BILL Holdings, Inc. (BILL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Payments on the Road Virtual Bus Tour with Bill.com. Please note, this module is being webcast. [Operator Instructions] It is now my pleasure to turn the floor over to your host, John Coffey. Sir, the floor is yours.

Thank you very much, Paul, and hello to everybody, and welcome back to the Payments on the Road Virtual Bus Tour. This is John Coffey of Susquehanna. So I'm happy to be joined now by John Rettig, CFO of Bill.com. As most of you are likely aware, Bill.com is one of the most exciting payments names out there today. With a focus on the small merchant, Bill.com slashes the time, paperwork, errors and frustration out of the merchant accounts payable process via digitization of invoices and payments, including moving payments away from check and data-rich ACH, wires and virtual cards. Bill.com's merchant clients can eliminate the boxes of paper invoices and get more control over their entire AP process via a single interface. And they have powerful allies. In addition to the direct marketing, they have partnerships with about 80 of the top accounting firms in the country, 80 of the top 100, I should say, and with Intuit/QuickBooks and with 5 of the top 10 banks in the country. And all these channels bring clients, more than 100,000 in total now, to the Bill.com platform. And I think, and John can correct me if I'm wrong, we're just a couple of days away from the company's first anniversary as a public company, but it seems like in that short time, you've nearly quintupled the price, the share price. So that's certainly not a bad start for your first year. So John, thank you very much for joining us.

Yes. You bet, John. It's my pleasure.

Great. So just a couple of intro questions. I was wondering if you could maybe answer these 2 questions. And you can really tackle them in any way you want. I was wondering if you could, A, talk a little bit about yourself and your background; and then B, talk a little bit more about the origin and the mission of Bill.com.

Sure. Happy to. Yes. I've been in finance leadership roles my entire career, joined Bill.com a little bit more than 6 years ago. And very interesting culture, the team resonated with me. And most importantly, having been in finance and implementing systems and processes at lots of different companies, whether it's software, e-commerce, digital media over my career, I have lots of experience at solving the pain points that the Bill.com platform is a solution for. And the difference though is, most of my career is at larger companies with the financial resources and technical skills to create custom integrations with banks or software platforms or things like that. And the reality is, most small businesses where we're focused don't. And so I just wish I had found the Bill platform many years earlier in my career. The genesis of the company was founded by Rene Lacerte, who comes from a family of entrepreneurs, both parents and grandparents and cousins. His prior company was named PayCycle. It was the first Internet payroll business. And as a part of operating that business, that's where he sort of learned firsthand the challenges and the gaps associated with the financial back office and how much it was anchored in sort of paper and manual legacy processes. And that was the sort of the origin of his idea about bringing efficiency and automation to the back office. And so our mission is to make it simple to connect and do business. We're champions of small and midsized businesses. That's our market focus. Our platform digitally transforms how accounts payable and accounts receivable get done. It's all about automation and efficiency. Large market opportunity we're going after. There's 6 million businesses in the U.S. with employees. And there's only 20,000 of those businesses that have more than $100 million a year in revenue. So by definition, most of the market is small businesses. We've got an attractive high-growth subscription and payments monetization model. We have lots of partnerships that I'm sure we'll talk about today and many growth opportunities ahead.

All right. Great. No, thank you. That's a great answer. And so I guess what I wanted to do first, while partnerships certainly is one of my questions, but I want to talk a little bit about the AP ecosystem and about where Bill.com fits in with it. So we actually just spoke with FLEETCOR, who, I believe, is one of your partners. And there's quite a lot of other companies out there that also are in the space, names like MineralTree. We have talked to Finexio. You have AvidXchange. How is Bill.com differentiated from these other players?

Sure. So first, I'd say, our focus is on small and medium-sized businesses. The small segment, we define as businesses less than $10 million a year in revenue. And the medium or mid-market segment is $10 million to $100 million. Our main competitor in sort of that small business segment is really inertia and paper-based processes. We've seen surveys where 80% to 90% of businesses report that they still rely on paper checks as a primary form of payment. And that usually means that everything that precedes that paper check is also manual. So filing cabinets, sticky notes, e-mails, things of that nature. So we really are trying to transform, help companies transform how they operate from a process management standpoint because we apply the capabilities that we have around digital document management, workflow approvals and collaboration. We apply those capabilities to AP and AR. That's what gives us the opportunity to do payments. And ultimately, there's not a lot of direct competition as it relates to both AP and AR, which is what we focused on, granted most of our business is AP. And then we have, obviously, a large network. So 2.5 million members in our network where companies are either paying or getting paid. And ultimately, that becomes an interesting opportunity as a prospective source of new customers down the road. So I'd say some of the companies that you mentioned are definitely focused on much larger businesses, call it, mid-market and even in some cases, enterprise. And most tend to pick one problem to solve, whether it's around AP automation or AR as the case may be. And we're trying to solve both through a platform approach for small customers.

Okay. Now when it comes to your customers, it does seem per your comment that their size is a bit of a differentiator versus the customers of some of those other companies I've mentioned in the past. Should we also think of your customer/client as kind of being more focused on a particular vertical? Like are you seeing a lot of retail versus a lot of people who sell mail-order products. I mean, I'm just wondering, do you have certain verticals more represented than others that could further distinguish Bill.com.

Great question. So our strategy is horizontal. So we go-to-market with the platform and customer targeting across all industry verticals. And the way we develop our platform and add features and functionality is by thinking about what are the needs of, say, 80% of all businesses as opposed to, say, a vertical market approach, which is trying to solve all of the needs of one particular vertical. That's not our approach. In part because, as I mentioned before, the vast majority of businesses that have employees in the U.S. are small. And so we're really going after the biggest market opportunity. And because of this focus on the small businesses, I think they're the most underserved, frankly. There's not a lot of pure-play platforms that were purpose-built to help companies in a self-service way automate their financial operations. So as a result of that horizontal approach across all industry segments, we don't really have concentration in any particular vertical. I'd say that we index a little bit higher than U.S. census in professional services and service-based businesses and technology companies. But other than that, we kind of track U.S. census across all industry segments.

Okay. Interesting. All right. That's very helpful. So my next question is indeed on partnerships. And I know that you have relationships with several of the U.S.'s largest banks. I'm thinking, I know it's more than this, but AXP, JPMorgan, Wells Fargo. Can you speak a little bit more about what do you do for these banks and why do they want to partner with Bill.com? Because the question that would come to my mind is, what can Bill.com do for these companies that essentially they could not or choose not to do for themselves?

Yes. Definitely. So if you think of American Express and JPMorgan and Bank of America is another partner, Wells Fargo, more recently, where we had an announcement this week. Those companies spend billions of dollars a year in technology and in products. And I think what we have learned in working with them is that our platform that automates AP and AR workflow is super easy to use and our service allows, our platform allows these financial institution partners to better serve their customers, and it makes their customers stickier. Ultimately, they use more products of the financial institution. They stick with them longer. And they're able to develop more profitable relationships with their customers. And that kind of comes from, we've spent the last 14 years building out our platform and these relationships. And we have a great technology stack, modern technology platform that's highly scalable. Our foundation is really on sophisticated infrastructure. We have our own proprietary payment capabilities that we've built over the years, including money transmitter licenses and solving some of the complexities around the regulatory and compliance activities, which is hard to do. And then our platform can be adapted for unique use cases that any particular partner might have. So the financial institutions that we work with really recognize that our platform along with the network of 2.5 million members. So when a new financial institution customer signs up on their bank's website, let's say, to use the white label version of Bill.com, they have immediate access to our network of 2.5 million members. So it's definitely a differentiator with the financial institutions. And I'd say, we've seen their level of conviction about how our platform can help them increase lately. We've obviously announced 3 new partners in the last 6 months or so, and we've seen a significant increase in our remaining performance obligations, which are over $150 million now as of September 30. And that's just, I think, a testament to the level of commitment that these FI partners, financial institution partners are making to us. And we're really, really opportunistic about being able to make a difference for small businesses by working with them as well.

Okay. So I just want to drill down into just an example so I can understand a little bit better. I think you mentioned Amex. I was wondering if you can kind of give me an example of the kind of client that Amex would have that would be performing some kind of maybe accounts payable operation via Amex, and they're essentially, an operation of theirs goes over Bill.com. Like what, just kind of thinking like a concrete hypothetical example, what would that consist of? Like who is that customer and what are they trying to do?

Yes. It's a small business customer of American Expresses and their goal, paying other Amex customers who accept cards. And that product is something that we've integrated into our platform and made available to the Amex customer base but that's maybe going to cover 10% or 15% of payments, where the customer wants to pay via card and the supplier or the merchant wants to accept the card payment. So what Amex is able to do with our platform is offer a solution where their customers can make all of their payments, ACH payments, check payments, other payment types, in addition to just the virtual card payments or the Amex payments that they're driving. So it becomes a more holistic solution than just enabling one payment type for those Amex small businesses.

Okay. Okay. That makes a lot of sense. So my next question is on acquisition costs. So I was wondering, in addition to your direct marketing and your bank partnerships, with which you acquire clients as well as with your accounting firm partners, how should we think about the cost of acquisition across each of these channels? Which is the least expensive way for you to acquire which kinds of clients or which kinds of channels results in the highest client margins?

Sure. Yes. Our go-to-market strategy includes our direct channel, which is online advertising and referrals and things like that, working with financial institutions as we talked, accounting firms, 80 of the top 100, 5,000 firms overall, and then accounting software providers like Intuit and NetSuite and Intacct and so on and so forth. We tend to solve for equivalent contribution margin across all of the channels, but we get there different ways. There's different variables. So overall, though, we're very disciplined in our approach. We focus on efficient use of capital. We target a 5-quarter payback period on our customer acquisition costs. And if you think of like our direct channel, it's the highest rates on a per customer basis where we go direct to customers, but it's also slightly higher customer acquisition costs and slightly higher attrition. Whereas the accounting channel, we offer our accounting firm partners a discount on subscription fees as an incentive for them to support rolling out our platform to their customers. And what we find is that those client and their accountant and their accounting firm that they work with, that's a very long-term relationship. Customers, businesses don't change their accountant every year. As a result of that, the attrition rate for an accounting channel client is much lower than in any other part of the business. Hence, we have a higher lifetime value on those customers, even though the rates are a little bit lower. And the same is true with financial institutions. They buy in bulk from us. So we sell to our financial institution partners on a wholesale basis, that's both subscription and transaction fees. They make minimum multiyear revenue commitments to us. And then they take on the primary responsibility for customer support and ultimately driving adoption of the product within the financial institution customer base. So they have the kind of sales and marketing costs, and we don't have any of those costs, so lower OpEx for us. So those are some of the variables that are at play and how we're able to solve for kind of equivalent economics across the channels. But ultimately, we invest in all of these channels in order to not only drive revenue but awareness of our platform given just the huge market opportunity and the number of businesses that we're trying to attract.

Okay. No, that's very helpful. So when I'm thinking about some of these channels, I was wondering how should I think about client ownership with regards clients who've come through the other channels. So for example, if a banking partnership ended, is it allowable for Bill.com to directly contact the clients they work with to retain them on the platform or perhaps it doesn't work that way?

Yes. So with regards to the financial institution partners, specifically, they are direct customers of our bank partners. So they're sort of indirect customers of Bill.com. We do include them in our customer count, just to confirm that. And they leverage the platform through their bank, and they connect with their suppliers and/or buyers, depending upon whether they're using AP or AR or both. And so there certainly would be an opportunity to transition clients to either the platform directly through an accountant that they work with or otherwise. One of the things, regardless of the channel that a customer uses our platform through, they become aware of the brand, aware of the capabilities and obviously aware of the network, and they create connections with the 2.5 million suppliers that I talked about. So I think there's certainly opportunities to transition if needed. It's not something that we really plan around, so to speak. We have good long-term relationships with our financial institution partners. Many of those contracts are already in renewal phases. And so we feel really good about the relationships that we have.

Okay. So I want to move on a little bit to accounts receivable. I mean, I think oftentimes when reading about Bill.com, accounts payable seems to be the part of the business that I hear about the most, but I do have noticed that you do mention accounts receivable. And so I was wondering if you could talk a little bit about that. And in particular, have you ever discussed the revenue breakout between these kind of 2 products, the accounts payable and the accounts receivable?

Yes, sure. AR is a really interesting opportunity. And to start with the last part of your question, we haven't separated or segmented AR versus AP or any products actually on a revenue basis. But you're right, accounts payable is a much larger part of our business. It's where we started. It's where we've built the platform capabilities around workflow and automation and document management. And then we started to apply those to AR as well. One of the interesting things is that our network is somewhat of an AR opportunity. You can think about, we do millions of transactions a quarter, billions and billions of dollars. And for those businesses in our network that are receiving payments, it is essentially an accounts receivable persona. They may not be using our platform to submit an invoice or deliver payment instructions or things like that, kind of the true AR aspects. But we think there's an opportunity to enhance our AR offering over time and have more and more network members using that functionality such that we have, I think, more balance between AP and AR. Whereas today, we're still very much AP focused in terms of the activity of our customers. But nevertheless, feel good about there being a significant AR opportunity.

Now when it came to AP, I think you said your biggest competition was paperwork and inertia. When we think about AR in particular, do you bump up against companies like Billtrust and HighRadius or is it something, again, like paper and inertia?

Well, in the case of those 2 companies, specifically, I'd say it's more a market segmentation difference. So both of those companies are working with very large enterprises. And in fact, in the case of Billtrust, just looking at their public materials, right, they're kind of focused on the largest 1,000 billers in the country. We would call that the enterprise market. And we don't play in that space at all. There's just white space in between us and them as it relates to that. Their smallest customer would probably be many multiples of the size of our largest customer, frankly. And then there are point solutions out there for AR beyond the enterprise-focused companies that you mentioned. But those tend to be focused on freelancers, so businesses without employees that are just one person. And we find that our platform, the product market fit is best for companies that have employees, so that there's a little bit more complexity in the workflow and collaboration and the process side of running their AR operation. But we do think that there's value in having AP and AR together in the platform, both as it relates to workflow, and then over time the potential for network effects to organically grow the business.

Okay. Yes. That makes sense. I just want to move on to payment types. And I think you've mentioned in the past what percentage of your TPV is tied to virtual cards and I think sometimes also to cross-border wires. But just like when we kind of look at check and ACH, wire and virtual card, can you talk a little bit about how we should think about the breakout of your TPV across those primary payment types?

Sure. So we offer check payments, ACH, virtual card, cross-border, which is delivered via wire. More recently, we announced Instant Transfer payments, which is leveraging the real-time payment network. And there's other payment methods that will be introduced over time. Our primary goal, our focus is on driving adoption of electronic payments, enabling companies to move away from manual and paper-based payments. And we've made significant progress in doing that. If you look at our payments overall, about 60% are electronic payments now. And that's an interesting indicator because most companies, when they start on our platform, they're like 80% or 90% check payments because they don't have some other system. When a new customer comes to us, it's not like they've already automated their financial operations and now they're looking to improve upon it. They actually are doing it for the very first time. So ACH is the vast majority of payments on our platform. Checks are next, about 60% ACH payments. As it relates to some of the newer payment offerings, like cross-border payments was launched about 2 years ago, let's say. As of the end of our fourth quarter, I think that's the last number that we reported publicly, it represented about 2.4% of our total payment volume. And we think that the longer-term opportunity for cross-border is more like 10% to 20% of payment volume. And then virtual cards that we introduced about 18 months ago as of the fourth quarter, there's about 1% of total payment volume. And we think that opportunity, again, over the longer term, could be in the 5% to 10% range. So we're really relatively early in some of these newer electronic payment types, but we've seen good usage and good adoption out of the gate and feel like we're going to be able to continue to help customers move to electronic payments and get off of paper.

Now just a clarification of terms. When you're talking about nonelectronic payments, is that just synonymous with checks or is there something else to be included in there, too?

No. Just check payment. That's right.

So when you're talking to suppliers and trying to convince them to accept virtual cards, what is the thing that is the biggest incentive to get a supplier to move over to a virtual card, something that would offset the additional pricing that they would incur?

Well, so we are delivering virtual cards to suppliers in our network who are merchants of record. So they're already a card accepting merchant. I mean there is an opportunity down the road for us to help suppliers become merchants, but that's not something we're doing today. And so to the extent that a supplier already has an acceptance cost built in and they're going to receive a fast payment that's certain, and they have an established process for reconciling those payments, closing out their open AR item, quick access to cash and those sorts of things, then it could make sense. An area where it might not make sense is if it's not going to be a fast payment or it's going to be uncertain as to when the payment is going to be received. It may be that the merchant discount rate that a supplier is paying is too high relative to the potential value of a payment not showing up quickly. So it's really dependent upon each supplier's unique circumstances. Our approach to virtual cards is to really try to find the right payment method between buyer and supplier. We're not so much focused on maximizing the usage of virtual cards, for example. It's really what electronic payment method will lead to the highest probability that the transaction between buyer and supplier becomes a repeat transaction. In other words, it recurs. That's what we're all about. About 80% of the payments on our platform in any given quarter are what we call repeat payments, meaning that same buyer and supplier have had a transaction in the prior 3 months. And that's why we're focused on just finding the right payment method versus, say, optimizing the amount of virtual cards or cross-border or some other payment type because we don't want them to be one-off payments.

Sure. Okay. No, that's very helpful. I guess when it comes to virtual cards, I was wondering what you thought about the potential and what you think of, I mean, I think you said that you think it could be 10% to 20% of your overall TPV. I was wondering, is that what you view as perhaps the long-term ceiling? And what do you, I guess, what makes you come to that 10% to 20%?

Yes. Just to clarify, so the virtual card target adoption rate for us is 5% to 10%. For cross-border payments, that target is 10% to 20%.

Oh, sorry to point out that.

Yes. Got it. 5%, that's okay. I should just point out with cross-border payments that those are a combination of U.S. dollar payments, which is like a flat fee, and local currency payments, FX payments, which is tied to the amount of the transaction and the currency and all that, so a much higher monetization rate. And the 5% to 10% for virtual cards, that target, it's really just based when we did our business case to launch this product, we looked at the suppliers in our network and we matched them to data from Comdata, their network, Mastercard, other people that we were working with to get started with the product. And we found that there's billions of dollars of payment volume going to suppliers who are merchants of record. That doesn't mean we're necessarily going to get billions of dollars. But when we sort of step back and looked at it, we thought, as our business grows and the supplier network grows and we make it easier to accept virtual card payments, that, that 5% to 10% seemed like the right target range. There are certainly other companies who work with virtual cards, some of which you named earlier, who, they have a much higher percentage of virtual card adoption across their supplier bases. And so I mean, it's possible that we could do something above that 5% to 10%. But because of our horizontal market approach and dealing with smaller businesses, we think that's the right target. And as we're further along, we're at 1% as of Q4, as we're further along towards that target range, we'll obviously provide updates to our thinking on the potential penetration rate.

Okay. Very helpful. I have another question for you in that just given that I've had a couple of questions come in over e-mail already, I thought maybe what I could do if it works well for you. I'm going to have a question for you, and we can discuss that, and then I can open up the floor for questions. And if we have some questions, we can tackle those. And if not, I certainly have a lot more of my own. So that being said, the question I wanted to ask you is on supplier enablement. So this does seem to be something that you and Rene had talked about a lot recently. And I just want to make sure I understand it correctly. So as I understand it, you currently offer virtual cards to your clients using the Comdata virtual card network. And that B, you're building out your own network of virtual card accepting suppliers. Does that sound about right?

Yes. That's right. It's ultimately, to step back a little bit, we chose to work with Comdata for 2 reasons. One, they're a leader in the virtual card space and have been for a long time. And they also have a large network. I think it's 1 million card accepting merchants or members in their network. So they know how to do supplier enablement. And that was a new thing for us. We've not necessarily done that before. We didn't have a lot of direct dialogue with suppliers. So what we learned over time and working closely with Comdata is that it's likely better for us to do the supplier enablement. And what that really means is just connecting a supplier who's in our network to our buyers so that they can accept virtual card payments. Doesn't mean that they will, but they can accept those payments. They can instruct us what their variables are. Maybe they want to accept card payments only of a certain amount or less or from a certain type of buyer, whatever the case is. And so by taking those activities in-house what we found is, we're able to kind of match suppliers faster using our own machine learning and algorithms because if you think about it, a business can name their suppliers kind of whatever they want. So when a new customer comes on board, they might have a slightly different naming convention than other customers of ours. And therefore, we've got to basically match their suppliers with those that are already in the network. And so that's kind of a unique big data problem that we're probably better to solve than a partner. So ultimately, it's about us having that direct dialogue with customers in order to make sure that they get the right payment type, whether that's a virtual card or some other card opportunity. And that not only helps us with increasing TPV and ultimately, revenue in the short term. But any new products that we roll out, any new payment offerings that will require suppliers to have a choice or have some involvement in the decision-making process by having that direct relationship with them, we think we'll be able to drive adoption faster than would otherwise be the case.

Okay. So I think you answered my next question which was, what was the goal of the effort. So I wanted to ask you the second part of the question is what the end state looks like. So if, for example, today, we're at the end state of this process of matching suppliers, what would look different in your revenues, your expenses, your margins? Is it just that the revenues, the TPV and revenues would be higher? Would there be any impact to your expenses, to your margins? Would you still need that partnership you have currently with Comdata?

Yes. So there really won't be a significant impact to our margin profile. We obviously, we did have to increase staffing. We built a small team to jump-start this supplier, in-house supplier enablement capability. So it's a combination of technology and a small team. Relative to the revenue opportunity, it's small. So it's not, it doesn't really have a negative impact on margins. And just to describe how the virtual card economics work for us because there's lots of different models out there. We are the receiver of net economics from our partner, which is Comdata. So some businesses receive gross interchange income and then they have other people to pay and they have a gross versus net revenue situation. That's not our model. We are the receiver of net economics. And the only cost that we have is associated with payment operations or, as I mentioned, the supplier enablement capability or whatever. We're not paying others associated with that interchange rebate. So because of that, the economics and our relationship with Comdata doesn't really change. And I wouldn't say that our efforts to take on supplier enablement in-house means any change in our relationship with Comdata.

All right. Okay. Great. I still have a lot more questions. But what I thought we could do is, Paul, if you're there, I'd like to open up the floor to questions.

[Operator Instructions] And we did have a question coming from Tammy Tieu.

Tammy from PointState. I had a question on your network. So you have an impressive number of suppliers on your network. Could you walk us through how you think about the strategy of keeping a closed network versus perhaps opening up the network and potentially serving as a supplier directory and monetizing the network that way.

Sure. Great question. We built our network using a freemium strategy, so 2.5 million members today as a number. And those members are a combination of businesses and individuals, a freelancer or independent contractor or consultant. The freemium approach was to minimize the friction, lower the barriers to receiving payments or in the AR example, making payments to other Bill.com network members. So up until recently, the network members didn't pay anything. They still pay no. And in some cases, though, if they elect a certain payment type, they'll pay a transaction fee in the case of an Instant Transfer or agreement or a cross-border FX payment. Those are some of the examples within. So today, the network is ours even when we work with partners. There certainly are other networks, as you alluded to, and there could be an opportunity in the future for networks to interoperate, to be able to combine members in a more unified sort of network across different providers. It's not something that we've done or we're actively working on, but there certainly have been discussions with other industry players. And I think what we'll focus on is, how does that potentially enhance value to our customers and our network members and then ultimately value to Bill.com. At the moment, the size and density of our network is actually one of our important assets and competitive differentiators, but that's not to say there couldn't be an opportunity down the road for us to work with others.

[Operator Instructions] We did have a question come in from Jeremy Gold, if you'd like to take it now, John.

This is Jeremy Gold from Lone Pine. I just wanted to ask if there was any initial update or learnings on just how the new Instant Transfer option is going. It seems like a really interesting product that you're offering in your operating businesses in the network. And so one, just kind of curious how, what initial engagement is like or if there's any kind of, if there's any way you can talk about that? And then two, kind of outside of this, it just seems like an interesting way to further engage businesses in the network and wondering if that creates kind of additional opportunities for further engagement or monetization.

Yes, sure. Great question. Yes, we are in pilot mode with our Instant Transfer product. And that's an alternative payment method for a network member to get paid in the next 30 seconds as opposed to a few days or a week or more from now, whatever their payment timing is going to be from their buyer. Currently, we're leveraging the real-time payment network from The Clearing House. That network reaches about 50% of bank accounts in the U.S. So it's not ubiquitous yet. They're certainly making progress towards it being more widely available. And we are also working on other payment types, other methods to deliver Instant Transfers. And the initial reaction to the product has been very positive. We've seen, I think, the most common use case is for a supplier in the network who's like a freelancer or an independent contractor, as I mentioned earlier, who maybe doesn't even have a W-2 source of income. They're doing project work or ad hoc projects for their buyers. And the payment timing, access to cash quickly is one of the levers that they use to manage their own cash flow. There are analogies for this product with other companies that you're likely very familiar with. Square Cash or Venmo, PayPal, even in some cases, Intuit, have similar products. So I think there's a proven demand in the market. And to your point about engagement, we agree with that 100%. It is an opportunity to further engage the network. With that said, it's probably not a payment method that becomes the dominant payment method. Like I think it will be attractive for some suppliers for some of their payments, not all suppliers and all payments. From a monetization standpoint, although we have not announced final pricing, I can just tell you what we're doing in the pilot. It's about 100 basis points, which is similar and maybe even a little bit lower than the other examples that I mentioned. So it's an interesting monetization opportunity. But again, it's got to be the right payment method for a member. But we're pretty excited about the opportunity. And it's, I think, just another example of how we should continue for quite a while to have the opportunity to improve our monetization, our overall kind of take rate, if you want to look at transaction revenues only versus TPV was about 6.7 basis points in our last quarter in Q1. So any of these products that we drive adoption on helps to support expanding that take rate and monetization over time.

There are no other questions from the lines at this time.

All right. Great. Well, I actually got a few in via e-mail. And so I'll jump into those. I was wondering, John, can you discuss unit economics of SMB customers.

Sure. So we haven't disclosed any specifics about CAC or LTV to CAC or things like that. But what I can tell you the things that we focus on to drive efficiency. So first and foremost is payback period. So we manage the business to about a 5-quarter payback period on average. And that's non-GAAP gross margin dollars, the amount of time it takes us to recover the customer acquisition costs. The other key metric for us is dollar-based net revenue retention rate, which our most recent update on that is about 121%. And so over the last 2, 3 years, we've gone from 105% to 110% and now 121%. And what that reflects is the growth of customers the longer they're on the platform. So they add more users over time. They do more transactions. Our share of wallet increases of their payment activity. And then they adopt products as we roll out new products, so virtual cards as an example, cross-border payments is another example, Instant Transfer. Those are things that can help us ultimately drive or maintain that high net revenue retention rate. And then our gross customer retention is about 82%, which has held up very well during the pandemic, which points to the resilience of our customer base. And so with 121% net dollar-based retention rate and 82% customer retention rate, it means that revenue per customer of those retained customers grow substantially over time, call it, 150% or more. And that's just a reflection of how they use our platform and how successful we're being at driving adoption of new products.

Great.

And I guess I should just add to that, that the way customers grow with us is predominantly self-service. So a lot of enterprise-focused companies who might even have a higher retention rate, they're applying sales and marketing dollars to increase adoption of new modules and things like that. For us, it's predominantly self-service. So it's very efficient growth.

Okay. Well, that is very helpful. And the next question that came in, it could tie to what you had just said, but I just want to ask it anyway. And the client's question is, do you have any commentary on cohort analysis? And that being, how does the 2017, '18, '19 vintages look now in 2020 in terms of DBNR, that being the dollar-based net retention?

Yes. So we did have some cohort analysis that was provided as a part of our prospectus, our S-1 during the IPO process. We haven't updated those numbers or disclosed anything publicly yet. Although I would say just qualitatively that newer cohorts because we have more product offerings today than we did, say, 2 or 3 years ago, tend to adopt products at a faster rate and have more monetization opportunities than, say, older cohorts, where there's an opportunity to drive product adoption, but it takes time. We have to make the customer aware of the product. The example would be cross-border payments. A new customer as a part of their onboarding process and getting set up on the platform will evaluate whether they want to do cross-border payments as a part of that process. An existing customer, we have to make them aware of the product capability and ultimately drive changes in their behavior and get adoption of the product. So other than that, we haven't provided specifics on those individual cohorts.

Okay. And the last question that came in is, where are you investing most, where are you investing most in the next coming year?

Yes. So if you look, kind of step back and look at our financial profile overall. From a P&L perspective, we have a very efficient sales and marketing engine. And if you compare us to other pure, say, SaaS companies, we're lower as a percentage of revenue for sales and marketing. That allows us to invest more in product, our R&D, because with the small business segment focus, we think the product at some level needs to support selling itself. It needs to be self-service as possible. It needs to be easy to use. So we're investing a lot in product innovations, rolling out new payment capabilities. We're also supporting the launch of the 3 new financial institutions that we have announced in the last 6 months. Those happened to come all at the same time. So there's some increased investment required there. And beyond that, we're continuing to constantly evaluate opportunities to enhance the platform, to better serve customers.

Okay. Well, thank you. Well, we have about 5 minutes left. I just had a handful of questions left and then I can give you your freedom. When it comes to cross-border payments. So your partner, FLEETCOR, which owns Comdata, they're expected to close an acquisition of a cross-border operation called AFEX, A-F-E-X, in the first quarter of '21. And this is going to further facilitate cross-border payments for them. As one of their partners, do you expect this to -- any benefits of this to essentially impact Bill.com?

Well, I can't speak to any specific discussions that we may or may not be having with FLEETCOR other than to say that and capabilities and much more volume in Europe and in certain currencies and corridors there than, say, Cambridge had, which is the partner that we work with directly. So in theory, there could be an opportunity for us. But I think it's early, obviously, to suggest any specific outcomes from that acquisition.

Okay. Sounds good. And then my very last question. I'm looking at take rates. So when I look at the take rates, which I think I and you define to be transaction fee revenues divided by the TPV, they seem to have risen about 7 basis points -- sorry, they seem to have risen to about 7 basis points versus 4 to 5 just about a year ago. What's the best way to think about the trajectory of the take rate through the next year?

Yes. So we have made a lot of progress in the last year, actually the last couple of years at expanding our take rate. And I think that's driven largely by the changing composition of our transaction revenues, where variable priced products with ad valorem pricing is becoming a bigger percentage of the transaction, still small, but a larger percentage and growing than, say, the flat rate products like a check payment or an ACH payment. So that leads to expansion. And then we have newer products that will also contribute. We talked about Instant Transfer being one recent example of that. And I'm sure there's others that we'll consider in the quarters ahead. So I would expect that we will be able to continue expanding the take rate. I don't think necessarily that the trajectory that we've had recently is something that will always be the case. It should be more of a linear progression, certainly not exponential as we continue to drive adoption of some of the newer products and as we continue to roll out new products. I'd say there's nothing on our radar or we don't see like any significant obstacles or barriers to continuing to drive an expansion in that take rate.

All right. Perfect. Well, John, that is it for me. So I think we can wrap it up here. I want to thank you very much for joining Susquehanna today. We greatly appreciate it, and I hope to meet you in person next time.

Sounds great, enjoyed the conversation. Thank you for the opportunity.

All right. Thank you very much.

Bye. Take care.

Thank you, ladies and gentlemen. This does conclude this module. Please note, the next module will begin at 2:05 p.m. Eastern Time. You may disconnect your phone lines from this conference and dial back in for the 2:05 p.m. conference. Thank you for your participation.