Isaac: A Case Study in Control Points 2.0

The Isaac Story

Isaac helps schools be the best they can be by consolidating front and back-office financial and software solutions into a single interface. By partnering with Isaac, schools receive access to a suite of services that allow them to become better businesses.

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The company was founded in August 2020 by David Peixoto and Ricardo Sales and secured backing from General Atlantic, Kaszek, SoftBank, and Arco Educação (NASDAQ: ARCE). In October 2022, Isaac merged with Arco through an all-share transaction. The merger combines the largest provider of content solutions to schools with the largest provider of financial services and technology solutions to schools, with the goal of increasing cross-sell and product synergies.

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This essay demonstrates how the VSKP’s Control Points 2.0 model aligns with both the motivations behind Isaac's initial focus on payments and the impact it had on the product and the business.

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The Problem Isaac Solves

Brazil's education system places a disproportionate emphasis on higher education, resulting in underfunded and lower-quality public K-12. Education is, therefore, a top spending priority for many families, and parents will dedicate a lot of effort to enrolling their kids in one of the ~40K K-12 private schools.

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Brazilian private schools are mostly small and mid-size businesses, often created by teachers who take on administrative work despite limited managerial training. A focus on pedagogy lies at the core of school leadership, but financial and operational management generates stress and dominates time allocation. School owners and administrators spend more than 70% of their time managing billing and collections and fire drills, rather than engaging in higher-value activities like strategizing to attract new students, communicating with parents, and planning the school budget.

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School tuition is typically paid with an initial down payment, an enrollment fee, and 12 monthly installments. But many schools are faced with a cash mismatch during the year as, per Brazilian law, they cannot cancel the enrollment of students whose families are delinquent on payments during the academic year. This incentive towards payment delays leaves schools struggling to pay their expenses and make investments in facilities and educational content.

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The Solution: Control Points 2.0

Isaac solves these problems by bringing together payment and financial services through integrated software. Isaac’s first offering, the “revenue guarantee,” streamlines billing and collections, eliminates the financial risk for schools, and provides a smooth payment experience for parents. Strong product-market fit translated into a large business—Isaac serves over 1,000 private schools throughout Brazil and guarantees approximately US$500M in annual payment volume.

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The product offering works as follows: parents pay tuition installments directly to Isaac, which makes fixed guaranteed monthly payouts to schools even if some parents default, while charging a take rate for it. Isaac undertakes schools’ collection activities, absorbing the operational complexity while providing schools with cash flow predictability and time savings. This enables schools to concentrate on delivering high-quality education, free from the stress of financial management.

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Business Model

Inconsistent tuition payment means schools struggle financially, but since they lack control and have a low quality of financial information, they are only offered the most expensive (if any) credit lines.

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"Before launching the revenue guarantee, we ran a pilot offering working capital loans to schools. Despite strong interest from schools, we realized that it was impossible to underwrite the risk given that schools lacked basic information such as (i) the number of students, (ii) average ticket, and (iii) delinquency. At that point, we were sure that in order to tackle this problem, we would need to start organizing the accounts receivable. Fund inflow was a priority."
- David Peixoto, Isaac's Co-Founder and CEO

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The revenue guarantee establishes a funds inflow advantage by placing Isaac in the middle of the transaction between schools and parents. In fact, enrollment and collections—two of the most important school functions—rely on Isaac's solution. This allows Isaac to ingest and organize data for schools and become the primary source of truth. 

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Access to these data repositories is imperative in order to send monthly charges to guardians and have real-time visibility of completed payments. However, a truly successful funds inflow strategy needs to couple data access with great execution on two other fronts:

1. Data quality: streamlined processes that leverage all the data the school already has and easy-to-use software that drives high engagement and information accuracy.
2. Information visibility: as a VSV, it is crucial to strike a balance between streamlining customers' work processes and preserving their control and visibility. You want your customers' lives to be easier, but the last thing you want is for your clients to feel like they have less control over their own operations.

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Isaac determines contract prices individually by evaluating a school's payment history and associated risk, aligning the company’s interests with those of the school. Schools have an incentive to ensure parents continue making payments and pay down their debts because that improves the school’s pricing conditions and allows them to access other products in Isaac's financial services portfolio.

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Overall, the revenue guarantee works as a great control point. It simultaneously (1) addresses key pain points to schools (cash flow predictability and the complexity of dealing with accounts receivable) and (2) organizes school data, making underwriting much simpler. Isaac streamlines billing, collection, and payments and in turn, establishes a powerful funds inflow advantage.

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Consumer Experience

Unlike most B2B2C SaaS solutions, Isaac onboards 100% of a school's students on day one. From that point on, all tuition is transacted through Isaac. No other product could have led to such rapid adoption and engagement of a B2C interface in the school context, giving Isaac a much faster time to value for both schools and parents compared to other educational software solutions.

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Isaac has successfully utilized the revenue guarantee product to establish monthly engagement with parents. With the Isaac app, parents can access all charges, use different payment methods (credit and debit cards, PIX, and “boletos”) and even renegotiate overdue balances. Investing in multi-party communication was crucial to (1) make schools' end-customers (the families) satisfied and (2) boost Isaac's collection rates and control risk.

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In order to continue to establish itself as an indispensable tool for families, Isaac's B2C portal must evolve and add new features over time. The company recently acquired ClassApp, a digital messaging solution designed to assist schools in communicating with parents. Robust and clear communication is a core part of a good school; the Isaac app allows schools to instantly share announcements, documents, photos, and videos and ensures that parents will receive all communications. Isaac creates the foundation for a more efficient school environment by bringing parents and administrators together on a single communication channel.

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The revenue guarantee, in particular, encouraged the development of a solid B2C experience from the start—satisfied families serve as a B2B retention anchor. The platform can further integrate into the community by adding features that include teachers and students, transforming Isaac's B2C platform from a financial app into a fully-fledged multi-stakeholder communication solution.

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Integrate and Surround

Schools typically manage operations with pen and paper or in legacy ERP systems. When available, those systems tend to centralize information ranging from accounts receivable to student report cards and attendance records. Isaac replaces the ERP accounts receivable and enrollment modules to become the source of truth for top-line financials and parents' contact information. 

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However, schools need that information collected during enrollment to flow through other modules of the ERP, like grading and scheduling. Isaac has built a network of partner ERPs integrated with its product—while schools can choose any system they prefer, using one of the recommended platforms can enhance their experience with Isaac.

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Looking Ahead: Expand and Extend

Leading with fintech has been a great wedge for Isaac. While the paradigm of software to fintech is applicable to several settings, it may be beneficial to reverse the order in emerging markets where the cost of labor is accessible—having a business run on Excel with manual inputs from workers is often cheaper. In situations like this, payments and financial services are more crucial, and you might need to move up a lot faster on the fintech ladder to finance your growth. In these cases, the software comes into play as a must-have addition to financial products. Offering a great user experience is key to driving engagement and retention, and assessing and controlling risk.

The revenue guarantee bundle works as the foundational step for a long roadmap of products, including a combination of other financial services and software improvements that simplify back- and front-office routines. For instance, Isaac is currently piloting a short-term loan product that enables schools to access funding with repayments deducted directly from their monthly payouts. 

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On the B2C side, the frequent interaction with parents and intermediation of key data workflows creates several attractive opportunities for Isaac to expand through the value chain. The company recently launched embedded educational insurance that insures monthly tuition payments in the event of a loss of income or guardians' passing, providing peace of mind for families. 

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Ultimately, to transform education, Isaac will need to help schools attract more students and make private education more affordable. Many schools struggle to find a pricing model that maximizes profits and ends up with idle capacity, while many families desire to send their children to private schools but lack the financial means to do so. With greater insight into schools’ financials and parents’ payment behavior, Isaac can create value for both parties through innovative products like (re)financing and marketplace. These solutions enable schools to increase their liquidity during stressful enrollment periods and meet incremental consumer demand while making education more accessible. Isaac’s approach holds significant growth opportunities and has the potential to transform the K-12 education sector in Brazil.

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