Andrew: Hey there, freedom fighters. My name’s Andrew Warner. I’m the founder of Mixergy, where I interview entrepreneurs about how they built their businesses. I have had yet to interview an entrepreneur in Mexico. Since they won’t come to me, I flew, well, not to Mexico. I flew to Texas, ran 26.2 miles into Mexico. My voice is still harsh from both running and then going at this city really hard. I freaking love Mexico City.
Today I’ve got one of the top entrepreneurs in Mexico City, somebody who is so highly talked about that I have to admit I was intimidated from the moment I heard that we were going to do an interview with him, and then the more research I did on him, the more I understood why people talked about him. His name is Hector Cardenas. He is the founder of Conekta? Am I pronounce . . .
Hector: Conekta.
Andrew: How do you pronounce it with your accent?
Hector: Conekta.
Andrew: Conekta. Oh, I would love to have that Mexican accent. Imagine how much Olivia would love me if I walked home with that Mexican accent?
You know how in the U.S. and much of the world, if you want to go buy something online, you just whip out your credit card and you buy it, or better yet, you don’t even whip out your credit card, because your browser has a credit card in it. Well, get this. In Mexico, it’s not that easy. A lot of people don’t have credit cards. Many people aren’t even fully online. How do they participate in the online economy?
And what about online stores who want to sell online, and they recognize that many people don’t have credit cards? How do you connect the two? How do you allow these online merchants to grow? How do you allow these participants who don’t have credit cards on their phone, in their pockets, at their beck and call, how do you allow them to participate in the new economy?
Well, that’s what Conekta’s mission is. Anyone who wants to buy online can buy it and then get a special number, walk into a local store, give them the number, give them cash, and then the stuff arrives at their home instantly. This is what we’re talking about.
So I invited Hector to talk about how he built this business, starting out with a couple of other things. Why, after he moved to Canada and was out of Mexico, did he want to come into Mexico and understand about the local economy and how it’s growing.
This interview’s sponsored by two phenomenal companies . . . and by the way, if you’re not in Mexico and don’t care about Mexico for some reason, first of all, you should, and second, there are a lot of people who aren’t like me, who don’t live in San Francisco, who need to understand that there’s a bigger world outside of San Francisco full of opportunities that the main tech media is not covering and not informing you about, and I want to find out about it. I took my time to fly out here, and I want you to learn from them.
Right, this interview is sponsored by two companies that are supporting this mission. The first is a company that will help you hire phenomenal developers. It’s called Toptal. And the second will help you hire, well, will help you host your website. It’s called HostGator. I’ll tell you about them later. First, Hector, good to see you here.
Hector: Great to be here.
Andrew: Is my voice a little too harsh for this conversation?
Hector: No, no, it’s perfect, no.
Andrew: Tell me about, like, I want to get an example of somebody who you’re helping. You and I, before we started, talked about a nanny.
Hector: Yeah.
Andrew: What would a nanny have to do with Conekta?
Hector: Yeah, so this, what we’re doing right now with Conekta, when we started, we wanted to do, like, a payment gateway, right? We wanted to enable merchants to be able to pay, but then we talk about a little bit of the context of emerging markets where the majority of people don’t have a credit card, right? Like, 82% don’t own a credit card and 56% of the population is unbanked.
Andrew: Fifty-six of the population doesn’t have a bank account.
Hector: Adult population.
Andrew: Okay.
Hector: And the majority that does have a debit, it’s the majority is a payroll, and they go and withdraw the money for cash.
Andrew: Okay.
Hector: So it’s a cash economy. So the problem that we’re seeing is that this unbanked population are not part of the digital economy.
Andrew: Okay.
Hector: So the great example is we talk about this nanny, right, being able to go to one of our companies is called, for instance, PayJoy. There’s another one called [Dotto 00:03:37]. With PayJoy, they have the opportunity for the first time to go online and purchase a cell phone, right? So, and it’s not just purchasing. It’s, they get a cell phone, and they can pay in monthly installments. So we’re providing the opportunity for the unbanked population to be able to be part of the online economy.
Andrew: Because the nanny would get paid in cash?
Hector: Yeah.
Andrew: Really? Okay. And when she has cash, why can’t she just go into a store and say, “I want to buy a cell phone,” and buy a cell phone?
Hector: Well, it’s too expensive.
Andrew: Okay.
Hector: And what we’re trying to do there is provide kind of like a credit for a cell phone. So these great companies that are using Conekta are allowing this nanny to be able to acquire a cell phone, a smartphone, even, and being able to pay in installments, which is great.
Andrew: I told you before we started I want to know your revenue. You told me, “I’m not going to tell you our revenue.” But we do want to get a sense of size. How big is this business?
Hector: What I can tell you is huge. We’ve had the majority, I don’t know if you went to an Oxxo, which is one of our partners. And you saw the . . .
Andrew: Oxxo is, like, a local market, right?
Hector: Yeah, so it’s a . . .
Andrew: So it’s everywhere.
Hector: It’s a convenience store chain. They have around 18,000 locations all over the country. To give your perspective, I think 7-Eleven has around 8,000 in both Canada, the States, and Mexico, and these guys own 18,000.
Andrew: Wait, 7-Eleven has how much?
Hector: Eight thousand.
Andrew: Eight thousand. And they have 17,000.
Hector: Yeah. Eighteen thousand.
Andrew: Okay, so . . . 18,000.
Hector: And they want to grow to 30,000 by 2025.
Andrew: Okay, so I was driving through Mexico looking . . . actually, I can’t drive in Mexico. I can’t drive anywhere, not even San Francisco. But what I noticed as I was in a cab was lots of these Oxxo Pay signs. Why are these guys promoting Oxxo Pay instead of saying, we have Coca-Cola, we have candy bars. Why are they promoting this, of all things?
Hector: Yeah, because Oxxo being a convenience store, they’re realizing that they have so many locations that they’re becoming the branch for the unbanked population. So an Oxxo’s used to pay for utilities, bank deposits in Oxxo Pay. So we can talk a little bit about, more about Oxxo Pay, which is a product built by Conekta, and what Oxxo is realizing is that their financial services vertical is growing way, way more than retail. So they’re promoting for Oxxo Pay.
Andrew: Because . . . ah, got it, right. We’re not going to buy three times as many Coca-Colas this year as we did last year . . .
Hector: Exactly.
Andrew: . . . but we are, at least people here in Mexico are more likely to be spending more online by going in to Oxxo Pay.
Hector: Yeah.
Andrew: Got it. That’s why they’re so excited about it. All right, but you didn’t give me a number for your business. You did say that you’d be willing to tell me, like, how much money is being processed through the system?
Hector: Yeah, and to give you a perspective, I don’t know if you know this, but Spotify, for Spotify, Mexico City is the city where more people listen to music in the world.
Andrew: Is that right?
Hector: Yeah.
Andrew: Okay.
Hector: And if you see these gift cards, I don’t know if you saw that in one of the Oxxo stores.
Andrew: No.
Hector: They have, I don’t know, like, the top companies, like, Google Play, Netflix, all of these companies. In aggregate, I would say that 60% come from gift cards in Mexico.
Andrew: Okay.
Hector: And so that’s how . . .
Andrew: That’s how people are paying for Spotify.
Hector: Yeah.
Andrew: Okay.
Hector: And that’s how big the market is right now.
Andrew: Okay.
Hector: So we’re trying to compete with the online processing with credit cards, but there’s a huge population which is unbanked, but they’re ready. They’re ready to spend. [inaudible 00:07:03]
Andrew: And this is what you want to do.
Hector: Yeah.
Andrew: Okay. And you told me before you started that, hey, it’s not just about the people who want to do shopping online. It’s all these different merchants, all these different entrepreneurs in Mexico who want to sell online, and they would never be able to do it because there isn’t an easy way for them to accept payment. And that’s what you want to do.
Hector: Yeah.
Andrew: This is why you came to Mexico. You actually, I noticed that you studied at the University of Waterloo. I asked you when we sat down, where’s the ring? Can you tell people the story of why graduates in engineering from the University of Waterloo have that one ring?
Hector: Yeah. It’s a great story, and it helped us graduate. It’s so hard that you just want to get that ring.
Andrew: Just to get the ring.
Hector: Yeah. I mean, so the story is about the commitment of an engineer to, about the public welfare, right? So we are engineers, we sign contracts, and we build bridges, we do railroads.
Andrew: And it all goes back to a bridge.
Hector: Yeah.
Andrew: There was a bridge. What happened to this bridge?
Hector: It collapsed.
Andrew: It collapsed.
Hector: Yeah.
Andrew: And so they took all the metal from the bridge, the university did, and melted it down, turned it into rings, gave it to every engineering graduate to say, remember what you’re creating could collapse or stand up based on your diligence.
Hector: Yeah. Yeah, it’s not just the university. There’s an association, it’s all engineers in Canada.
Andrew: Got it. So you had one of those as a graduate.
Hector: Yeah. So right now I’m replacing mine, but yeah, I do.
Andrew: Okay.
Hector: People don’t get it in Mexico, so sometimes it’s just a little bit weird.
Andrew: But you . . .
Hector: They think I’m kind of, like, a secret group or something like that.
Andrew: Right, right. I never understood it. I finally asked a friend why so many people had that ring, and now I get it. How did you meet your co-founders?
Hector: We met at a co-working space, and it was also a residence for entrepreneurs called Velocity.
Andrew: Okay.
Hector: So Velocity is the organization from the University of Waterloo that helps entrepreneurs.
Andrew: Okay.
Hector: So even when you graduate, they give you some space where the cool offices are in Waterloo . . .
Andrew: Okay.
Hector: . . . to ramp up and start your business.
Andrew: Okay.
Hector: They give you equity-free cash.
Andrew: Okay.
Hector: Which is also really good. And that’s where we met. So Christina and Leo, so they’re both Canadians, they were coming back from Monterrey, so they did an exchange for four months in Monterrey.
Andrew: Oh, okay.
Hector: They were coming back. And then Christina lived in the same residence, and then one of the guys there said, oh, by the way, there’s a Mexican in-res. That’s how we met there.
Andrew: And so you guys connected.
Hector: Yeah.
Andrew: And you decided, you know what, we want to be entrepreneurs. We’re going to come up with an idea. Before you started, you were telling me about how your first idea, I don’t know if this is the perfect way to describe it, but kind of like a Yelp for what?
Hector: Yeah, for Mexico.
Andrew: Mexico.
Hector: So, and, yeah, so what we did is we started talking about Mexico, the opportunity about being the first one, like, being there in a country where technology was, like, there were not prominent startups. We graduated and we decided to come back here to Mexico. And by the way, like, I came back the next day when I got the work permit to stay in Canada for three years, right?
Andrew: Okay.
Hector: I would’ve stayed in Canada. My, what I decided to do is I said, okay, I gained knowledge about how to be an engineer. I want to come back to my country and do something about it.
Andrew: Okay.
Hector: So that’s why I decided to come back. I mean, Canada is awesome. It’s a first-world country. It was really, really good. But I wanted to be an entrepreneur.
Andrew: Was it also the sense of, look, I saw the future. I’m going to bring the future here.
Hector: Yeah.
Andrew: Because I know things are moving online. They’re not yet . . . I see the opportunity. So you started to do this online Yellow Pages-like, Yelp-like business. You decided you were going to call local businesses to sell them premium service, and they said what?
Hector: Yeah, that why would they pay for this if they didn’t even have a website?
Andrew: Ah, and that opened your eyes.
Hector: Yeah, so that’s when we realized that we were in a different country, different problems. Instead of just bringing something from the U.S. or from Canada, it was just understanding what was happening with the market. And that’s when Mexican.VC that later on became 500 Startups Mexico City invested in our company, in the three founders, and . . .
Andrew: Wait, did they invest in, when you were still at the Yelp stage?
Hector: Yeah.
Andrew: You went to them and you said, I think we have this thing that’s Yelp, before you understood it’s not going to work because people don’t have websites here, even.
Hector: Exactly.
Andrew: Got it. So they invested in you. They saw this opportunity. You saw, hey, you know what, this is not going to work, and you decided to . . . how did you pivot and what did you pivot to from there?
Hector: Yeah, so we went to San Francisco.
Andrew: You did?
Hector: We went for a demo day.
Andrew: Okay.
Hector: For Mexican.VC.
Andrew: Okay.
Hector: And then we thought, like, investors were just going to pour money into our company . . .
Andrew: Right.
Hector: . . . because we had so many thousands of visits. And then what they told us is, like, why aren’t you monetizing? You are in Mexico, in an emerging market. You have the opportunity to monetize. And there are so many problems like transportation, water, electricity.
Andrew: Really?
Hector: Ecommerce.
Andrew: Okay.
Hector: Payments. Why aren’t you doing that? Why are you trying to do the next Facebook or social media in a country where the, like, the framework is not there? Like, you have to start with different type of businesses. And that’s when we said, that makes lots of sense.
Andrew: Ah, got it. Yelp could not have existed in Web 1.0.
Hector: Exactly.
Andrew: Right? Where people were introduced to new websites and the whole experience. It had . . .
Hector: There’s no foundation there.
Andrew: Right. So you have to go back to the foundation and say, what is necessary to . . . got it. Okay. And so you went back and you said, you know what? We need to help people sell online.
Hector: Yeah.
Andrew: And so you wanted to create what?
Hector: Yeah, so we did kind of like a Shopify for Mexico.
Andrew: Okay.
Hector: So we did an ecommerce website builder.
Andrew: Okay.
Hector: And we were doing really well. What we did is we integrated with a national carrier.
Andrew: Okay.
Hector: It’s called Estafeta. They’re really big. We connected to their web service. We did a really good job. Merchants could just create an account with us, upload their products, and add weights, and with that, we would just create labels for them, right? And automatic, we would calculate automatically the shipping cost.
Andrew: Ah.
Hector: Which is a huge problem in Mexico. It’s just . . .
Andrew: Shipping cost is.
Hector: Yeah, calculating the cost.
Andrew: You know what, I’ve got to tell you, it’s a huge problem in the U.S. too, right? The early websites would tell you how you could sell, but then you’d have to go and figure out what to charge somebody for shipping, and if you got it wrong, you’d lose a lot of money, right?
Hector: Yeah.
Andrew: Got it. And so you were so far advanced that you were connecting all of this together. What did you do about payment?
Hector: So we connected an available payment gateway, and also PayPal, to allow our merchants to sell. And there was a huge hype at that moment from businesses to create a website, like, an ecommerce website. But then they would launch and nothing would happen, right?
Andrew: Because . . .
Hector: Payments, right? So . . .
Andrew: Because people couldn’t pay on PayPal. So you know what? I lived in Argentina for a bit, and I remember when I first got there, I could not accept PayPal because I was outside the U.S.
Hector: Yeah.
Andrew: I could not access my PayPal account. I would have to fire up an Amazon server, log in to my account, do what I needed, and shut it down. So you’re saying your people had that issue, too. Just because you can accept it, I’m even surprised you were able to accept it.
Hector: Yeah. And there are people with credit cards in Mexico that do buy online, but then the other service that we were using at the moment, it was really inefficient. So we saw that in order to integrate, so my co-founder Leo, the CTO, he wanted to do, like, an API integration that was not how to set up sub-merchants inside the ecommerce platform.
Andrew: Got it.
Hector: It was really, really hard. And once you process a payment, sometimes we didn’t even get the money from the payment gateway. So it was really, really bad, really inefficient. So that’s when we said that in order for ecommerce to grow, we needed to do something about payments. So we needed to go deeper into the foundation that we were talking about for emerging markets.
Andrew: And Hector, you’re saying even though you built this whole thing out, it was built.
Hector: Yeah.
Andrew: I saw your smile and your pride when you talked about what you built. You had to scrap it, and you were comfortable scrapping it?
Hector: We sold it to Estafeta.
Andrew: Okay.
Hector: This shipping company.
Andrew: Okay.
Hector: And the cool thing is when we pivoted into payments, we connected Conekta into all of our merchants.
Andrew: Got it.
Hector: So we started with around 200 merchants.
Andrew: Who signed up for your online shopping platform . . .
Hector: Yeah.
Andrew: . . . even though there wasn’t a clear way to . . . how did you get so many people to sign up for your shopping platform?
Hector: There was a need. There was a need for ecommerce. And again, it was, what we, the reason why we pivoted into payments is we realized that those merchants would end up, or they would stop paying once they realized that selling online wasn’t that valuable.
Andrew: Right.
Hector: So that’s when we pivoted into payments. We had no idea whatsoever about payments. We’re not bankers. We’re not financial . . .
Andrew: Yeah, so how did you figure that out?
Hector: We said, like, we’re good developers. We know, we understand the merchants. We have customers. We’ve talked to them. Let’s just fix it. And that’s how we got into payments. That was late 2012. We launched Conekta in 2013, in February 3rd, 2013.
Andrew: And the vision was for people to be able to pay at first doing what?
Hector: Yeah, so obviously coming from the experience from the Shopify for Mexico is we thought that we needed to do, like, a really cool API for merchants to integrate, okay? We saw that as a problem, because Leo, my co-founder, wasn’t able to integrate to the available solutions in Mexico, so we thought that what we needed first was to create a really cool API, kind of like Stripe, Braintree for Mexico.
Andrew: I had screenshots of it. It’s simple. I can’t find it in my notes. But wasn’t Stripe existing at the time?
Hector: Yeah, but in the U.S.
Andrew: Right. And so you said, look, what they did is simple, elegant, and it’ll work here, and you duplicated that.
Hector: Yeah.
Andrew: And when you introduced it to online merchants, what did they say?
Hector: It was really interesting because we tried to do something very similar to target it to developers, but then we launched, and two things happened. Number one, fraud. So Mexico’s one of the most fraudulent countries in the world for card not present. And number two, we thought that startups and SMBs were going to be the ones integrating our service, and it was the opposite. So really big corporations . . .
Andrew: Really?
Hector: . . . started to talk to us.
Andrew: Okay.
Hector: Because they were already connected to acquirers and they were having really big issues.
Andrew: Connected to who?
Hector: Connected to the acquirers. To the banks. And they were having . . .
Andrew: Oh, and they were having issues with what? With the software connect . . .
Hector: With fraud.
Andrew: With fraud. Oh, got it.
Hector: Yeah, they wouldn’t be able . . . they didn’t have the knowledge to even save credit cards, being able to do recurring payments. They didn’t have PCI certification, which, PCI is a certification to process credit cards, they need to have.
Andrew: Yes.
Hector: So they started talking to us. So we built a really cool API that allowed them to just connect and being able to process it the right way. So for instance, just to give you examples, we’ve had really big companies using for subscriptions that were using an Excel file . . .
Andrew: Really?
Hector: . . . that they would upload to their banking . . .
Andrew: And they would do it. Got it. By the way, speaking of fraud. Before I came here, I kept asking to be introduced to a lot of tech companies, and people kept saying, “Andrew, focus on fintech. Financial technology.” And I didn’t understand why it was so big. I think I understand it. Tell me if I’m right. What I’m learning here is there is huge fraud for credit card not present transactions, and so you’re learning a lot about, here in Mexico, how do you handle it? Because if you can handle the fraud here, you can then handle it in the rest of Latin America, right?
Hector: Yeah.
Andrew: And then the other thing is people don’t have credit cards here, so they’re not, like, married to the plastic. They are willing to be introduced to something new, because being introduced to something digital or in a store is just the same as being introduced to a credit card.
Hector: Right.
Andrew: Got it. Okay. Let me tell you about my first sponsor, and then we’ll come in and talk about . . .
Hector: Perfect.
Andrew: . . . once you figured this out, what you did next. I’m going to fast . . . right. He needs to hit stop.
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Okay. You decided you were going to do the APIs. The APIs worked.
Hector: Yeah.
Andrew: From what I could see, that was a growing business for you.
Hector: Yeah.
Andrew: Right?
Hector: Yeah, and so then we launched, and we realized that people were, the majority of people were unbanked, there was a lot of fraud. And by the way, talking about fraud, what happens is we’re in the Wild West in Mexico. So what happens is if a merchant gets a chargeback, which is a dispute from the cardholder . . .
Andrew: Yeah.
Hector: . . . the only way they can win is if they have an original signed receipt.
Andrew: Oh, really?
Hector: So the local regulation still stipulates that an online transaction is the same as a physical transaction, so you need that voucher and/or receipt.
Andrew: So it’s on the merchant, they’re going to lose no matter what.
Hector: Exactly.
Andrew: If it’s online, so it’s on the merchant to prevent the fraud before it ever happens, or else they’re done.
Hector: Yeah. And so the fraudsters get away with fraud. And they can do whatever . . .
Andrew: So can you give me an idea of what you did to avoid fraud? Now, obviously that’s going to be a deeper conversation we can’t get into.
Hector: Yeah.
Andrew: But if you give me one thing, it’ll help me understand why you guys are so good at it.
Hector: Yeah. So that’s when we decided, so we built the API, so that was done. We created something really good for merchants and developers and enterprise customers to onboard with Conekta and being able to process payments with credit cards and cash. So we can talk about cash, as well. But in the credit card scene . . .
Andrew: From the beginning you got cash?
Hector: Yeah. So we did with Oxxo, it was a different product. It wasn’t Oxxo Pay. It was just paying at Oxxo stores.
Andrew: It was just a partnership immediately with Oxxo.
Hector: Yeah.
Andrew: How did you get a . . . I’m going to come back to fraud, but how did you even get Oxxo to pay attention to you?
Hector: That’s part of being a hustler, right? That’s part of being an entrepreneur.
Andrew: Yeah. I’m trying to understand what it is.
Hector: It’s just pushing and pushing.
Andrew: You just constantly make phone calls.
Hector: Yeah.
Andrew: It was no introduction, no nothing. It was just you constantly calling in and saying, “Your people want to buy stuff online.”
Hector: Yeah.
Andrew: “Let them come in with cash. We’ll give you a percentage.”
Hector: Yeah.
Andrew: That was it.
Hector: Yeah. And same with banks. They . . .
Andrew: I feel like you’ve got a good presence with people. Do you?
Hector: Yeah.
Andrew: I told you right from the start, I love the way you’re dressed.
Hector: Thank you.
Andrew: The way you carry yourself has an elegance that you don’t see in the tech community.
Hector: Thank you.
Andrew: Right?
Hector: Well, it’s, you need to have that hybrid presence in Mexico because it’s really old-school.
Andrew: Ah.
Hector: I mean, sometimes, yeah, I even have my suit in the office.
Andrew: So you can always switch into it. Were you always somebody who had this elegance? I strived as a kid so much to grow up to be an adult that looked like you. I couldn’t pull it off. Did you, seriously, did you grow up in an environment where your dad wore a suit and was conservative and well-mannered?
Hector: No.
Andrew: No?
Hector: No, I, well, yeah, like, kind of like an old-school Mexican family, and it’s normal and traditional, yes.
Andrew: What does that mean, traditional? How does that play out?
Hector: Yeah, so I’m third generation entrepreneur in my family.
Andrew: Okay.
Hector: So my grandfather was an entrepreneur. He wouldn’t . . . we are from the north. It’s really hot, so you don’t wear suits. Yeah, it’s just, you need to dress up every single day . . .
Andrew: And be proper.
Hector: Yeah, and be proper.
Andrew: Would you address your dad as “sir”?
Hector: No.
Andrew: How did you call your dad?
Hector: No, “dad.”
Andrew: “Dad.” Okay.
Hector: That’s it.
Andrew: Okay. So it wasn’t like that. I mean, did your dad teach you anything about entrepreneurship? Did you learn anything from your family about it?
Hector: Yeah, so since I was a kid, one of my first memories was just looking at my dad, and my mom, as well. So it’s, both are entrepreneurs.
Andrew: Doing what?
Hector: Just looking into . . . small shops.
Andrew: Okay.
Hector: And they do, like, it’s retail.
Andrew: Okay.
Hector: So I realized, and I remember them looking into accounting, into all of these issues, and I grew up, you know, with entrepreneurs.
Andrew: Got it.
Hector: And I started working with them since I was a kid, right? Ten years old, I was working with my dad and, like, I started from the bottom just, like, sweeping the floors and doing mopping, and that was really good. I think that taught me a lot about being an entrepreneur.
Andrew: I used to do that, too. My dad always told me, “Don’t follow me into my business,” though. It was, he had clothing stores. He said, “Don’t follow me into my business. Go be someone who wears a suit.” Did your dad give you that kind of direction? Go beyond this, take this and move forward?
Hector: Well, my dad is an electrical engineer. My mom is a computer scientist.
Andrew: Okay.
Hector: So they taught me about technology.
Andrew: Got it.
Hector: So that was really important in my life.
Andrew: How?
Hector: And they told me . . . they would always talk about that. Like, my dad, when I was, like, at school, like, they would talk about physics and electronics.
Andrew: Really?
Hector: My dad would, yeah. My dad would fix stuff.
Andrew: Okay.
Hector: He’s an engineer, right? So it was really hard when I . . . I always said that I was going to study in the U.S. or, I didn’t know Canada at that moment. I said I was going to study in the U.S. And he always told me, it’s, “I think you should be an engineer, and then you can learn the business side.”
Andrew: Ah, okay.
Hector: So that was the lesson from my dad.
Andrew: And it worked out.
Hector: Yeah, it did, because I love technology and being a, I’m a mechatronics engineer, so . . .
Andrew: A what engineer?
Hector: Mechatronics.
Andrew: What’s mechatronics?
Hector: Mechatronics is a combination of electrical, mechanical, and software.
Andrew: Ah, okay.
Hector: It’s kind of like robotics.
Andrew: Okay. Yeah, that’s what I was thinking. And you focused on the software part. Sorry, you were getting into fraud.
Hector: Yeah.
Andrew: So you were starting to give an example of a specific thing you did for fraud.
Hector: Yeah, so for fraud was . . . we did statistical models. We hired data scientists. Really hard to hire talent in Mexico, so you need to steal them from several different types of companies. We’re trying to do expats that, Mexicans living in San Francisco that had to leave.
Andrew: Ah.
Hector: Because of, there were no startups at the moment. They were coming back because they want to work for a Mexican company, which is really great. So we started doing statistical models, connecting to some providers, like fraud providers, and we built something for, built for Mexico. The fraud solutions are targeted for the U.S., and they don’t account into the way fraud works in Mexico.
Andrew: How?
Hector: Which is part of the culture, right? I would say that in the U.S., probably it’s more like Ukrainians and Russians trying to do fraud. In Mexico, it’s the whole population trying to do fraud. They try to get away because they know that in an emerging market where the government is not monitoring online activity, they can get away with anything.
Andrew: So you might as well.
Hector: So we need to become the police.
Andrew: Okay.
Hector: That’s the difference.
Andrew: And so then what do you look for? If you’re saying fraud is so widespread, how do you, what do you identify as an indicator of fraud? What’s one example of that?
Hector: Rather than trying to identify fraud per transaction, we’re building it per user. So we build a history for a user.
Andrew: Okay. So you’re basically creating a credit check of your own on . . . so does that mean that you give them a little bit of credit and then you monitor, and then a little bit more?
Hector: Well, not credit. So we allow them to process a card that the chargeback is absorbed by the merchants, but it took us probably, like, four or five years to start building a little bit of history with our merchants. And that way we knew, okay, this guy is committing fraud. Let’s shut it down.
Andrew: Got it.
Hector: And we built through even their device, their emails, so they’re banning in the Conekta network. So that’s what we did. So now even what we’re trying to hope in the future is that people, consumers start behaving because Conekta’s there, right?
Andrew: Because you’re watching. Right, right.
Hector: Yeah, exactly. So that [they’re behaving 00:27:13] . . .
Andrew: Like, the reason that we all pay our credit card is, yes, because they could come after us, but also we want to establish that credit.
Hector: Yeah. And everybody in the ecosystem was afraid. The issuers, the switches, Visa, MasterCard, everybody is afraid because nobody was able to tackle fraud. And Conekta did that, and we worked with the banks. And to give you a perspective, right now Conekta is at lower than 1% chargeback rate.
Andrew: So . . .
Hector: And that’s huge for Mexico.
Andrew: That is huge. That’s huge, actually, for anywhere. But it just occurred to me. I was going to your website, translating it in my head and translating it using Google Translate, and some number came out to me. Eighty-two percent of the Mexican population doesn’t have a credit card, you said, right?
Hector: Yeah.
Andrew: So then the majority of your payment isn’t even on credit cards and credit card fraud. The majority is, how do we get somebody who doesn’t have a card, doesn’t want a card, whatever reason, into a store to buy it with cash.
Hector: Yeah.
Andrew: That’s the thing. So all this credit card fraud is good.
Hector: Um-hum.
Andrew: But it’s how do we get them into a store. That’s the thing.
Hector: Yeah. Yeah. And so that’s why we built Oxxo Pay in partnership with Oxxo. So we started creating a relationship. So the holding company from Oxxo called FEMSA invested in our company in our series A.
Andrew: Ah, okay.
Hector: So that was really interesting to have such a strategic partner, and that helped us create a product with Oxxo. We created Oxxo Pay, which is the only product in Mexico that allows merchants to accept cash payments at Oxxos with real-time payment confirmation. So remember that we spoke about that we had an Oxxo product before.
Andrew: Yeah.
Hector: So that would take 24 hours for the merchant to get a payment confirmation, because . . .
Andrew: How would that work?
Hector: It was a batch file, so Oxxo would grab all the payments, put it the next day in a file, and they would send it to you, right? So what we did is a real-time payment confirmation with Oxxo. We built it and we launched it in February 2017. And now, Oxxo Pay accounts are 42% of our volume.
Andrew: Wow. Okay, I get that.
Hector: So it’s almost two years? Well, it’s actually two years.
Andrew: And it’s already 42%.
Hector: Yeah. So it’s growing pretty fast. It’s at 800% year-over-year growth, and it’s just amazing seeing this growth. And at the same time, it’s just an opportunity for merchants, so we’re working now with Google, Uber, Facebook . . .
Andrew: To accept cash payments.
Hector: . . . to accept cash payments in Mexico, because, as you said before, I already have a product that allows me to reach the credit card population. Now I have a cash product that is efficient and I can get more consumers.
Andrew: Yeah, so the way that I saw it work was a user goes to a website, finds what they like, adds it to their shopping cart, hits the whole process with, like, what’s the shipping, and then selects payment. They could select a radio box for credit card or another one for cash. They select the cash payment, they’re taken to a confirmation page that says, great, here’s how much money you need to take to this store, and here’s your number.
Hector: Yeah.
Andrew: They just give that number and the cash to the store, and then the store immediately says to the online merchant, “We got paid. Go ahead.”
Hector: Exactly.
Andrew: That’s the deal. And now there’s no chargeback, no issues, no nothing.
Hector: There’s no chargeback for merchants, and there’s a way for consumers to pay with cash. So it’s a cash economy, so we’re providing a cash solution to pay for online merchants.
Andrew: Okay. I’m going to take a moment to talk about my second sponsor. It’s a company called Toptal where you can hire the top talent. That’s where they came up with the name. We were just talking about data scientists and how Conekta’s really good at finding fraud because they went out and recruited data scientists.
You might be listening and saying, “You know, it would be nice to have a data scientist.” Or maybe in one of my other interviews, you hear that there’s somebody who’s also interesting to have in your company, but you don’t need full-time. You just need somebody to come and give you guys a little bit of direction with it.
That’s the beauty of going with Toptal. They have the best developers. All you have to do is go to their website, the URL I’m about to give you. Tell them what you’re looking for. They’ll get on a call with you, they’ll understand your issue, and then they’ll find the right person or people to work on a project full-time, part-time, whatever you need.
All right, here’s the deal. Go to toptal.com/mixergy. You’ll get 80 hours of Toptal developer credit when you pay for your first 80 hours, in addition to a no-risk trial period. That’s top as in top of your head, tal as in talent, T-O-P-T-A-L dot com slash mixergy. And many past interviewees have heard me say this in the interview and have gone on to hire from Toptal, and I urge you to go there. Toptal.com/mixergy.
Is it weird that I’m doing an ad here?
Hector: I think I’m probably going to that, as well.
Andrew: I think so, too. Julio, we should introduce you to Toptal. What does Julio do? You’ve got someone with you.
Hector: Comms.
Andrew: Like communication.
Hector: Yeah. PR, PA, a lot of stuff.
Andrew: I feel like everything about you is, like, on point. Am I right?
Hector: Yeah. Thanks to this guy.
Andrew: Like, if I looked at your calendar right now, would everything be laid out in the calendar perfectly?
Hector: Yeah.
Andrew: That’s the way you are.
Hector: Yeah.
Andrew: What time do you wake up?
Hector: Seven.
Andrew: Seven in the morning.
Hector: Um-hum.
Andrew: What time do you go to sleep?
Hector: Eleven.
Andrew: Eleven o’clock at night. Okay. So you’re, like, super-efficient, and still you were telling me before you started that you get to enjoy a little bit of Mexico, right?
Hector: Yeah.
Andrew: What was that walk thing that you did up a mountain?
Hector: Oh, yeah, Tepoztlán.
Andrew: Tepoztlán.
Hector: Yeah.
Andrew: What is that?
Hector: So it’s a city . . . probably, like, an hour from Mexico City, and it’s a town. It’s really good. It’s really nice. It’s very Mexican, so . . . and then you enjoy the town, and then you can climb a mountain, and there’s a pyramid on the top.
Andrew: And when you do that . . .
Hector: It’s kind of like an hour and a half climb.
Andrew: Of a walk up.
Hector: Yeah.
Andrew: When you do it, are you someone who says, “I have to hit my numbers and walk faster than last time”?
Hector: No.
Andrew: No.
Hector: No, I enjoy it.
Andrew: You’re just enjoying yourself.
Hector: Yeah.
Andrew: You can disconnect.
Hector: Yeah, that’s my time to enjoy. But it’s really good. It’s very refreshing to do.
Andrew: What else do you like to do when you’re not working?
Hector: Reading.
Andrew: Reading. What do you read?
Hector: I have three types of books. So I like reading novels. The other one is biographies. I really like from probably entrepreneurs and also emperors, like, Rome.
Andrew: Me too.
Hector: It’s very fascinating.
Andrew: What do you learn from emperors? I find I just get this bigger vision and more motivation, and also a fun story. What do you learn from them?
Hector: It’s just that. It’s just a time in history where they had such a responsibility, and they were creating nations, so it’s, and empires, in this case, and it’s just really . . .
Andrew: Do you feel like you’re doing that? I mean, not to be to the point where you’re taking over people. I feel like when I sat here with you, I asked you, “What’s a win for you?” I felt a sense of the weight on your shoulders of the entrepreneurs here in Mexico that you want to build this community, that you want to empower all them to be able to sell online, to do what? Do you feel like that?
Hector: There’s a huge responsibility as Conekta, because we are powering other startups. We are powering the digital economy. So yeah, I think there’s a huge responsibility from our side. We need to do a really good job. We cannot be thinking about exits and, acquihire . . .
Andrew: Really?
Hector: Because we need to do a really good job in the future, right? We’re powering an emerging market. So it’s a huge responsibility for us, and yeah. But at the same time, it’s very, very exciting, and I love doing that, because it’s just, you wake up every single day and you know that you’re helping startups. So the majority of startups in Mexico use Conekta, which is awesome. We know that we’re building a really good product because you know that our clients care about what we do. If we do something wrong, they would call you. They would yell. And that’s good, because you know that you’re building something that matters.
Andrew: Okay.
Hector: And for SMBs, it’s just amazing. It’s like we leapfrog from personal computers to smartphones in Mexico, and also from the software generation into the clouding generation, the cloud generation. Because we see new companies, new SMBs just being created from just having a laptop or an iPad and being able to sell online, which is, especially young generations just trying to do that and trying to build online businesses in Mexico . . .
Andrew: And that’s what you’re enabling.
Hector: Yeah, and it’s just great being able to help companies. And also with, we’re going to start doing . . . for instance, we’re going to be helping single moms being able to create an online store, being able to sell online and be able to get ahead, and thanks to Conekta. And on the other side of consumers, we’re creating these trust networks as we mentioned before for credit card transactions, and also for cash, we’re enabling the unbanked to be able to pay.
Andrew: Right.
Hector: Just a huge responsibility that we need to do a really good job. And I think more, rather than being a payments company, I think we are a trust company. We need to provide trust in emerging markets.
Andrew: I’m going to come back and ask some follow-up questions on that, but I want to let you finish the books that you read. You like to read about world leaders.
Hector: Yeah.
Andrew: Biographies. What are the other two?
Hector: Novels, and the other one is business-related. So for instance, right now, I’m reading “Blitzscaling.”
Andrew: Ah, “Blitzscaling” by Reid Hoffman.
Hector: Yeah.
Andrew: The founder of LinkedIn, yeah.
Hector: And for novels, I’m not reading one right now, but then for the other one, I’m reading about a Mexican president called Porfirio Díaz.
Andrew: And you’re doing it back to back.
Hector: Yeah.
Andrew: Like, with “Blitzscaling.”
Hector: It really depends on my mood. I try during the night to just read the biography, and then for “Blitzscaling” is just whenever I feel that I need, so . . .
Andrew: Yeah.
Hector: So it’s just depending on the hour that I do it.
Andrew: I know we’re almost out of time. Let me ask you this, though. As someone . . . do you ever feel like, maybe if I would have done this in the U.S. or Canada, I could’ve been bigger. I could’ve done something else. It would’ve been easier. Do you feel any hesitation about being here?
Hector: I mean, it would’ve been easier, but I think we’re creating more value here being in an emerging market. Again, instead of being a niche company, you need to be more horizontal and try to do as many things, because there’s nobody else doing it. So that slows down your progress. And imagine just having a company already doing fraud management in Mexico.
Andrew: Right.
Hector: Then we wouldn’t have to do that. So that’s why it was slow. At the same time, being a fintech company, we need to be careful. You cannot just grow as a normal tech company just, like, with hypergrowth. Now we are. So, for instance, this year, we’re going to be growing 5x, and that’s our goal.
Andrew: Five x.
Hector: Yeah.
Andrew: Talk about blitzscaling.
Hector: Yeah. So it’s just, yeah, Julio is . . .
Andrew: Overwhelmed or excited?
Hector: Yeah, it’s over, both. So the thing is, yeah, it’s definitely harder, but I’m not, I don’t regret being here and just helping, right? That impact that we are creating in the country through technology disruption is just huge, and I’m so excited. Even when we started the payment gateway, the bankers couldn’t understand what we were doing, right? They didn’t get it. And I said, like, okay, I’m not going to spend time explaining to them what we do. I’m just going to do it, right?
We launched, and now that we’re big, they’re like, okay, it makes sense. But that helped create disruption in the market, and that created a new set of mind for entrepreneurs and for bankers that things can be, are possible. Because before, there were so many traditional companies that they couldn’t understand disruption. So that, I feel super excited about that.
Andrew: I get that. Are you a little worried that now Stripe wants to come to Mexico and America is starting to discover this?
Hector: No, I think they’re a great company, and one of the things that Canada taught me was collaboration, and I think that in order to do, to enable the ecosystem, we need great players, and I think Stripe is one of the companies that I admire, and they’re awesome.
Andrew: They might need to accept cash, too, here.
Hector: Exactly.
Andrew: And if they do, you guys are open to collab.
Hector: Yeah, so I think that if we have collaboration, so we’re moving from the payment gateway to fixing payments, right? So if we do a really good job in Mexico, we allow, we enable consumers to be able to buy online with no chargeback, obviously Stripe would be able to, and many other companies being able to collaborate with us and being able to work together. So I think it’s a good indicator for the market. I’m actually excited that American companies are coming to Mexico, because they see the potential of obviously LatAm in especially Mexico and Brazil. So it’s really good that they’re here. I’m super excited.
The first company that arrived, which was Amazon, I remember I was at a Money20/20 event, and they were talking about, like, Amazon in Mexico. Let’s invest.
Andrew: Ah.
Hector: So that was the enabler for investors to start investing in Mexico.
Andrew: If Amazon is in here, let’s invest in startups here, too, because it means that there’s something here.
Hector: Yeah. If Amazon decided to come to Mexico, that means that, yeah, there’s something going on there.
Andrew: All right. For anyone who wants to go check you out, the website is conekta.com, right?
Hector: Yeah.
Andrew: I don’t think there, is there an English version of the site?
Hector: Not yet. We’re going to be releasing that really soon.
Andrew: Okay. All right. And frankly, anytime you’re in Mexico now, whenever you see those shopping stores, it’s got to be mind-blowing to see your name everywhere, right? The product that you created. Thank you so much for doing this. I know that you’ve got a lot going on here. Five x’ing your business is not easy. Running a financial tech company is not easy. I really appreciate you taking the time here to do this, and I’m especially grateful to your investor Santiago from Mexican.VC. Mexican.VC is his first VC company. Now he’s in charge of 500 Startups. He is really helping to grow the whole ecosystem.
Hector: Yeah. He’s great.
Andrew: Introducing me to you. Giving me space to interview you is a huge help. And I want to thank the two sponsors who made this interview happen, HostGator for hosting your website, hostgator.com/mixergy, and for hiring developers, Toptal. Check them out at toptal.com/mixergy.
And finally, see where I’m running next. Seven continents, seven marathons, one year. Check out runwithandrew.com. I’m going to keep traveling the world and meeting great entrepreneurs. Bye, everyone.
