Paymentus Holdings, Inc. (PAY) Earnings Call Transcript & Summary

All right. So we're going to get started with the next session. Next up, we have Dushyant Sharma, Founder and CEO of Paymentus; and Sanjay Kalra, CFO. Thank you both for joining us. Really looking forward to the conversation.

Thank you for having us.

So Paymentus has been public for almost exactly 5 years now. The company has compounded revenue at a very large clip. Bill presentment is a bit of an underappreciated part of the payments ecosystem. For those who are less familiar with the story, could you talk about the market opportunity that you're going after and really why Paymentus is taking so much share as one of the largest players in that space?

Well, the bill payment is a big market. And the way to think about it is a typical household spent 60% of their -- 60% of their spend is towards the bills. It's trillions of dollars in the spend just on the consumer side. If you add B2B, it gets even crazier than that. And if you factor in about 16 billion, 17 billion bills are paid on -- just on the consumer side annually, and we have only captured like 4% or 5% of that, it's a huge opportunity ahead of us. And in terms of why we are winning the market share, I think it comes down to, number one, the technology platform we have built. But the technology platform we have built and the ecosystem, our instant payment network and the entire partnership ecosystem, but it comes down to the way we visualize the market. We never thought that bill payment was just about the payment, taking money from point A, kind of like what you see in typical customer experiences, you're buying a shirt, you enter your card, it goes to Visa or Mastercard, you get the approval and the payment is made, that whole thing. Bill payment is more about, to your point, bills, bill presentment, the data, the workflows, the technology aspect of it, what internal workflows the billing company has to do to take care of all of the billing and payments and then posting the information and getting that information in the right hands. So we have done a great job in building a platform, and we took it very seriously. And we didn't think it was a sort of a private equity player that you just keep acquiring companies, have -- and then hopefully, it will -- the only integration is at the bottom line. We didn't think that was the play. The play was a pure platform play that -- and we believe that longer term, even the larger end of the market would actually want to switch if they could find an alternative, they would. And that's what we are seeing. So that's the reason why we are gaining market share.

And when you look at that market, I mean, it must be fragmented. You're only 5%. I think you're the largest in Biller Direct. So what is the state of the end market? Where is all that volume today?

It's very fragmented. I mean if you think about when we started out, majority of the payments -- digital payments used to be at the bank's website. Remaining were all just checks and walk-in and cash and some of those type of options. We have made tremendous inroads, meaning now banks are a significant smaller portion of the digital bill payments. Most of the payments are happening -- the digital payments are happening on the billing company's websites or the billing company ecosystem powered by Paymentus. But the remaining payments are still check, walk-in, cash and so on. And one of the things which I would urge everyone listening to this to think about it is that we -- when we all have bills and we all have our own bill payment customer experience -- bill payment experiences and so on. One of the things I would like everyone to be reminded of is that majority of the households are not as privileged as some who are listening to this call. Most people are not as fortunate to be able to say, well, I just take my money from my bank account and just go ahead and make the payment. They're having to make a decision which bill they're going to pay this month and from which account. There's a lot of complexity involved for a typical household. So that's why some of the fragmentation occurs as well. So part of our job as Paymentus is and working with our clients is to make sure we continuously make it easier for our clients so that they can continue to reduce their cost to serve, so make it more affordable for the customers, but also continue to provide better customer experience. And it's not just about better UI, it's all about all the options and get all the questions answered for the customers so that they can make the decisions to make a payment.

When you look at this business, what do you think the market gets wrong about the business and the end market? What do you feel is underappreciated about the market opportunity?

I think I will start first with the fact that all of us -- like I said, all of us are consumers. So we think of bill payment -- when someone looks at payment, we think, so you make a payment, why can't other people do the same thing? What I would like everyone to think about it is think about it from the billing company's standpoint, not just a small township or a small municipality. Think about one of the largest organizations in the country. And say the average bill amount is $100 you're billing and you're billing 5 million customers each month, it's the mega operation to be able to talk to the customers, just if 100% of those customers made a call to you, you have no margins left in the business. So to send out billing information in a way that you can understand it so that -- and it answers all of your questions so that you can actually make a decision to pay, and then giving you all the options so that you can make a payment, including clarifying to you what are the penalties if you don't make a payment of certain -- if it is not made up until a certain time. And then reminding you probably at different times in a cost-effective manner, it's a huge operation. And then when it comes back to how do you reduce the number of calls coming to your call center because they're very expensive as well. So Paymentus, actually, what I would like everyone to think about it is we are categorized into -- in a fintech world, which may be fair, but think of us as more of the tech of the fintech. We have no revenues coming in from float income. We are not using our clients' money to make money. We are actually providing technology infrastructure to our clients so that they can improve customer experience and lower their cost to serve. So that's what we -- so it's a technology play. And frankly, as the markets have evolved and become more sophisticated, the buyers have become more sophisticated, our technology platform, which is doing more and more of that technological -- handling more of the workflows for our clients is actually shining. That's what the key reasons are.

Yes. So one thing I think is underappreciated is just the level of visibility. I mean I know at the beginning of the year, I've got 12 power bills, 12 gas bills, 12 water bills. Sanjay, when you start the year, how do you think about visibility building up to the forecast? And how do you feel about durability of the model?

Yes. Visibility is actually getting better and better as we scale the company, as the business is scaling, as all the verticals are expanding and as we enter into more verticals as well. And as we improve our go-to-market strategy as well, our visibility is getting better. When we analyze the trends, we see more and more accuracy as well to the visibility. In fact, in the most recent earnings call, we didn't only raise the guidance for 2026, but we also made some comments about 2027. So making those comments early in the year, I think that's very good for our visibility. So overall, I think things are headed in the right direction. And that stems from the fact that our customers are large customers and the renewal rates are very high. It's a recurring stream of revenue. So the visibility is better.

Can you talk about pipelines and maybe reiterate some of that commentary on '27?

Yes. The pipeline is very good. In fact, the pipeline is getting better over time. And the pace at which our revenue is growing and our profitability is growing together with the visibility growth, the overall pipeline has to catch up, pipeline has to be better so that the pipeline to conversion ratios match with the expectations of the forecast. The short answer is the pipeline is better than at least if I say a year ago, where we were.

Okay. I want to hit on competitive dynamics. I would observe there's been several data points on the bill pay space that maybe speak to Paymentus' strength. You've got competitors, at least market rumors that they're shopping their bill pay segments. There's been the notable underperformance in several of the bank channel competitors that you have and sort of the bank-owned bill pay centers. What are the competitive dynamics like today and how those changed over the last 5 years?

I would say the top of the mind for me, and I've shared it publicly as well is that I think, for us, we believe the market is moving in the right direction. And the reason we say that is that some of the things we thought would actually come to pass, are coming to pass. For example, starting with number one, we didn't think it was a financial play. We thought the bill payment was a technology play. It has panned out exactly the way we thought about it. We thought about that if we can actually build one code base, one platform, one solution for different verticals, we will be able to go into different verticals with ease. We will have great storytellers, and the story is Paymentus and customers of all walks of life -- all industries, all sizes will actually like the fact because if you think about it from a consumer standpoint or even a business standpoint, all bills need to be paid, and you don't care whether it's an insurance bill or a utility bill or a telecom bill. To you, the experience better be similar. So they like the fact that there is a company out there who has built a platform that unifies and has all these complex business rules simplified in one platform. So from that perspective, I think things have come together. Another critical example I will give you is actually rather top of mind for the entire industry is the AI. If you think about it right now, AI is -- and we love the technology, and we love where it's headed. But the fact is 5 years ago, 6 years ago, we were filing patents on the capabilities we believe are going to be very useful to continue to create a sustained growth algorithm for Paymentus. So that is another factor. And if you look at some of the reasons why some of these assets are becoming available, I think it's a further testament to the fact that we have been very successful. Some of these assets used to be -- they were purchased with the intent for them to be very strategic to the businesses that bought them. And Paymentus used to be a small company then and was also, in my opinion, somewhat underappreciated in the market, which we loved. We didn't want to be notifying everyone that we have big plans. We just felt that our -- as long as we can communicate that to our customers and our prospects, that's good enough. And that's what we were doing. And so we feel that the market actually is sort of has played out the way -- we are very fortunate that the way we visualize it and the way we are executing against the strategy we laid out. So we feel good about our competitive positioning.

So you've been forward-looking in the product strategy. AI, yet again, a topic of conversation. But I think agentic commerce in general has been a bigger topic over the last couple of weeks, even given some of the recent release of new agentic products for consumers. When you think about what that means for bill pay, how does the product set need to evolve? And maybe you could tie in some of the recent product launches you've had, Billeo and BillWallet. Talk about how those products work and how you see them scaling over time?

Sure. So I think this is a pretty interesting -- and I'd like to take a moment or 2 extra on this, but this is a very interesting dynamic here. What's happening is whenever you are hearing agentic commerce, you would have to add a word to it, which is retail -- agentic retail commerce. All this is making it easy for you to shop. So for example, if you're buying a shirt, could it be easier for you to simply say, hey, I want a small shirt and this is the color I want. Maybe even this is the brand I want. Can you find me the lowest price one and tell me what it is? And if it is under $70, go ahead and pay. That's a great experience. I would just say that technology is just 25 years too late. We already did that 25 years ago. You can tell me how much money you want to pay for the bill which is due every month and which day you want to pay? Do you want to pay it on the due date or 15th of every month? And give me your bank account information, I'll take the money out. And if you want to take a rule that, hey, if it is over $100, don't pay. If it is under $100, go ahead and pay. We can do all of that. So AutoPay has been around for years. So it's not like we can somehow -- so for me, from a shopping perspective, I love the agentic part. And from a shopper's standpoint, it's viewed as additional channel like Google would be. So you just have an additional channel, but from a service commerce context, if you are telling an insurance company that I can enable all of your customer information, make it available to a personal agent. And oh, by the way, that personal agent can then snoop into all of the information, can see exactly which car you're driving, what was the model, which year it was and how much you are paying for that, and I can sell that information to the highest bidder, so that could be the last interaction you will have through that agentic channel with that particular customer because for $60, they could be signed up with another insurance company. There you go, you lose a customer. So what we are hearing from our customers is that agentic commerce, agentic retail commerce is -- has a lot of challenges. It needs to be solved and shoppers can always use more channels. But to the service commerce side, there is a requirement for a paradigm shift, which is what Paymentus is building through Billeo. We are saying we are already handling the data and the payments and your customer relationships in a secure manner. We have the data related to billing and payment. Could we not give you that capability so that now when you are interacting in the agentic world with your customers, your relation -- number one, your relationship is preserved. Second, the information is secure. Third, any of the rules which already exist on the billing side can all be incorporated. And last but not the least, your identity and the payment information is protected for the customer. So we can all do that. So that's sort of our view of the world. And we believe that we have -- because of the patent portfolio we have built on the AI side, and we are very fortunate again that several years ago, we thought about all these things. We are well positioned. And the other thing I would also like to make a point about, if you think about the shopping experience in the agent world, then there is a question, who's the merchant, who is paying for it, and merchants don't care as long as they get paid. In case of the utility insurance company, and so on, and I was actually joking with one of the investors today, that I'm longing for all of these AI companies to go ahead and identify the entire payments so that Paymentus could immediately -- we have like 25%, 30% of the typical biller's customer base paying bills, get the remaining 75%. And so that tomorrow morning, Paymentus could be a $6 billion company as opposed to $1.4 billion, $1.5 billion. Just go ahead and do it because I'm still the provider of the technology to my billing clients and you'll still have to go through me to make those payments. So please come one, come all. But I think our clients will have a thing or 2 to say about that, the disintermediation risk and Billeo and BillWallet set up a greater stage for us there.

Yes. That's great. Maybe sticking with the theme of AI, what are the areas of the business maybe more internally where it's had the biggest impact so far? I mean you talked a lot about how your clients are often the limiting factor and how quickly implementations can proceed. But maybe aside from that, where have you been able to make the organization move quicker, design products and processes faster with the tools that we have now?

All aspects. I think every function in the company is using AI, like is involved in it, trying to make use of it. Engineering side, we are very much involved. One of the things Paymentus has made a decision on is that Paymentus, since our pursuit is to have our own platform, agentic platform. We want to have our own platform, which is Billeo. So one of the things we are doing is, can we build Billeo agents, which could be used by our own team. So we actually have contests going on who can build what type of capabilities and what type of agents on Billeo platform internally and how we can utilize them internally itself. So think of Paymentus as a typical organization but who's very familiar with AI now getting sort of increasingly more comfortable with AI technology. But the main difference for us would be that we think of us as AI as a source of revenue, not just of efficiencies. So whatever we are driving efficiencies, we want to get our clients to also use using our technology. So that's why we are creating the platform.

Got it. Makes sense. One of the things that's evolved since the IPO is just the mix of different verticals that you serve, you referencing insurance companies. I think at the time of the IPO was much more energy utilities and things of that nature. So can you talk a little bit more about that? How has the company had to adapt to serving new verticals, new client types? And if you were to maybe circle the 1 or 2 verticals where the company has seen the most success since the time of the IPO?

I think this is one of the key aspects we feel that we got it right because we have the -- in some ways, we have good fortune of building the company with a next-generation platform. Part of it was some of the mistakes that needed to be made. I fortunately made them in my prior venture when I started the company. And part of the first-generation platforms you're seeing, I was one of those who built them. So I think -- so we learned a lot during that. But one of the key lessons I learned was you just cannot build a scaled business in bill payments by focusing on one vertical or having bespoke solutions for one vertical or one particular set of client. So we made a decision early on that platform itself need to be built in a way that could be one code base regardless of the size of the customer or the type of industry you're going after. So that part, we got it right. Where we had to make the change was that different verticals require different vernacular when you're speaking to them. So therefore, we need to make sure that our team gets it. And the type of support they need throughout the process, the type of regulations and the compliance infrastructure that needs to be in place for different verticals, we got that. We need to make sure that those changes occurred. And to your last part of your question, we are seeing actually -- as you rightly pointed out, that we started out with utility as the primary focus. We love the utility vertical. We believe the utilities was the biggest vertical that got the bill payment efficiencies right. And we felt that if we can get it right there, we will be able to succeed in other verticals. And that is proving out now. We remain very excited about our utility vertical. We remain excited about all of our verticals, they're all growing, but government vertical is great. Insurance is great. What we're also seeing is B2B is an evolving market for us. It's an emerging market. We are seeing that we can actually handle payments on both sides. We have been doing disbursements for years, but now we are also saying, why can't we use our disbursement engine and the other technology we have so that we can -- and the workflows we have built so that we can also handle payouts? So all of that, we are excited about. So we feel good about our positioning, both from B2C as well as B2B, both for pay-ins as well as payouts.