subtle nuances in the market between say, catholic customers and protestant customers, and the potential for getting that wrong or if you use the wrong language, you call a priest a pastor, then you’re going to lose all credibility and the sale is gone.  Really understanding the nuances, the language in the space is really key to being successful, and I think that the larger players, the PayPals, whatever, that’s not really of interest to them in coming to learn and understand the subtle nuances between different types of customers.

But you’re a Kiwi and all Kiwis are atheist aren’t they?

[Laughs] Well, that’s why we had to move to the US, because the US is obviously a much more religious country than New Zealand or Australia, and again a lot of the questions we get is, “How big is this opportunity?” Because, New Zealand or Australia, we think churches are this small thing that our grandma goes to to play bridge, but in the US that’s not the case.  Half of Americans attend church on a weekly basis, that’s a staggering number!  $130 billion given to churches each year in America.  The kind of size and scale of just this opportunity is mind-blowing and I think sometimes we just can’t quite get our heads around that from New Zealand or Australia because we’re not used to it. 

Or just the generous nature, the fact that people are giving sometimes thousands or tens of thousands of dollars a year to the church, giving per head in New Zealand or Australia is substantially lower.  We can’t assume that that’s the case over here because Americans operate under a much different kind of paradigm.

Do you think you’ve reached a tipping point now?  And I’m not just talking about being cashflow positive, which is obviously an important milestone, but just in terms of acceptance, was that 50,000 member church kind of a big deal? 

Well, I mean I think over the last few years we’ve been kind of aggressively targeting the top 100 largest customers in the US.  We’ve seen that number kind of consistently go up over the last few years.  The top largest churches are thought leaders and people look to them as kind of pioneers.  The idea that you have those larger customers then helps us to sign up the next tier down or smaller customers.  And so, absolutely, that kind of social proof is a key part of the strategy and why we’ll put so much time and attention into building relationships and making sure that we serve those larger customers really well.

What are your intentions from here?  Just to keep growing the revenue and getting further and further into the black?

I mean, as we’ve turned the corner to be cashflow positive, we feel like we’re in control of our own destiny.  We want to continue to maintain being cashflow positive and as we look into the future, we want to continue to broaden the product proposition and that can mean through continuing to build our organic functionality, but also if there’s kind of M&A opportunities that we can fund obviously through being cashflow positive, we’d like to take advantage of that.  We see our customers or our customers see us, I should say, as an innovator or a pioneer in technology. 

We constantly get asked to build additional features and functionality.  There’s some additional things over time that would make sense for us to continue to add on and we’re super excited to continue to add more value to our customers, and in doing that, establish a viable business.  We really feel confident that we’ve got the right strategy that it’s really kind of about business as usual for us and that allows us to have some flexibility obviously in terms of being profitable to fund that growth organically and through M&A if we find the right business to add onto our product.

Speaking of M&A, what is the competitive environment, is there anyone coming at you at all?

There’s this one kind of private equity company who rolled up a lot of those kind of mum and pop operators some time ago.  We match up really great with them.  Someone once said to me, the only best competitor apart from having no competitor is a private equity competitor who’s really focused on slashing costs and service levels.  We’ve obviously been a kind of true start-up in that sense, we’ve been able to keep innovating and putting our foot down in terms of really building up quality products.  Whereas, people who have made dozens of acquisitions really struggle to do that.

Then, with them aside, the other competitors in the space are really, family-owned businesses that have been around sometimes for many decades who aren’t innovating.  But of course the lock-in sector is high and we have to continue to earn the business from our customers and that means to continue to add value to them and continue to prove that going with Pushpay is a good choice for them. 

What about potential exit down the track, are you getting any approaches from larger companies like the big banks or someone to take you out?

Of course, we get lots of interest in the business, but we really feel like Pushpay is on a mission to help our customers and our mission statement is to help bring people together through establishing community connection and belonging.  Obviously, giving in these great causes is a part of that, but we see a huge opportunity and continuing to work in the faith space and obviously to expand our offering into the catholic space more so over the coming year.  Then beyond that, the non-profit market, the church market is $130 billion, the non-profit market in total including churches is $400 billion of total giving, which has very similar characteristics to churches in that only a small percentage of that is digital. 

Same type of thing over there in non-profits, there’s a huge opportunity to service an under-serviced market.  With that kind of outlook in front of us, there’s no exit in mind for the team, we’re really focused on continuing to execute the play book here in the next few years and build a really long-term sustainable business.

Great to talk to you again, Chris, thanks very much. 

Thanks, Alan.

That was Chris Heaslip, the CEO of Pushpay Holdings.