14: Breaking Down Electronic Money Transfers and Modernizing Real Estate Transactions with Dan Jeffords of Earnnest

This week on The Data Stack Show, Kostas and Eric chat with Daniel Jeffords, CTO and co-founder of Earnnest, a financial tool for the real estate industry. Earnnest’s digital platform allows buyers to securely and electronically deposit funds directly to an escrow holder and keeps agents, buyers, and escrow holders in the loop with automated emails and tracking information.

Highlights from this week’s episode include:

  • Earnnest’s approach to the way payments are handled in an antiquated real estate industry (2:12)
  • Clearing up the differences in the way money changes hands, ACH, wire, and checks (12:39)
  • How Earnnest works and who are the involved parties (21:06)
  • Disrupting a highly regulated industry (24:24)
  • Emphasizing security and transparency (30:09)
  • Erlang, Elixir, Dwolla and more. How Earnnest uses data (33:40)
  • Trying very hard to store very little data (42:58)

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Transcription

Eric Dodds  00:06

Welcome back to The Data Stack Show. It’s Eric Dodds and Kostas Pardalis. Really interesting guest on the show today. Dan Jeffords is the co-founder of a fintech app that is modernizing the way that money moves in real estate transactions. It’s always fun for us to meet people who are trying to change things that haven’t changed for decades and decades. And Dan’s a really smart guy. Kostas we’ve had some fintech on the show, which is kind of a recurring theme, which has been fun. What questions do you have for Dan, what interests you about the real estate industry?

Kostas Pardalis  00:45

First of all, I think I’ll have quite a few product and business questions too this time, mainly, because I’m coming from very different financial experience in Europe. So it’s an excellent opportunity for me to learn a couple of things of how things are working here in the United States around payments. And I think it’s going to be very interesting also for our audience, because we don’t have only people from the United States, but from all over the globe. So it will be very interesting to learn more about that. And of course, there are many technical questions like always around security, data privacy, and how they manage to deliver these kind of services, ensuring that no one’s going to lose money at the end because it’s one of the most sensitive things probably together with healthcare related information. I really look forward to hear more about the product and the technologies they’re building.

Eric Dodds  01:41

Great. Well, let’s dive in. We have a great guest for you today. We’ve had a lot of fintech on the show, I think we’ve had several companies in the fintech space. So yet another one, but this will be I think, really interesting based on the industry, Dan Jeffords from Earnnest is on the show. Welcome, Dan.

Daniel Jeffords  02:01

Thank you very glad to be here.

Eric Dodds  02:02

All right. So I teased it a little bit, but could you give us just a quick overview of what Earnnest is and what you do?

Daniel Jeffords  02:12

Yeah, absolutely. So Earnnest is a financial tool for the real estate industry. What we have done is we’ve created a proprietary payment solution that integrates with some of the largest technology partners in the industry, from both the brokerage title perspective, and the platforms that power them. We started in 2017, Eric, I know you’ve purchased homes in the past, and I know a number of people who are probably listening have got this experience themselves, maybe even recently. And that’s kind of where we got started with Earnnest. I purchased my first home; I came out of the military and purchased my first home in 2017. And that process is a super antiquated one from both the way that payments are handled to the way that paperwork is handled. And for those of you who’ve been through this experience, there’s a lot of challenges to the way the payments are handled today, whether that’s through paper checks, or wire transfers, or cashier’s checks, which most of us never deal except for in different situations like this. There’s a lot to be desired with improving this process. I remember sitting at that table and thinking, have you guys not heard of PayPal, or Venmo, or something else that we could use for the solution? And in reality, there wasn’t one. So that’s where Earnnest came into play. And I’m excited to share about that with you guys today.

Eric Dodds  03:36

Very cool. Well, I have a ton of questions. I know Kostas does as well. But could you just give us a brief, you know, one or two minute background? What’s your role at Earnnest? And what’s your background?

Daniel Jeffords  03:48

Yeah, absolutely. So I’m one of the two co-founders for Earnnest, I’m the technical co-founder. I work as the CTO today, I will throw out there as a disclaimer, many of you who are more technical will probably relate me more closely to a chief product officer than a chief technical officer. But I’m excited to share what that’s like. We’ve been able to grow the company, from me working at small white IKEA desk to where there’s about 45 of us now three years later. So that’s what I do here, Earnnest. I oversee our engineering technology divisions, our design division, and actually our people support as well.

Eric Dodds  04:25

Very cool. Well, my first question, and this is more of the business side than the technical, but I have ideas around this. But why do you think that the process of moving money with newer technologies hasn’t been around before? Because I mean, the wire part of transferring money is the biggest pain of buying a house you know, it takes longer and then sometimes it doesn’t go through and you know, the law is just a big mess. Why hasn’t it existed before now?

Daniel Jeffords  05:02

Yeah, absolutely. In fact, to add a little bit of craziness to the history of financial payments within real estate, the first check payment in the US for a real estate purchase was 1681 in Boston. The first wire was actually 1872, via telegraph, and ACH which a lot of you are familiar with, that’s your bank-to-bank transfer. That’s actually what Venmo primarily uses, unless you, you know, it’s about your payments with them. And then it has some special tools there. But if you’re paying people nowadays, almost all of its ACH, in fact, $82 out of every $100 in the US economy goes to the ACH network, but it’s never been used for real estate. And there’s a couple of reasons for that. One is speed. So for those of you once again who’ve done this, and for those of you who haven’t, when you go to the closing table, the final day, resolve the paperwork and hopefully, walk away with the house having sold it or bought it, you got to walk away with money, or a house. That process, you’re supposed to know those dollar amounts, you know, up to three business days ahead of schedule.   So there’s a lot of change, and a lot of flex in when money needs to move. checks have been a trusted way of making payments. And so once again, 1681, a difference there is that they’re honestly just promises, and they end up with non-sufficient funds transfers  quite frequently, they can end up with cancellations, and honestly have lost a lot of trust in the industry over the last several decades. So honestly, yes, wires are the standard at this point. The problem there being that they’re an extremely easy thing to change the destination for or to phish people within this industry. I know one of the things we talked about before that Eric is that the majority of real estate agents run as 1099 contractors. And that means that information security is a hard thing to enable across corporate entities and others. So wire fraud is actually a $2 billion problem a year and in real estate is usually in the FBI’s top 10 list of most fraudulent arenas. So the reasons that has never existed before though is once again the speed and the finality of those payments. So when you make a payment with a wire transfer, it’s a non contestable thing. And there are consumer protections that are for good reason built into other payment solutions like ACH. So that’s why that hasn’t existed in the past. And that’s what Earnnest helps to solve for some of these large-scale transfers.

Eric Dodds  07:24

Got it? So, I mean, let’s just dive into the technical solution. So ACH is the standard way that money is transferred between banks. It has protections built in, but there are issues with it. So how, how do you solve that? Like what’s the solution?

Daniel Jeffords  07:42

Absolutely. And as I answer that, I want to share a little bit about this. This is actually a very exciting time for fintech, that’s probably one of the good reasons we’ve had a number of us on recently is that there’s been more change in regulation around money movement in the last three years than in probably the 50 years before it from the ACH network getting things called like same-day, next-day, which allows to expedite those payments exponentially over the three to five business days most people are used to, to things like the real-time payments network, which is brand new and upcoming, you may not have access to it yet, but you will soon. And that allows for payments within 15 minutes up to $100,000. And coming in 2023 and 2024 the ACH products, we’re finally going to catch up to honestly some of our European friends with some of the expedition and speed can get there and get down to you know, seconds or milliseconds for monetary transfers. So the ACH product for one is already integrated into every financial institution in the US. There are single source opportunities to connect with banking API’s, through products like Plaid, for those of you who are familiar with it, recently acquired by Visa for I think $5.3 billion, but they just connect with the banking API’s. Everyone already has integrated, it does have consumer protections, which means that if there are fraudulent charges against you, they’re trackable, they’re reversible. There are several reasons that somebody can say, you know, this didn’t work the way I said it would. You charged me, but you charged me the wrong amount. You charged me but you didn’t charge me when I said you could charge. There’s a lot of protections there. And from a wires standpoint, none of those exist. When you send that money, it is more or less sending it into a big black hole and hoping you got those details right. So what we we ended up doing is we wanted to take advantage of where financial transfers were going in the US economy to bring some of these tools that honestly are usually shared for business entities and bringing a custom ACH product that both allows us to protect consumer rights before money leaves their account. Actually, part of the fun and I’m not going to get into the magic here on the show on this part. But I am excited to share this aspect is we have made it to where we can protect consumers that guarantee that any funds deposited over ACH products are non-contestable. As we discussed earlier, there are two things that matter in real estate. One is speed and one is security or good funds regulations, and for the first time ever by producing a product that when funds are deposited through it to the ACH product, they’re non-contestable. That’s, that’s a first. But also, once again, I mentioned as I was explaining a little bit, same-day, next-day transfers instead of being three- to five-day transfer, I can make it a one-day transfer. And that gets us much, much closer to some of these gaps that we’re looking for when it comes to speed, efficiency, transparencies, purity, and honestly, non-contestability. So that’s why we went with the ACH, everybody’s already got it, the network exists. There are protections built in, it’s an extremely transparent process, and we can do something very, very special.

Eric Dodds  10:51

Very cool. Well, Kostas I want to give you the chance to ask some technical questions. I, of course, have more questions, as I always do, but would love to hear what interests you about this? Because I mean, it’s pretty amazing that this is a you know, first of its kind in an antiquated industry.

Kostas Pardalis  11:08

Yeah, yeah. Before I get to more technical questions, I have a bit of similar questions that I want to ask for, for me, and also for the audience that we have that’s not from the United States. I moved to the United States recently. So I just started getting exposed to how banks work there. And as a person who grew up in Europe, as you can understand, there are some terms that I’m not very familiar with, for example, ACH. And I know that you go really into like technical details about ACH and how it works so far, but I think it will be great if you can make a comparison, like what’s the difference between ACH, for example, the wire transfer. Wire transfer is what, for example, in Europe is the most common way that we have to move funds from one account to the other. My feeling by using ACH, for example, here in the States, and compared to my experience with a wire transfer is closer to what we say, in the tech industry, it’s the difference between a pull and push methodology like performing an action. So if you can also share a little bit more about like the differences in terms of the culture around the transactions here in the States. You mentioned checks, for example, I know that they are very popular here. In Europe, I’ve never used one, to be honest. So can you give us some information to understand like, what’s the dominant way of making payments right now in the United States? And try to compare it a little bit with something like a wire transfer, which is more well-known globally?

Daniel Jeffords  12:39

Absolutely. More than happy to do that. So ACH stands for the Automated Clearing House. It’s a federally-regulated network that is used for payments. Comes with a lot of different rules. It’s overseen by the National Automated Clearing House Association, or NACHA, not nachos, sorry, that’s a horrible joke. But the difference is, as you’re saying, push and pull. Right, and thank you for the polite laughter. Eric, that was terrible.

Eric Dodds  13:07

You’re very welcome. That was absolutely a genuine chuckle.

Daniel Jeffords  13:12

So ACH is actually a push and a pull. So we have the ability to pull money out of consumers accounts and then push it into a receiving account. And on both sides of that there are there specific protections that come into place. So in a standard ACH product versus a wire, a wire is, is once again almost non-contestable the moment that it’s initiated. There does have to be funds in the account. That’s actually a benefit once again, another benefit to wires. We never have non-sufficient funds transfers, those funds are confirmed up and ahead. They transfer quickly. And they’re not contestable. That works in some situations. But specifically, in the real estate industry having so little information security and compliance opportunities, it is such an easy opportunity to phish and manipulate how people treat those wires. It requires inputting account routing details external to a digital solution, quite frequently depends on who you bank with. So for example, if you bank with Bank of America, you can make a transfer online. But with smaller banks or regional banks in the US, you can’t. So you actually have to go into a physical location bring account grabbing details that you’ve somehow gotten safely, and confirm that those are the people that are supposed to receive money and enter those details manually. There’s so many opportunities in the way that the US deals with wires for people to be taken advantage of. And at large scale. Once again $2 billion a year in real estate and with the ACH product. Sending parties specifically sending parties that send more than $5,000 per transaction have to go through an identity perspective one way or the other. They’ve either done with the financial Institute or they do with a payment tool that they have. You might see limits with certain consumer products because people don’t want to have to do those identity checks. Additionally, now at Earnnest, we do identity checks for anybody. We want to make sure that this stays safe. There’s also a large window to look for errors during that transfer. So there’s some of the delay in speed actually gives opportunities for contestability, finding out you know, there are not sufficient funds or this was not initiated, you know, appropriately or, you know, somebody did get, you know, defrauded and we can solve this before the money even leaves the originating bank. Once the money is left originating bank, there are checks before it’s deposited into the final account. Is this account actually set up to receive is this actually like a legal account, is this associated to a business entity or individual, you know, that you should be doing business with and there can be more or less security scoring, based off of ACH transfers. So they’re viewed as much, much more safe. And you asked me, How often are they used versus wires in the US, our statistic as of today, everybody else can validate this, too, is about $82 out of every $100 in the US economy goes through the ACH product, the other 18% is made up of every other payment tool out there. So wires are actually a very small amount of the funds that transform the US economy, they are used exponentially within real estate in some larger scale business transfers. But most consumers do not do that very often. And then also to your other points, you’ve never written a check. I understand a lot of countries don’t use them. But to be completely honest, I appreciate that immensely. And I would I wish we didn’t. And in fact, I think the statistic is right now that about 36% of millennials, which I am one, have never even written a check. So I’m with you. I don’t want to write checks, either. It’s one of the reasons we exist. We don’t think checks should exist within real estate. Checks are just promises they’re not actually money. There’s a whole separate processing that happens after a check is actually deposited. So hopefully, that’s helpful. If you have any follow ups there…

Kostas Pardalis  17:18

Oh, yeah, that was extremely helpful. It really helped me understand a little bit about the mechanism around how you move money here in the States. It’s very interesting, what you say about checks and that a check is a promise. I come from Greece. And actually, the checks were used a lot in the past until the financial crisis started in Greece, probably you have heard of that, like we were on the news for quite a while. And that’s when actually checks almost completely disappeared because there was like a huge bubble that was built on top of that, because they were used a lot for business purposes where people were just promising in the future an amount of money. And they were moving this money from making promise on top of promise on top of promises. And of course, at some point like this bubble burst, and it was a huge mess. And so there are places right now, I think in other places in Europe, but also like, especially in Greece, where checks are pretty much demonized. I mean, they are considered like there’s something sketchy happening here. So people don’t want to interact with it. But I was very interested to see what is happening here with checks mainly because of the innovation on top of the checks. I mean, a check is like something that it’s not technical at all right? Like you have like a piece of paper that you write something on top of it. And I was so surprised to see that if you get a check, for example, you can have a banking app that can scan it, and liquidate almost automatically. And what I couldn’t understand is why not removing completely the physical part of it and just keep the digital but instead of that, keeping the actual check and then building like technology on top of that. I mean, I found this it’s also a cultural thing. And of course, something that’s like so well adopted in a country, I don’t think that you can change it that easily. But these are the things and especially the banking system when it showed difference. Very, very interestin for someone who comes from the outside and seeing how financial systems constructed, it’s working. I hope you will succeed and get rid of checks.

Daniel Jeffords  19:22

I agree. Just two quick notes on that. For one, mobile check technology. I couldn’t agree with you more. It solves like half the problem still requires the physical to convert to a digital. And interestingly enough on that front there is actually new fraud opportunities that use mobile check technology. For those of you who work in fintech that’s like check 21 technology. But mobile check technology actually has the ability to switch like pay ease mid transfer, there are ways to charge somebody twice, or deposit something twice, using the digital solution that’s built on top of the physical that literally never existed prior to mobile check technology. And then one other thing too, just as we’re we are talking to an international audience as well, I think there’s a lot of exciting opportunities for products like XRP, or Ripple, if you’re familiar with that as far as a cryptocurrency for being a universal exchange point between different currencies and in extremely short periods of time. But recently, we got to spend some time with Jimmy Lenz who runs one of only two master’s programs in financial technology out of Duke. And we actually got to speak about this at length trying to figure out how can we solve these types of problems that we’re solving for real estate now, but do it at a global scale? And to do it honestly, faster and better than some of these more federally regulated tools? So lots of excitement, even at the global scale, as far as digital payments go.

Kostas Pardalis  20:51

Yeah, absolutely. That’s super interesting. So then can you give us like a quick overview of how the product works, and like the different actors that are involved with what’s the value for each one of them?

Daniel Jeffords  21:06

Absolutely. So we are a payment solution for real estate, there’s about 14 different payments that happen inside of a real estate transaction in the US on average, just because we’re mostly probably talking to consumers here we’ll talk about Earnnest money, and cash to close solutions. But we have real estate agents who are representing consumers who are buying and selling homes, they typically take a commission off of the sale or purchase. There are vendors like surveyors, or topography groups, or even people who do what’s called perc testing for checking the sewage on the land that you’re purchasing. And each of these people need to get compensated. There are the proceeds that actually go to the seller at the end of the day. There’s money that exchanges hands from lenders, to these holding companies or like escrow accounts, what they’re called. Escrow accounts, just for clarification, are basically checking accounts with specialized accounting practices associated to them, that companies are held accountable for. So in the event that, you know, money is dispersed in one of those, they can be held legally liable at a much greater constraint than in the standard bank account. But with Earnnest we, primarily at this moment, we focus on solving these problems for real estate agents, brokerages and their consumers. We do this through a variety of ways. One of my favorite sayings that Earnnest, is the best way to change behavior is to not change behavior at all, but be where you’re expected to be. Real estate agents typically use their phones for a lot of these tools. We’ve provided them solutions directly under tools, some of them use, transaction management software platforms, we’re integrated in quite a few of those. And then for the title business as well, we can actually even share details directly down to their bank receipts. So we’re there to help with reconciliation enablement there in the generation of basically requests for payment to consumers anywhere in the world at any time. And they can pay those directly from their phone in about a minute, which is really nice. So that’s kind of our customers, are lenders, they’re real estate brokerages, real estate agents, title companies, or real estate attorneys, and they’re consumers.

Kostas Pardalis  23:15

It’s really interesting how many different actors are participating the whole process. Sounds like, quite complicated. So while you were describing the product, I started thinking, I mean, we usually consider technology as something that gets into an already existing industry and disrupts it, right, but each industry has a different kind of reaction to technology. There are industries that are much easier, and they are very easy to adopt new technologies, for example, marketing. Then you have industries that traditionally are very, very difficult to penetrate with technology or anything that comes outside of interest itself. I’m experienced, for example, because of friends, I have many friends like in Greece, or they’re working in the shipping sector and traditional shipping is super hard to innovate. I always heard that real estate is also maybe not as hard as shipping, but probably okay. It’s also not like marketing. Right? We are talking about a very well established, there’s a lot of regulation there in this industry. How’s your experience so far trying to grow with business and disrupt this industry? Any surprises there? It was harder or easier than you thought?

Daniel Jeffords  24:24

Oh, man, yes. Yes, on it very transparently. It was quite a bit harder than anticipated. I’m gonna reference a couple of people here. So there’s a gentleman by the name of Adi Pavlovic, who runs what’s called Keller Williams Labs. So Keller Williams is one of the largest brokerages in the world. They have 200,000 real estate agents, they do, you know, billions and billions and billions of dollars in sales. And they’ve created, they’ve actually spent over a billion dollars in the last three years creating a internal tool to make the process as easy as physically possible for the real estate agents. They have run focus groups for years. Every feature is developed from a point of not just desire, but from a point of almost desperation that’s produced to them from their own real estate agents. And yet, their adoption is actually extraordinarily low. Even with these mega launches that they’ve done, even with the billion dollars that go into it. Real estate agents are one of the hardest audiences to market to. For one, they’re in marketing, they’re in marketing and sales, that’s what they do. For two, that’s all that happens to them endlessly. They’re always on their phone, they’re always on their email, they’re always getting text messages; they are constantly marketed to. And then also, third, we talked about the fact that they’re all contractors, so they get compensated, not through a salary, but by making sales, which means if they’re not making sales, they’re not paying attention to you either, because they don’t have like, I have to solve the problem around helping with payments. But me helping with payments is not helping them sell homes necessarily. And similarly, if they’re actually extraordinarily successful, a lot of them have the mindset of, it isn’t broken, so I’m not interested in fixing. So there’s always, you know, different ways to market to those people. That’s one of the reasons we’ve partnered with some of these brands and handled some of these larger scale interactions. We have been able to pick up adoption, but it’s taken a surprisingly long time to do direct-to-agent marketing and expect an excellent result. I would say, probably a third of our team at Earnnest is dedicated to nothing else than onboarding organizations, making this stuff aware directly to real estate agents, and then helping each one of them be onboarded effectively, do follow up marking, run the webinars that they’re supposed to do, produce beautified videos, and help us communicate in partnership with some of these integrations, to drive awareness. What we have been able to do recently that is driven a bit more success is if, if everything I just said about real estate agents is true, that they need to close the next deal, because that’s how they get paid. Or they close a lot of deals, and they’re already getting paid. And these aren’t the primary things well, what’s the one thing that was common between both of them, and that is the fact that they need to get paid. They either need to get paid, because they’re not getting paid, and when they do close a deal, they need that money now, or they’re out there selling so many homes, they don’t want to have to drive back to their brokerage to pick up the check, which, interestingly enough, is what most of them have to do, is go pick up physical checks at their office. So you’ll see, you know, top-end producers who have six or seven commission payouts, they’re just sitting in an inbox at their office, and they go in once a month and pick them up. And then of course, you have those people who are, you know, trying to keep the lights on getting into this business trying to sell in a hard market. So what we’ve also been able to do is come back to them and say, okay, if you know helping your consumers be successful isn’t the thing that keeps you up at night, getting paid is, let me help you out with commissions. Let me help you from the other side of this. Let me help your brokerage compensate you appropriately. And then we can almost be a payroll solution, honestly, using some of the same things that we’ve already set up for these consumer-to-business style payments. So that’s that’s been one of the challenges. Yes, extremely difficult industry to get into, extremely difficult industry to drive adoption in. But I will say they’re great at word of mouth, all of them live on Facebook, because that’s how they sell. Other interesting points, you’re in real estate, you’re all 1099, you’ve all been selling homes to get, you know, make money. Everyone’s phone number is online. So if you ever need to get ahold of somebody, help them out with something, including leadership at a lot of these companies, you just find their contact information, including personal cell phone online all day long. But yes, it takes a lot of work and upkeep.

Kostas Pardalis  28:55

I’m trying to think of all the salespeople I have seen directly in the tech industry where most developers are like, Don’t talk to me, why do you reach out to me? So it’s very interesting to hear that there are industries out there that have a complete opposite view from what I’m used to at least. I know, I promised to Eric that I would ask technical questions, but it’s very, very interesting in the business and product side. I have one last non-technical question, then I can I’ll give the microphone to Eric and then I will ask at the end some technical questions. And it might not be so relevant. It’s mainly driven from my experience from where I come from. But I’d like to ask how important is transparency in the real estate transactions that you have? Is it a problem in the United States? Do you have issues with that and does your product add to that value? Again, it might not be very relevant. It’s mainly something that I mean, where I come from. There are let’s say real estate is also a way to do things that include money but usually they’re not, let’s say so legal in a way. So maybe it’s not something applicable here. But I’d love to hear your opinion on that. Absolutely.

Daniel Jeffords  30:09

I think transparency is key. And we even use the word simple, secure and transparent inside our mission statement for how we want to go about handling payments. There’s a lot of regulation, honestly, that drives transparency within real estate, you actually made a comment earlier, as I was describing, you know, who our clients are, that there’s a lot of them. And part of the reason there is there are many, many actors that are required to legally transfer the ownership of a home. But interestingly enough, they all speak a different language. Lenders, title companies and title companies, by the way, aren’t in every state. So we’re, I’m recording currently in South Carolina. In South Carolina, basically, no consumer products are sold through a title company, they work with real estate attorneys. So that’s another subsection. We have other agents. So I mentioned real estate agents, but depending what state you’re in, it’s the buyer’s agent, who has to have transparency, or it’s the listing who has to have transparency, or the selling agent. It even changes how you have to report these things to your association, or how when you’re holding funds for reconciliation within an account, let’s say that there is a legal difference between two companies as well, or two individuals. Well, depending on state law, how that money goes back to people or stays in the escrow account for a period of time changes. If it stays in that escrow account for too long, I might have to pay it out to a bar association if i’m in an attorney state, or to a federal group, if I’m in a title state. There’s so much complexity to the regulatory picture within real estate, that transparency is 100% key. One of our internal statements for them is we want to be interpreters, not translators. In my experience in the military, I used to work occasionally with interpreters, translators just say whatever you said, interpreters add context. So that’s one of our goals. So we are extremely transparent. And we allow for basically infinite observers into our payments, of course, as added by participants and vetted, but you can have basically unlimited viewpoints in that people can receive notifications all along the route, see exactly where the money is, in any transfer at any given point in time, and be able to very cleanly point to who is it, was that person, you know, did we do an identity check on them? Can we tell which account was the originating account? Can we see where the receiving account went to? Are we sure that it’s actually there? What was the property for? All of that stuff has to be included by default, in our payment solutions. Yet another reason why there are not a lot of payment solutions that are built for and targeted to the real estate industry, and specifically, not ones within the ACH protocol.

Kostas Pardalis  32:58

That’s great, Eric, He’s all yours.

Eric Dodds  33:04

I’m gonna go ahead and start the technical conversation, because I’ve just been pushing for it the entire time. So Dan, interested to know, what kind of data we have to say this, because of the name of the show, but what kind of data does your app produce? And are there any challenges around it? I mean, I know that there are certain there are certainly security issues, and we talked through those but you know, what kind of data does your app produce? What do you store? What do you not store? And would just love to kind of hear about the stack? And how data flows through your through your tech stack?

Daniel Jeffords  33:40

Yeah, absolutely. So we work in close effort with some third party providers. Because there’s certain things that you know, as a startup in this realm, it’s very, very hard to manage yourself as far as security information or having access to various systems go. So as far as our payment processing, we actually partner with Dwolla. They’re out of Des Moines, Iowa, great company, provide an amazing API. We do a lot of proprietary work with them. But the benefit to that is, for one, they actually are the ones that are associated directly to financial institutions and kind of think of payments, like an internet connection, right? So me as a third party startup, I don’t directly have access, like I’m not a bank, you’re not transferring my money to my banks money, your money held by me into another system, you need me to help facilitate the transfer between your bank and another bank. So in that instance, we kind of have to have our, you know, our Ethernet or Wi Fi connection to the financial transfer, and Dwolla provides that to us by actually having those banking relationships. I mean, actually maintaining compliance for real estate transactions. I mean, you can do that also with Stripe or PayPal’s API or, you know, work with Braintree or Modern Treasury or a million other different companies out there, but we work with Dwolla. They help us by … we actually never have access to account writing details, we do that two different ways. So we work with Plaid and Dwolla. Plaid gives us the access to banking API’s, they will provide only the most basic information to us. But in reality, we never have the account running details. Those are stored and encrypted. And we basically just get like a hash that we use as a reference for that funding source, for that bank account. And Dwolla maintains that they also have compliance, everything else, they’re keeping it to the highest level. Working with companies like Plaid as well and then of course, on the backside AWS. As far as certifications, all of these companies hold the highest level of certification physically possible, we actually handle almost, well, I’m going to say almost just in case I’m wrong, and not say zero, but almost no scoped data. So in reality, our, we are not really a major vulnerability. And we also, especially around payments like this, so one of the things that can make a payment invalidated is if it’s run twice, so we cannot run something on our side, that is going to initiate the same payment twice. We actually have to pass through you know, keys and stuff with Dwolla that allow us to like if they receive the same payment twice, they will only process it once. So even if we write in a bug from our side, they’re not going to solve it from that side. Even if you could somehow get into our system, which you can’t, I’m going to just say that, of course there, people are smart, at some point, who knows, but you can’t right now, you should never be able to, if we can stay ahead of it, you can’t get into our system. But even if you could, you cannot unilaterally update those people’s account writing details, you can’t unilaterally make payments or charge people money for anything through our system. And similarly, if you were actually to get into Dwolla, once again, can’t do that. But assuming somebody does, they can’t unilaterally affect our system, either, we actually verify on both sides for every transaction going through. So in reality, we don’t actually handle much in the way of scoped data that’s been super helpful for us. Our front end is actually built in React, our back end is written in Elixir Phoenix, which is built on top of Erlang. We are also rolling out an internal event streaming infrastructure coming up January here, that’ll allow us to do a lot more to utilize, of course, the fault prevention, more asynchronous concepts, getting users through an experience that even if there’s, you know, a failure from an API connection with Plaid, is there a way that we can get the user through that experience, and then actually solve that retroactively for them after they’ve left the experience? Or, you know, walk through something where there’s, you know, a lot? Well, Elixir is also great for concurrency. It’s an extremely fast solution for what we do. We don’t do a whole lot of number crunching, we’re not a accounting software suite, we’re literally a payment solution. And we have to have extremely high availability for that. So between event streaming that was coming up January that we’re working on right now, on Elixir Phoenix, we can keep a high level of availability and speed.

Kostas Pardalis  38:06

I have a question. Sorry, Eric, I’ll hijack your technical questions …

Eric Dodds  38:11

My evil scheme worked. I just got the conversation going so that you could… I knew you would have a bunch of questions.

Kostas Pardalis  38:17

So Dan, you mentioned Erlang. And they know that one of the reasons that they exist is because people in telecom, they had a need for high availability and extremely fault tolerant systems. Is this a reason behind the selection of this technology? Because, okay, it’s not the most hugely adopted, let’s say, technology out there. And I’m pretty sure that it’s not that easy, like to find professionals to work with that. And there’s a follow up question to that. How do you handle errors? I mean, you mentioned some things about, you cannot, for example, process the same payment again, I mean, retries is a very common way on software systems to ensure that things will happen the way we want them to happen. So, yeah, can you give us a little bit more information? I know we’re getting a little bit but maybe like a little bit too technical, but it would be great to see how you deal with that stuff, fault tolerance and high availability as you as you mentioned.

Daniel Jeffords  39:14

Please test me. This is this is great. I’m very excited. No, the fault tolerance is, is honestly yes, no, that’s a that’s a huge aspect of it. When when you were talking about that, yes, we need this to be fault tolerant. We actually do use retry, but the difference between retry and what I was discussing before, is in the event that we actually retry three times, because from our system, you know, we don’t see the success if from Dwolla’s system, they do see the success, it’s yet another way to basically bypass our ability to be outside of the scope of what the National Automated Clearing House Association states is the way that we are allowed to handle payments. As far as uptime goes, unbelievably important. In fact, that’s incorporated into basically every major contract that we have with any of these partners. Is that we have to maintain an extremely high level of uptime. And being able to handle the uptime, not break a process just because one thing went wrong is extremely useful. And you’re completely correct by the way. I think Elixir was created in 2012. And I believe recent statistics, which show that people love it once they’ve used it, but there aren’t that many people who have used it. Benefits to it, though, is if you’re familiar with like Ruby on Rails, it’s actually a fairly similar process. And honestly, the syntax is incredibly simplistic. So even though I did mention earlier, I’ve been more front end than back end, I’ve done some, and I have done quite a bit of Ruby on Rails in the back in the past, this, for me is an extremely readable, understandable functional programming language that once again, comes with those, those same perks, so. It gets a little bit hard to find good people. But one of the other benefits to that is when you find good people, they’re extremely passionate about this community. In fact, in our engineering team, Justin actually from my engineering team is the one who created the Elixir Dwolla library that people use nowadays for anybody else who’s on the Elixir framework, or Phoenix framework, actually, at this point, and utilizing Dwolla, and they’ve been great contributors to a lot of community projects. The passionate people in there are amazing. So yeah, a little bit more expensive, maybe every once in a while. But the fault tolerance, scalability, concurrency, and high availability are great trade offs, specifically, when you’re dealing with very sensitive things like payments, potentially many, many, many at any given point in time. And from a lot of different areas.

Kostas Pardalis  41:45

Yeah, that’s great. And I think that’s a very, very interesting point, you made a very interesting point, actually, about the trade offs of choosing something that is not so well adopted. I mean, it might not be that easy to find talent so easily as like, I don’t know, getting something like PHP, for example. But on the other hand, it’s usually the people that are working on these frameworks, as you said, very, very passionate about it. So the possibility of like, finding really good talents, it’s much, much higher. So yeah, that tradeoff always happens with when you said, like technologies in terms compared to the adoption that they have by the market right now. That’s great. Eric. It’s up to you now, your turn.

Eric Dodds  42:28

All right. Well, I know we’ve spent a bunch of time chatting, interested to know, trying to wrap it up here, but interested to know, what kind of data do you actually store? I know that for security reasons, you know, you don’t you don’t deal with a lot of scope data. But what kind of data do you actually store? And is that at a super high scale? Or do you not have to worry about, you know, storing massive amounts of data.

Daniel Jeffords  42:58

We try very hard to store very little data to be completely honest. I mean, as as we expand what our offering looks like, I know that there are things on the on the horizon that will change that in the future. But we’re a fairly small team. And we don’t want to have to manage too much or be accountable for too much. And of course, certifications for various things are very expensive, too. So we have a lot of reasons not to store a whole lot of data. We have simplified our database structure down to really only have to focus on three things, users and how they’re grouped, which includes things like roles and permissioning, provider accounts, which is kind of what we discuss or associate to like a Dwolla, right, whoever reasons to handle payments, and they are handled more like a Lego piece than like an integrated aspect of how we store data. So we wanted to make sure that the terminology that we use internal to our database was what we needed, not what they needed, but that it would beat them and other providers in the future. And then what we call payment occasions and payments or groups of payments. So payment occasions is more or less the human readable aspect, including metadata around it and basics that are necessary for transmitting to a payments provider. But in reality, we can keep it down to almost really those three major buckets.

Eric Dodds  44:21

Dan, this has been incredibly interesting. And one theme that we continually hear about on the show, when we get into the technical aspects is that the simpler solution is almost always the better solution, especially when you’re dealing with a high level of complexity, a high level of security. So just really interesting to hear about the way that you store data and the types of data that you store really being an effort at simplicity and we’re excited to talk to Earnnest’s VP of engineering. I think we’ll do a deep technical dive there on the streaming engine because that’s what we do here at RudderStack. So we’ll be really interested to talk to him. But thank you so much for the time today. Excellent to learn about you and the app Earnnest and how you’re trying to change the fintech part of real estate.

Daniel Jeffords  45:16

I appreciate it immensely. It was such a pleasure to talk to both of you. Thank you again. 

Eric Dodds  45:21

Well, I grew up in the United States, Kostas, and I learned a huge amount about how our financial system works and how money moves, which was really fascinating. I mean, we spent a lot of time talking about that. But it was really helpful for me to just understand how money moves, what what did you take away from the conversation?

Kostas Pardalis  45:45

First of all, it was extremely, extremely interesting for me to hear what Dan had to say about how financial institutions work, and how payments are done here in the United States. As consumers, we always take for granted that with just one click, we can send money from one account to the other. But actually behind the scenes, there are extremely, extremely complex processes that are happening to ensure that no one’s going to lose money at the end, right. So it was very interesting to learn more about the all the complexity around that and how technology is trying to work around this complexity. I found it extremely interesting. Also, the cultural dimension of other stuff, I think the part where we were discussing about checks and how they’re still something used a lot in the United States and how this affects also technology, right? I mean, we end up digitizing on top of very completely analog mediums just because people are used to it, and they want to continue using it, which is amazing. And what I really found, I mean, from a technical perspective, what I found extremely interesting, is how all that stuff that we are talking about in the technology sector about high availability, fault tolerance, and all these hard problems that we are trying to solve. And sometimes we’re like, maybe we’re doing a bit too much that we’re building all the systems and are they actually useful at the end? The answer is yes, there are problems out there that we cannot solve them without these guarantees in place, and the financial sector is one of them. I think the discussion we had around fault tolerance, and high availability was very interesting. And I’m really looking forward to our next episode where we are going to have the VP of Engineering. So we can dive deeper into the technical details of that. And I also found this super, super interesting the whole discussion around Elixir, Erlang and the hunt for talent in the tech industry. One of the most interesting conversations we’ve had so far and I’m really looking forward to chatting again with Dan in the future.

Eric Dodds  47:52

Me too. Well thank you for joining The Data Stack Show and we will catch you on the next episode.