8/14/2019 Forbes, Nov. 15 2004: Bag The Small Prey

1/2

7 SMART ANALYSTSSTOCK PICKS AND PANS FOR 2005 Honda's Flying Car

NOVEMBER 15, 2004 I WWW.F0RBES.COM

n

1 0 TOYSGROWN-UPSCAN'T LIVEWITHOUT

A L S O ^DIVIDENDWINNERSDYNEGY'SA F IRST BOUND COPY

$ 4 . 9 9 / CANADA $ 6 . 9 9

http://www.f0rbes.com/http://www.f0rbes.com/

8/14/2019 Forbes, Nov. 15 2004: Bag The Small Prey

2/2

EntrepreneursF I N A N C EBag the Sm all PreyIpayment finds credit card profits with small merchantsthat big rivals can't be bothered with | By Arik HesseldahlG REGORY S. DAILY IS OFFto a good start in showing lightning can striketwice. In 1984, with $1,506, heand a partner founded PMTServices in Nashville to sign upbusinesses to accept creditcards. Fourteen years later theysold it for $1.2 billion to NovaCorp., an Atlanta rival thatbecame a part of U.S. Bancorp.Unlike such big players as$8.4 billion (2003 sales) FirstData, which focus mosdy onhigh-volume retailers like Wal-Mart, PMT went after smallmerchants do ing $200,000 ayear in sales and averaging $75per transaction.Ditto Daily's latest venture, launched in2000 with $5 million from profits on thePMT sale and $10 million fro m investors.It's called Ipayment. Last year it hauled in$226 million in revenue from 72,000 littleguys like auto repair shops and restaurants.While First Data tends to use salariedsales forces, Ipayment relies on independent contractors, who bear the costs andmay also sell a point-of-sale credit cardreader, which Ipayment doesn't provide.

Daily and his contractors get a cut offees. On, say, a $100 transaction, Ipaymenttakes gross revenue of $3, of which $1.75goes to the cardholder's bank. Of theremaining $1.25, 10 cents goes to Visa orMasterCard; another 10 cents coverscharge-backs in the event of a cardholderdispute; 55 cents covers fees to its contractors and firms that run the data networksused to make the charge. After those feesare paid, there's still 50 cents left on thetable for Ipayment.Ten people work out ofheadquarters in Nashville. Two call centershandle customer service and data entry.Last year the company earned $15 million.

Give h im som e credi t : Greg Da i ly goes a f te r th e l it t l e guys.Of course there's a catchmany newbusinesses fail within the first year. So Dailyhas to deal with churn. "I want my guysmaking two or three sales a day," he says.Since going public in August 2003Ipayment has paid more than $80 million, mostly borrowed money, to add27,500 merchantsbuys that helpedboost revenue by $85.8 million. Chargevolume last year was $6.5 billion, up from$2.8 billion in 2002.While most acquisitions went well, anearly one has led to messy lawsuits. InAugust a federal bankruptcy court trusteesued Ipayment, seeking $151 million andalleging that Dailyfraudulentlyundervalued Creditcards.com at 37 cents a sharewhen it was absorbed by an Ipayment unitin 2000, only months after a venture firm

valued it at $7 a share. Daily says the suithas no merit and vows to fight t in court.With the hustle of the college tennisstar he once was, Daily, 45, seems to havethe right formulaso far. "If anyone in thisindustry wants to get the small merchants,this is the way to do it," he says. F116 F O R B E S - N ovem ber 15, 2004

http://creditcards.com/http://creditcards.com/