On The Brink with Castle Island - Manuel Godoy (Felix Pago) on disrupting the LatAm remittance market (EP.531)

Episode Date: May 28, 2024

Felix Pago CEO and Co-Founder Manuel Godoy joins us for an episode to share how Felix Pago is utilizing stablecoins to make remittances easier for immigrants. Manuel's personal story including financial services pain points as an immigrant Felix's founding story around the massive Latin American remittance market The importance of trust for remittance businesses The dominance of WhatsApp as an operating system across Latam Utilizing stablecoins to move money faster and cheaper

Welcome to On the Brink. My name is Sean Judge. Today on the podcast, I sat down with Manuel Godoy, CEO and co-founder of Felix Pago. Today, we're excited to announce that we led the Series A into the company. It's an incredible use case helping thousands of people in the U.S. move money to loved ones more easily, and they do so by utilizing stable coins. Without further ado, here's my conversation with Manuel Godoy. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guest and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated.

The federal government loans American International Group, AIG, $85 billion. This is a different kind of market. And the Fed is a sleet. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Manuel, welcome to On the Brink. Thanks for joining me today. Thank you, Sean. Excited to be here. We have big news. So today we are announcing that we at Castle Island,

led the $11 million Series A and Felix Pago. We're very excited to be partnered with you and the team. Yeah, I'm super excited that we made this happen. One of the things that we're excited about you guys, that you obviously bring that deep knowledge about crypto to the team, because as we'll explain later, we leverage stable coins to power our product, and we'll talk more about that,

but it's exciting to have the right partners for this journey. Awesome. Well, before we dig into the business, Manuel, can you share more about your personal background and how that led to you wanting to start a company? Definitely, super happy to do that. It definitely helps share this context because it helps understand why I'm doing this, for sure.

So I'm originally from Venezuela, but I've always being extremely passionate about technology and trying to understand how complex things work to see how I could build it myself. And that lost the fact that I always had this knack for math and physics. I decided to study electric engineering and come to the US to do that.

So I went to school in Caltech in Southern California. And one of the first things that you realize when you move here as an immigrant, First thing is the challenge of leaving people behind because you're not longer being able to see your family and your friends every day. Now you're just a few hours away in an airplane or phone calls away. But the other challenge is in the early days when I was here, I had to hack my way into getting a student loan,

which is a painful experience. As many immigrants know, since you don't have credit score here, basically you can't do anything in this country. So I had to hack my way into getting somebody to sign off on a credit and figuring it out. One of those things that I learned in the early days. But soon after college, I wanted to start building, again, cool stuff. So I started building robots and sensors for the energy industry, which was a great experience for me because it's one of those things that is good to work for a big company,

that you have the resources to do something to stuff. So part of my role was to work in many places around the world to understand how tools were used and come back to the U.S. to the tech center to develop them or improve them. So I lived in Brazil, lived in Russia, lived in the Middle East, spent a long time in other countries in Canada, in Africa. And throughout all these experiences is when I started to suffer this pain of moving money between countries is something that is universal. And one of the things that I learned is that precisely the whole regulation that prevents

products to be useful for all use cases. So, for example, you have companies like Wise or Remedly that are good to send money anywhere, but ultimately, they're very specific use cases, again, that require specific touches. But particularly for me, when I was here in the U.S., one experience, that really left a mark on me was my parents also moved to the U.S. at some point, they live in Texas now, and at some point we had to send medicines to my grandma. My grandma lives in this rural place outside the city, and it's one of those tough things because my grandma, she's also an immigrant, she's from Spain originally, but she's one of the toughest persons I've ever met. She grows her own food, she feeds her own chicken,

and used to kill them with her bare hands, and she would make beautiful chickens every so often. And to know that she needed medicine and we couldn't get it to her was extremely frustrating. And the crazier part was my mom was asking for my help to see how we can get her stuff or get her at least the money. And you know how moms are. They're always asking how to use their phone or how to do something. And the fact that it couldn't help her, I felt like I had a straight jacket on it. It didn't make sense. It was extremely difficult.

We had to figure out a way to connect with people in the U.S. that would then connect with people in the Venezuela so that they could get the money to her. At some point, my uncle got dropped along the way. So a whole painful experience. All this was in my head. At some point, I decided to go to business school. Essentially, I've always had that goal in mind, but also I thought it was the perfect platform to start a business.

I had a good experience working for a big company. I also worked for a startup along the way. I also tried some different startups that failed, didn't work in the process, but I figured that going to an MBA was a good way to start something. And that's exactly where I met my co-founder and where all this got started. That's awesome. And maybe share more about that. So who did you start Felix with?

and why did you start it? What is the mission of the company? What was the founding story? Definitely. So the interesting thing was that from day one in the NBA, I was looking for like-minded people that were trying to start something or was just interested in entrepreneurship in general.

And I met Bernie in the early days, my co-founder who shared a similar background. He's an immigrant from Mexico. He suffered the pain of access to financial services here. So we both definitely shared the passion to build something quite interesting in the space. we didn't necessarily know what was going to be. But we started ideating.

We actually met for coffee every so often to discuss. We had a very diligent process, actually, where we tried to follow this, what is called the Darwinator process, where people talk and discuss different ideas. And the whole point of it is that one idea is going to evolve out of a whole bunch. And that's how we started to know that something around access to financial service makes sense. And after some time, I was sitting at a class at school, and we're talking about global businesses. So the professor shows this graph that illustrated how remittances have been growing exponential rate over the last 50 years. And the punchline was that remittances have become the most important flow of funds in emerging countries.

So to me, I had a flashback with sending money to my grandma, most painful experience ever. And then seeing that for the first time, at least for me personally, that at a macro level, this was such a humongous problem. That was quite a sight at the time. So it inspired me to, okay, let me take a deeper look at this. So we started looking at Latin America specifically, and we're looking at 2019 data. $90 billion were sent from U.S. to Latin America back then. This number grew to $155 billion last year in 2023, and it has been growing 10, 15% year over year nonstop.

So the sheer number was just impressed. But the most interesting statistic that I saw at the time was we're talking about hundreds of millions of transactions that happen every year. 75% of them are still originated in cash in stores. So imagine that people are communing to a store every Friday standing in line, paying outrageous fees to send $100 to $200 to their families. It didn't make sense to me. So it was that connection between something that had suffered and something that I can see that is a huge opportunity. And also that probably other people are suffering too, it sort of makes sense to start taking a look into it.

But the other fact was that why are these people not trusting some of the digital products that exist today? Because ultimately, if they're sending cash, you have products, you have wise, remitly, you have some companies that serve this purpose or try to solve this. These folks are not trusting this product. So that's when we actually went out to the streets and proved a lot of hypotheses that we had. And funny enough, we both coming from doing an MBA, we're thinking we're the smartest people in the world. We're like, we have the solution, test this hypothesis, and it's going to work. We started building some MVP's, and it turned out we were extremely wrong all the time. So we had to collect all of these things came crashing our faces.

This is not working. People don't care. We're testing things like buying goods and services for their family members, but paying bills, building an app, building a website, all these different things that didn't work out. And at some point, after talking with tens of if not even hundreds of these folks, and we would stand outside Western unions in South Philly, in Norristown, it's a town in Pennsylvania that has high density of Hispanics,

went to Passa, New Jersey, the Bronx, then we took a trip to California, talked to a lot of people. But at some point I met Ramon. Ramon is an immigrant from Mexico. He came here around 12 years ago now or 14 years ago, whatever the math is. And when he came,

his cousin told him to send money from that store where we were in Southfield. And his cousin told me, this store works. It was great. Manuel, my namesake, that owned the store, actually he's being owned in the store.

He's been running the same business for years. And he trusts him a lot. So he told me that he got to know him a lot. But then this guy, Ramon, moved to New Jersey at some point, and he would still commute to the same store. So he would go every Friday, commute for one hour to go and send money from the same store. And the reason was that he really trusted that guy in the store. He knew that if something went wrong, he knew he could talk to him, help him figure out the problem, and the money was going to get there to the other side.

And that to me was the first realization that all this is about trust. So folks really trust going to a store. They really trust that human interaction that happens there, because ultimately they're sending a lot of money. These folks are sending 10, 15% of the paychecks Friday, and they want to make sure it gets there. But the second big learning, and this was also after seeing the same behavior over and over, but I was starting asking Ramon, why was he taking a picture of the receipt? So I would always see folks with their smartphones, and then they would take a picture of the receipt coming out of the store. So imagine this CBS receipt. He would take a picture and send it over WhatsApp to her grandmother. And he would say, if grandma, he's $2,000

pay hello to my cousins for me. And that receipt has a unique ID number that his grandma would use to go to the retail store back in Mexico to collect the cash. So it was interesting that WhatsApp was part of the habit. So people would come into a store, stand in line, pay fees, and then use WhatsApp. And at some point, Bernie and I said, why not build this on WhatsApp and see what happens? That's when we started to see some interesting traction because ultimately it was about earning the trust in a way that is very human, that is super easy for them to use, that is intuitive. and WhatsApp could be a perfect vehicle for that.

So ultimately, that's well led to the inspiration of what Felix is today, which is chat-based platform for Latinos to care for their families back home. And we leverage AI and blockchain to make it happen as seamless and as affordable as possible. I love that story. I think people now look into the remittance market, see the numbers, and they go, wow, this is a big market. But the thing that people don't think super deeply of is just that what these transactions are. These are people that are working really hard,

and they're sending money back to their loved ones that need the money. And making that a trustworthy experience is obviously paramount because it's hard-earned dollars that are going to loved ones. So today, I guess, Felix, you have this idea. How do you get it going? What key corridors do you start operating in? So when we started discovering all these interesting insights, we realized that we needed to serve the folks that needed a product that was trustworthy.

And these are folks mostly migrant workers in the U.S., mostly come from Mexico and Central America. that also translates to the biggest corridors. Now, U.S. to Mexico is the biggest quarter in the world. So we started operating from U.S. to Mexico. We expanded to Guatemala and Honduras recently, and we're going to launch El Salvadoran, Nicaragua very soon. So we're targeting those Mexican, Central American workers, folks that typically work in construction, in the farms, in restaurants,

that really needs something that is, again, trustworthy, easy, that can help them take care for their families back home. Got it. So what does the product look like today? So you mentioned a little bit about why WhatsApp, but what was the unlock there? Was it just that people were taking a picture of it? Or can you speak to more of just how big the WhatsApp platform is, particularly in Latin America, and what that product experience looks like for someone using Felix for the first time?

Definitely. So before I get into the details of the product, which I always love to tell more about that, it was when we realized that we could build something on WhatsApp, it was one of those things that it sounded obvious to us. Why? Why? Because in Latin America, WhatsApp is the operating system. Everything happens on WhatsApp. If your listeners have ever gone to Mexico, Brazil, anywhere, you can do anything. You can book medical appointments on WhatsApp. You can change your flights on WhatsApp. In Venezuela, actually,

you could order the Uber equivalent on WhatsApp. Everything happens there. So it makes sense. But then when you start looking at the numbers, WhatsApp penetration in Latinos in the US is over 85%. Obviously, there's Gen C millennials, which is as high as it could be in Mexico itself. Because when you see WhatsApp penetration in the U.S. is one of the lowest in the world. So typically folks here use I message, which I personally hate, but that's what they use here.

Everything happens on WhatsApp. So it makes sense. So that was a realization. The other part that is cool is that WhatsApp, around the time we're starting, we started to see other companies, especially in India, do some stuff on WhatsApp that was interesting. Because you see a lot of small businesses

that run their service on WhatsApp. We start to see that some folks in India, with the hell from ETA, actually, started to build something a little bit more innovative on WhatsApp. So we said we're not doing the same thing. So obviously at the same time leveraging some of the tools that exist today, in AI especially, that could make a product very seamless and very human. So I think it was a combination of habits that we know,

the numbers and the timing and the availability of the tooling today to build something cool. So how does it work? So first people found out about us through our marketing channels. We leverage many different things. But let's say someone gets to our WhatsApp line. You were writing your friend, somebody can share the line with you, or you can put your phone number on our website, and you're going to get an inbound message.

However it is, you have WhatsApp on your phone. You say hello to our bot. So the cool thing is that you start talking to the bot, and there's a couple of things that are very nice and interesting going on. So once you say hello, the bot is going to greet you with the main menu, which has buttons and different things with what you want to do. So that's the first one. So meta and WhatsApp are enabling their platforms

so that we can build very intuitive interfaces, which is pretty cool. But then the second thing, let's say you want to send money and you click the button envir de Nero or send money, our bot starts to interact with you. And that's the magic, because on the back end, we have our artificial intelligence engine, where it's allowing Felix to interact with the user

in a very magical and human way. So, for example, when folks say, I want to send $100, there are many ways you can say that. And people sometimes tell it in pesos, sometimes people write it out. Sometimes people are very formal, they say $1,000, even with a comma in between,

and people sometimes put $1,00,000. So there's different ways. So the idea is that if you're a human being, you can understand that. You can really see it and get it how much it is, but it's hard for an AI to do it. So we're building all this technology in the back to make it seamless so that we can understand what the user is saying. The same thing, whatever happens next, we need to ask the full name of the beneficiary in Latin America. And we need to have literally the full name, first name, first last name, second last name, which is common in Latin America, because we need that full name to run it on KYC and also because in the back in Mexico, we're

required to pass that information as well. Then we ask how they want to get their money. If it's a cash pick up, we have over 90,000 physical locations in the region so you can go and pick up the money. You can think about 7-Elevens, Walmart, Oxos, for whoever is gone to Mexico, so typical retail stores where you can collect the cash. And you can just get it deposited in a bank account. And today, basically give us the number of the bank account, but also we have partnership with some of the biggest wallets and tech companies in the region. We have a big partnership with Mercado Pago, with NewBank, in which we can actually have a more magical experience

sending money to those wallets. At the end, what's going to happen is, if you're a new user, you're going to get a payment link. So you click on that payment link. We have to take your website because what's happening is you've got to put your payment information. We cannot collect your payment information on WhatsApp. We have to collect it in a safe way,

which is through a checkout page. But the first thing we do is we ask you for your full name and your date of birth, and that's obviously for us to run all the compliance that we need to know who you are and to make sure that you're not on a sanctions lease or any of the forbidden things that regulators tell us to do. And then you put your debit card information.

One of the cool things that's going to happen very soon is that we're going to enable users to pay through their bank account, through ACH to connect their bank account. We're going to enable cash payments, which are very excited about, because users at the end of the day, sometimes they're not comfortable putting their card information online, and they want to go to a CVS or Walgreens to pay in cash. So we're going to enable that because that's what users need.

So that's coming soon. And then obviously what's happening also on that payment page, that on the back, we're able to collect information that is required for fraud prevention. So all these data points are helping us block the potential bad users that everyone that is on the payments world know how painful that can be.

So when the user pays, they go back to WhatsApp. And true to originally insight and learning, the user gets the receipt on WhatsApp, a nice image with the code in very big letters so that they can share with their grandma. And let's see, that's the magical experience of what happens. What's very cool, too,

is when you're a second-time user, all this information is already stored, which is about talking with the bots, you can say that voice note to the bot and send money back to Sean, and Sean is already stored, and the bot is going to recognize the voice and it's going to convert that into a transaction. That's terrific. Thinking back to the example that you gave earlier, where Ramon was going to Manuel, and he felt comfortable sending his money through Manuel, how have you been able to build that trust with folks? How are you able to get people to trust Felix? That's the key here. At the end of the day, I'm sure this is true, obviously, for fintech companies in general, just financial services. It's all about trust. But particularly for our users,

like Ramon, his story is that of millions of people in the United States, that folks that they didn't get a fair hand growing up in Mexico, in rural Mexico. They had to come here to find that American dream. And naturally, they don't trust things. They don't trust whatever their background is, sometimes banks, sometimes insurance companies, something we hear a lot, or whatever it is, but something, whatever failed them along the way. And then they come here and then it's a new country. They don't know what they can trust. So they trust their families and they, again, Ramon, as his cousin told him to go to Manuel and he started trusting Manuel. Again, for the listeners, Manuel, it's not myself, but it's the person in the story. But at the end of the day, it's imperative that we need to drive the trust. It was super hard at the beginning.

So we've been evolving how we get to these users in very creative ways. At the beginning, it was literally my co-founder and I, going out to physical location. We started scaling that. We started going to flea markets. We put a couple of tents on flea markets in California. The team would go there on weekends, and you can imagine it was us with a uniform, passing out flyers and onboarding people and explaining what Felix was. And you would see a lot of people obviously hesitating about something new like that,

but also people amazed about something that could work this magical on WhatsApp. But then we started realizing that it was really hard to scale that. Super hard. So as we were iterating how to get to folks, we started realizing that we needed to change our strategy. Digital campaign, social media, which is the typical thing to do, was really hard also at the beginning. But we started knowing about influencers on social media. That's when we knew we could have a loudspeaker from someone that folks trusted on social media

that could talk about Felix. So we started leveraging influencer marketing, which is super powerful for Latinos in the U.S. specifically. Latinos in the U.S. are the highest consumers of social media in the U.S. So if you segmented by ethnicity, Hispanics are the first folks that spend the most on Instagram, TikTok, YouTube now, and other social media platforms. The other interesting statistic there is that Hispanics in the U.S. buy the most from influencers of things that they see in social media. So all these things start to make sense. Maybe we didn't know it at the beginning, but then when we started learning about this, it makes sense. It's about trust. So we leverage these folks that talk about our product on TikTok, on Instagram, and then we scale that through other marketing campaigns. Now, the cool thing is still about trust, but it's more about just peer virality, organic growth. We incentivize people to talk about our product with their friends, and we have a referral program. So we say people, and if you refer X number of users, you're going to get this amount of promotions, whatever. And that's what's now driving the growth, is this viral. this organic growth.

Because sometimes it's not only what we incentivize, it's also the organic users that are coming into their platform. Got it. So where does stable coins come into this? Why are you using stable coins? Definitely. And it's funny because I talk about my background.

It all connects in a way because when you're coming from a country where currency has been destroyed by government policies, you sort of wonder at the very least what else is there as a solution. So stable coins and crypto in general, to be honest, is one of those solutions that just makes sense. It makes sense as an alternative. store value as a way to move value across the world and as a way to protect your wealth in a way against whatever entity could destroy in case of Venezuela was government policies. It was clear to me

and same for my co-founder, Bernie. We both know about crypto for a long time. So it's obvious that we needed to use crypto. But the problem was that using just crypto represented a lot of risk. So let's say we were doing this on Bitcoin. If we were to move the Bitcoin, it takes time to get the Bitcoin to the other side. That volatility risk, it's... unbearable in our business. If we want to give our user an effects rate that we promise them, we need to get those pesos to their family. It has to be like that. So it can't risk the volatility. Okay, we need to use stable coins. So when you start looking at stable coins, you start to realize that there's many out there. So we need to use one that we could trust that was not necessarily

regulated because stable coins are not regulated, but at least it was close to working with trusted entities as much as possible. So that narrows it down a little bit more to a few stable coins that are more trustworthy in a way. And then the cool thing about that was that stable points are giving us what we need, which is instant transfers, the reliability 24-7. The fact that we can move this money on Saturdays and Sundays is big. And then lastly, it's just having that access to open money platform. The fact that we could do this with exchanges through APIs,

it really reduces the operational burden. Because think of the alternative. We would have to go to banks. We have to do all these FX operations and trading desks that are complicated and expensive. With stable coins, we can do this very easily, and we can have instant payments 24-7. So you have these people that are remitting money, folks from the U.S. to Mexico, mostly today. How do you think about other ideas to serve this community further? Definitely. It goes back to my personal story, but also the story, my co-founder. As an immigrant

here, you realize that there's a big gap in access to financial services in how it should be and how it is today. So the way we see it is, the vision of Felix is to become the companion of the Latino immigrant in the US. And when we start seeing the needs of these folks start to realize that obviously remittances is the first thing that comes to mind when they're thinking about financial service. They want to, as soon as they start working, they need to care for the families back home. But then we need to think about what's our remittance, what else is there, and how does it translate to their needs?

Our remittance is care, is retirement, is paying for things with urgency. And with that, knowing that remittance can be many, many different things more than just a payment, then we start thinking about, okay, what are the stronger needs right now? What we see from users is that they have the need to send more money right away sometimes. Sometimes their family has an emergency back home and they need to send a higher amount. They don't have it in the bank account. They cannot get access to credit. So they go to pay day lender, because again, these folks don't have credit.

So they go to pay day lenders and get shark loans for the most. And then they get this high amount of money that they can then send to their grandma if they're in an emergency. So what we're seeing is we see us in the future allowing our users to lend money from Felix so that they can care for the families, but knowing that that's something that could take some time for us to build, we're starting out with something that we're very proud of, which is the credit builder. So soon, we're going to enable our users to, as they send remittances, as they've been doing all this time, we can actually report that to a credit bureau so that they build up their credit score. And that's exciting because these folks, that's something that they really, really need,

and they're not getting from the market today. And we're going to start launching these in the next few months with expectation that our users are going to love it. Fantastic. Well, you're a few years into this journey as a CEO and co-founder. What have been some of the biggest lessons that you've learned so far? Many lessons. I would say there's two that are the biggest ones. And one, funny enough, when folks sometimes read business books or go to an MBA like me and

you start learning about things and sometimes you think there's all this strategy books written out. But when I started thinking about Felix, I called my dad. I was super excited about the idea. And it's like, hey, we have this idea. send money on WhatsApp, whatnot. And my dad is like, oh, yeah, cool. I'll build it and test it out in the market.

It's the most obvious advice that when you hear about Y Combinator and Paul Graham writing essays, it's all about just go out and do it and iterate and iterate fast because the market knows better. So you don't know what the product is going to work. You can have amazing ideas. It's all about executing it and executing it out in the market, testing it with users, asking users,

knowing their pain points, falling in love with the problem, not with a solution. Yes, WhatsApp, remittances sounds cool, but it's all about remittances. It's about helping these folks care for their families. So that big advice from my dad stayed with me and I tried to use it every day. Whatever ideas we have,

let's just go out and test it and let's learn about it. Let's iterate fast. And I think the second one, which might be related to this, at the end of the day, there's many factors that could lead to having startup that finds pro market feed, at the very least. And then there's something around pro market feed and then there's about successful company.

So those are two different stages. But even in those two different stages, it's all about resilience. So there's problems every single day. There is a roller coaster of emotions that happens when you run a startup. In the morning, you can close the best deal of your life in the afternoon. A key employee might be thinking about quitting, for example. So it's tough to manage, but it's about just keep going, pushing through, learning, fast, and just continue on executing and continue on delivering because it's nonstop.

And now I think this last few days, the CEO of Invita, have been so popular around, and he's always been talking about resiliency and he recommended a group of stands for students to suffer. That was his best description for him to run a company. And I don't know if it's that hard, but yes, it requires some level of resiliency and continue going and falling down and standing back up and continue going. Amazing. Well, Manuel, this has been great, and we're, again, super excited to be partnered with you and Bernie. Any closing thoughts here? Where can people find you and learn more about Felix? Definitely. Happy to share more. So if you need to send money to make

please use Felix. You can go to our website, which is Felix pago.com, F-E-L-I-X-P-A-G-O, which is Felix Payments in Spanish. You can put your phone number there and start interacting with the bots. And feel free to find me on LinkedIn, to connect. If your audience has some interesting ideas to partner up, how to leverage stable points in a smarter way to send money back home, please reach out because I'm very interested. Terrific. Manuel, thanks so much for joining me today. This is fun. Thank you, Sean. I really enjoyed it. Thanks for listening to another episode of On the Brink with Castle Island.

To find out more about Castle Island, visit castle island.V.C. To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com or just click on the tab in our website. Thanks for listening.