Adolfo Babatz and Vilash Poovala were testing a mobile credit card reader and point of sales system at PayPal in 2008. It worked. Merchants liked using it, but the two couldn’t sell PayPal on the idea. Square launched in 2009, and the two watched as it took off. “Of course we were banging our heads against the wall,” Babatz, Clip’s CEO, says. They couldn’t let their idea go. In 2012, the year PayPal finally released its own mobile payment system, the two quit PayPal to try again. They raised money from an angel investor, rented an office next to noisy Caltrain tracks in Redwood City, and bought some furniture at IKEA. As of January 2016, they’ve raised more than $8 million and say they are growing 30 percent month over month. It’s a good story, but Babatz thinks Clip can have a better one.
“Mexico is in deep need for a success story,” Babatz says, and he wants Clip to be part of it. Babatz, who grew up in Mexico and attended MIT, moved Clip to Mexico City in 2013. Why? “Developing countries are far more interesting than developed countries,” Babatz says. Besides potential for growth, there’s also an opportunity for social impact.
Babatz offers a rudimentary example of Clip’s potential for growth in Mexico. “Of all the transactions between a business and consumer in Mexico, let’s say that represents $100 a year. Only $8 are transacted on debit or credit cards. The remaining $92 is mostly cash.” There are a lot of cards, though. Babatz says there are roughly 120 to 130 million debit cards and 30 million credit cards. Unfortunately, Mexicans don’t have a lot of places to use those cards. According to Babatz, ATMs regularly run out of cash on paydays. Which brings us to the growth potential for a business like Clip. In Mexico, roughly 400,000 merchants accept credit and debit cards — 11 million others could. Why are those 11 million not accepting cards? It’s expensive and difficult.
Babatz describes a merchant in southern Mexico opening a car repair business. That merchant can either accept cash or buy a $1,000 point of sales (POS) system that requires “48 steps.” After that, he’ll wait three to nine months. Worse, it’s an incomplete product, limited by the number of cards it accepts. Traditional POS systems also require merchants to reach minimums for charges each month. Clip, on the other hand, doesn’t ask for minimum charges, costs $32 U.S. ($26 at Sam’s Club), and accepts all major credit cards. Merchants can also use Clip to accept interest-free installments from customers through partnerships with 17 banks in Mexico. Clip isn’t facing off against PayPal or Square in Mexico. Its biggest competition is iZettle, a Swedish-based company making inroads in Mexico with a similar service.
Mexican venture capital firm Alta Ventures led Clip’s $8 million dollar Series A in December 2015, but investors like Sierra Ventures and American Express Ventures saw potential in Clip as well. In a statement, Sierra Ventures said, “We invested in Clip because the company is the leader in tackling the undeserved payment processing opportunity for SMB’s (small and medium-sized businesses) in Mexico and Latin America.”
Babatz says Clip’s mission is to “enable people to exchange value.” It’s a simple premise and it’s far from unique, but it goes much deeper. “We don’t empower businesses, we empower individuals,” he says. In turn, businesses benefit from that empowerment. The better businesses do, the better Mexico’s economy gets. Clip’s first slogan was “Join the payment revolution.” Babatz says, “Clip comes from a deeply revolutionary, almost socialist mindset, combined, of course, with a lot of venture capital.” The capital that Clip has raised, though small by U.S. standards, makes it one of the highest venture-backed businesses in Mexico.