Q. How did you begin in the industry?
A: We got into this industry by someone approaching us as an investor in 1996. The promise was to build a way of accepting cards online. Back then, there was not a solution that did this. In addition to investing money, along with the other two investor owners, we began selling merchant accounts directly.
As we developed our Internet solution, we targeted in-person merchants to maintain our cash flow. To allow Internet merchants to process, we got an enterprise software solution. We did not even private-label it.
We utilized a Transmission Control Protocol/Internet Protocol connection from each merchant to our location, and then we had a dial-up connection to the processor. Later we connected to the authorization center via high-speed Digital Subscriber Line. We got to know the software better than the company that designed the software.
In total, all three investors collectively invested $500,000. The most difficult aspect of the business was finding the sales staff. (Some things never change.)
Daily, I commuted a good distance from L.A. to Newport Beach. To expedite my commute, I wanted to travel in the carpool lane. To allow this, we hired my brother Ben, part time, so he could share the commute with me and ride in the carpool lane to the office.
Q.How was USA ePay born?
A: In 1997, the partnership broke up because one of the partners was stealing from the company. We were placing about 60 units per month, and he was stealing approximately 10 of those. As the partnership unraveled, it needed more capital. Rather than matching the other member's capital call, I chose to walk away and forfeit my investment. I had $30,000 left to start a new business. I partnered with my brother Ben and we started what later became USA ePay.
We spent about $20,000 on equipment. We continued to sell accounts directly and leased equipment to merchants to pay the bills and provide cash flow. We evolved from one of the rooms in my mother's duplex (where we lived).
At that time, we had one room for our servers and one for our business office. Today we have an 11,000 square-foot office and employ 35 individuals. Starting as we did allows us to appreciate smaller businesses and understand what some of our resellers are going through.
Q. Why have you never partnered with an outside investor?
A. First Data was the first platform we integrated with. We then went to TSYS. We were constantly evaluating whether to buy more equipment or buy advertising or do a show, but funds were tight so we had to choose. We knew we were not interested in venture capitalists but additional funds would allow for faster growth.
Consequently in 1999, I did speak with a friend's father. The friend was actually a part-time staff person and would have become one of my partners. I was offering 25 percent of the company for approximately $700,000.
The money was to be released over time to pay for marketing, salaries and tradeshows. The potential investor was a direct marketer and really did not get our business.
As fate would have it, because I did not get the funds, I could not afford to continue paying for shows, travel expenses and legal fees. My brother Ben was the only one who had enough faith in our business to continue without any significant salary.
Our corporate structure was a sole proprietor from 1998 until 2003. It just did not make sense to change our corporate structure because we were barely making enough money to pay our bills.
Since then, I have had many offers to accept outside investment but neither Ben nor I want outside influence. We are singularly focused, not distracted with the interest of an investor who may be more short-term focused or more focused on the financial reporting than we are. Today, Ben and I own the entire company individually.
Q. How did your gateway evolve?
A. I recognized that accepting cards over the Internet was the future and this was the business I wanted to get into. Although we were interfacing with First Data for years (via our enterprise software), after First Data developed their first application protocol interface, the specifications required an actual gateway.
We wanted to use a domain name so I purchased the name "pccharge.com." We were selling about 50 PC Charge licenses per month and understood the software better than they did.
Although I approached PC Charge to partner with them, their response was a legal action. They came after us for the domain name. We were small and could not afford a protracted legal fight, so we settled. After the legal fees were paid, we received a small settlement which left us with $12,000, but we agreed to relinquish the PC Charge domain name.
We then needed a new name and we came up with USAePay.com. Strangely enough, it was not about the money. We alerted [PC Charge] to our practices and we actually wanted to do business with them.
Now that we were no longer selling PC Charge, we created our own payment gateway from scratch. We began working with Tim McEwen who owned a company called Powerful Hosting.
We hired Tim part time and he created our first gateway. Ben, my brother, developed the graphical user interface and the aesthetics of the gateway. Tim wrote the technical specifications. He lived in Albany, N.Y., and telecommuted for approximately 10 years before moving to L.A. He worked part time for the first six, seven years. This included the early 2000s when programming time was even more expensive than today.
Q. What is your biggest challenge?
A. Like anything else, staying on the cutting edge. Providing the market what they need. However, we are developing services today that will not get rolled out for some period of time, so we have to anticipate what our customers will want.
The hardware aspect is the most difficult aspect of our business. The hardware is necessary to support the wireless services and the development and engineering is enormously expensive. Any delay is very expensive.
For example, we developed an all-in-one POS system called the PaySaber that has an integrated bar scanner and printer. We are now competing with free equipment that does not have the advanced features of the PaySaber, but not all merchants utilize the additional features.
As a result, we did not get the commitments that we planned, so we are now building products like the PaySaber Jr and the PaySaber clip that do not have all the features of the original PaySaber and can be sold much less expensively.
We want to maintain proprietary hardware with our gateway which does not interface with other gateways. Most other resellers develop gateway-agnostic equipment. Our gateway works with this equipment, but our hardware does not interface with other gateways because what we care most about is the gateway.
Q. What is your company's greatest competitive advantage and why?
A. Our greatest competitive advantage is our communication. We are a flat organization and we can deliver immediate changes when needed. We are in a service business which is the best business to be in because we have recurring revenue. But if we don't service our customers, someone else will. Our pricing is very competitive but there is always lower pricing.
We really don't have one competitor. On the gateway side, Authorize.net is the most well known, but they cost more. On the software side, Intuit is the strongest competitor. Our retail ePay product competes head to head with Intuit. With our mobile processors, eProcessing Network, Apriva and VeriFone are all competitors, but we have many different products and believe we can win in each niche.
Q. What is your biggest failure and what did you learn from it?
A. Not starting earlier. I also should have made the PaySaber without scanners. The units are fully loaded and it's like selling fully loaded vehicles and not having some of the upgrades optional. We will change that down the road because not all merchants need the scanners. Consequently we can offer a less expensive option.
I remember working with Alex and Ben before they had a gateway and listening to their design process. We worked closely with both card brands as they developed registration processes.
Because of how small USA ePay was at the time, it was much more difficult for them to comply with the card network's compliance guidelines.
I also worked with them in integrating with their second and third front-ends in order to reach a wider customer base. It's inspiring to see what USA ePay has become during my interaction with the company and individuals through the Internet boom and bust and subsequent growth into the wireless space.
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