Micro-merchant processing pros

In 2003, ProPay Inc. boarded Just Us Teachers, Chris and Belinda Slaughter's Baytown, Texas, business that supplies primary and secondary school teachers with font libraries of scientific and mathematical symbols for classroom worksheets. Just Us Teachers' Web site accepts online payments via PayPal. But to market their product to teachers in person, the Slaughters travel to tradeshows, fairs and educational conferences across the United States.

For face-to-face payments, the Slaughters used a knucklebuster (a manual card imprinter that predates today's POS terminals and electronic data verification and transfer systems), which was cumbersome to carry, slow to use for processing transactions and highly insecure in this Payment Card Industry (PCI) Data Security Standard (DSS) world. So when ProPay launched its new lipstick-sized, triple DES-encrypted MicroSecure Card Reader in October 2008, the Slaughters immediately purchased one. It worked so well they ordered three more.

According to Gary Goodrich, Chief Executive Officer at ProPay, this case illustrates ProPay's mission. "Our whole mantra is helping businesses grow and prosper by providing these innovative payment services," he said. "Everything we do is about that safety or security and tremendous simplicity for the small merchant."

Streamlining sales

Founded in 1997 and headquartered in Orem, Utah, ProPay jumped into the payments industry with FaxPay - a method that enabled small businesses to accept credit card payments via fax machines. In 2000, ProPay rolled out its first virtual payment terminal to serve micro merchants online. Its proprietary, customizable platform reportedly allows businesses to turn telephones or computers into virtual terminals at a fraction of the cost of standard, in-store terminals.

"We have really helped people avoid expensive terminals," Goodrich said. As an example, he cited the company's interactive voice response system, which he said enables someone to "pick up a phone and key in an order securely, or, more typically, turn their home computer or laptop into a virtual terminal. And that's been a core business."

Initially, ProPay targeted the online auction market and then branched out to owners of small and home-based businesses. As ProPay grew, it began to supply payment services to larger enterprises with billions of dollars in annual sales. But ProPay has continued to evolve, recognizing a void in card present, micro-merchant payments.

"We were just looking out at the 25 million people that don't even know what PCI means yet," Good-rich said. "They're taking card numbers increasingly, and so we thought we really need to have a physical, very inexpensive, robust encryption device for these face-to-face transactions."

Thus was borne the MicroSecure Card Reader (for more information, see "Payments in your pocket," The Green Sheet, Dec. 22, 2008, issue 08:02:12). The pocket-size, patent-pending device - which weighs 1.2 ounces - creates a unique encrypted key each time a card is swiped. Card data is decrypted only when it reaches ProPay's servers for back-end processing. Merchants never have access to the actual data, only to its unique identifiers.

Securing transactions

In case of chargebacks, merchants gain access to disputed transactions through ProtectPay, ProPay's PCI DSS-compliant reporting infrastructure. ProtectPay, therefore, is critical to using the mini reader. Goodrich said it took several years and millions of dollars to design and integrate the reader with ProtectPay.

After only a few months in the marketplace, the inexpensive reader is being used by about 3,000 merchants, "with almost no reports of technical difficulties," Goodrich added.

The reader is designed for individuals who sell jewelry, makeup, scrapbooks, nutritional supplements and so forth as a primary or secondary income. In one case, a ProPay customer's husband was a U.S. soldier deployed in Iraq.

"To bolster the household income, she started to sell jewelry on the side," said Scott Nelson, Vice President of Marketing at ProPay. "With the MicroSecure her sales have actually doubled."

Goodrich noted that sales in some cases have even tripled due to the impulse nature of discretionary purchases. Studies have shown consumers tend to pay more when they pay with plastic, but the reader reportedly helps merchants in other ways, too.

Greg Pesci, Vice President of Business Strategy at ProPay, said customers who use MicroSecure look "much more professional" than salespeople who still use order pads and write credit card information down with pen and paper.

The security of the device is another factor that can boost sales. Goodrich recalled people at tradeshows saying the following to him about the MicroSecure: "Wow, that tiny device is that robust and does all that?" and "It encrypts at a triple DES level on swipe and changes the encryption every time I swipe a card?"

Making friends

Despite the state of the economy, ProPay is expanding. In October 2008, online auction giant eBay Inc. tapped ProPay as an alternative to PayPal for post-auction, online payments. With the integration of ProPay's platform with eBay's Web site, ProPay offers eBay's Silver-, Gold-, Platinum- and Titanium-tiered PowerSellers lower processing rates.

"We're not here to speak for these great companies, eBay and PayPal, but we like to believe the reason they chose us among over a dozen others was because of our security and ease of use and our technical abilities to integrate quickly and professionally into eBay," Goodrich said.

ProPay is looking to further diversify its partnerships. Until now, the company has marketed its services via a small, internal sales force.

But Goodrich believes ProPay's expansion through the eBay partnership and the launch of the MicroSecure device will necessitate another selling channel.

"We'll likely engage in the ISO community soon so that we can reach other markets that we have not been addressing," Goodrich said. "We can see this applying to many mobile service and sales markets that we currently do not serve."

ProPay has taken a different route than most other companies. It began as an online presence and branched out into the face-to-face POS world - not the other way around. But Goodrich believes that evolution has served ProPay well. Securing data in the early, Wild West days of online payments and making its payment method easy and affordable has informed ProPay's new foray into card present payments.

"We have grown rather organically and somewhat conservatively," Goodrich said. "But I think that that has been a useful mindset in how we handle cardholder data and please customers."

That dedication seems to have paid off. For the last three years, ProPay has been recognized as one of Utah's 100 fastest growing companies. And the processor reported its gross revenue has steadily increased every year since it incorporated in 1997.

With the micro-merchant population predicted to increase in the coming years, ProPay does not see its upward trajectory ending anytime soon.

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