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 Entrepreneurs

FINANCE

Bag the Small Prey

Ipayment finds credit card profits with small merchants
that big rivals can't be bothered with | By Arik Hesseldahl

G
REGORY S. DAILY IS OFF
to a good start in show-
ing lightning can strike
twice. In 1984, with $1,506, he
and a partner founded PMT
Services in Nashville to sign up
businesses to accept credit
cards. Fourteen years later they
sold it for $1.2 billion to Nova
Corp., an Atlanta rival that
became a part of U.S. Bancorp.
Unlike such big players as
$8.4 billion (2003 sales) First
Data, which focus mosdy on
high-volume retailers like Wal-
Mart, PMT went after small
merchants doing $200,000 a
year in sales and averaging $75
Give him some credit: Greg Daily goes after the little guys.
per transaction.
Ditto Daily's latest venture, launched in Of course there's a catch—many new
2000 with $5 million from profits on the businesses fail within the first year. So Daily
PMT sale and $10 million from investors. has to deal with churn. "I want my guys
It's called Ipayment. Last year it hauled in making two or three sales a day," he says.
$226 million in revenue from 72,000 little Since going public in August 2003
guys like auto repair shops and restaurants. Ipayment has paid more than $80 mil-
While First Data tends to use salaried lion, mostly borrowed money, to add
sales forces, Ipayment relies on indepen- 27,500 merchants—buys that helped
dent contractors, who bear the costs and boost revenue by $85.8 million. Charge
may also sell a point-of-sale credit card volume last year was $6.5 billion, up from
reader, which Ipayment doesn't provide. $2.8 billion in 2002.
Daily and his contractors get a cut of While most acquisitions went well, an
fees. On, say, a $100 transaction, Ipayment early one has led to messy lawsuits. In
takes gross revenue of $3, of which $1.75 August a federal bankruptcy court trustee
goes to the cardholder's bank. Of the sued Ipayment, seeking $151 million and
remaining $1.25, 10 cents goes to Visa or alleging that Dailyfraudulentlyunderval-
MasterCard; another 10 cents covers ued Creditcards.com at 37 cents a share
charge-backs in the event of a cardholder when it was absorbed by an Ipayment unit
dispute; 55 cents covers fees to its contrac- in 2000, only months after a venture firm
tors and firms that run the data networks valued it at $7 a share. Daily says the suit
used to make the charge. After those fees has no merit and vows tofightit in court.
are paid, there's still 50 cents left on the With the hustle of the college tennis
table for Ipayment. Ten people work out of star he once was, Daily, 45, seems to have
headquarters in Nashville. Two call centers the right formula—so far. "If anyone in this
handle customer service and data entry. industry wants to get the small merchants,
Last year the company earned $15 million. this is the way to do it," he says. F

116 F O R B E S - November 15, 2004