Factor Systems — Flint Lane’s New Company
Princeton eCom Lands Lazard Funds
Corrections or additions?
This article by Barbara Fox was prepared for the July 10, 2002
edition of U.S. 1 Newspaper. All rights reserved.
Life in the Fast Lane: Online Banking
Three years ago, three companies, including Princeton’s
Paytrust, ventured into a new kind of online banking — electronic
bill presentment and payment. You can get your bills sent to Paytrust
and they would be presented to you, online, for you to pay. Paytrust
bought one of its competitors, and Metavante, a Milwaukee subsidiary
of a regional bank’s holding company, bought the other. Now Metavante
will own all three. The announcement that it would buy Paytrust came
July 3.
And that’s probably good for Paytrust, which apparently had only one
percent of the entire online bill paying market, and this market is
not growing as quickly as analysts thought it would. Slow market
growth
makes investors unhappy and client bankers nervous. “Banks are
under increased pressure to make sure their vendors are on a solid
footing,” says Jim Bruene of OnlineBankingReport.com. “The
acquisition
by Metavante can give Paytrust credibility as well as financial
backing.”
“Being part of the third largest bank processor in the U.S. gives
us a lot of stability and capability going forward,” says Ed
McLaughlin,
co-founder and executive vice president of Paytrust.
Though Paytrust will no longer be a headquarters company, there is
still activity here in the electronic payment industry. First came
Princeton eCom, founded as Princeton Telecom in 1984 to be an
electronic
processing back office for banks, now with about 200 employees on
College Road. Although it missed its IPO window, it just announced
impressive new funding. The most recent entry is Factor Systems,
started
by one of Paytrust’s founders, Flint Lane (see below for both
stories).
Top Of PagePaytrust Bought by Metavante
When the dotcom slowdown put a kink in the growth of
online banking, Metavante went into buying mode. “The last year
and a half has been a very good year to be a 38-year-old subsidiary
of a regional bank when it came to acquisitions,” says Tim
Patneaude,
vice president at Metavante.
Metavante is the 38-year-old technology company of Marshall & Ilsley,
a bank holding company for M&I Bank, a regional bank in Wisconsin
with $630 million in revenues. Most banks do their own back-end work,
and only one other bank — Mellon — has a similar separate
business to process transactions for other banks. “We now do
processing
for more than 700 financial institutions,” says Patneaude.
“Even
with competitive banks in Wisconsin, we played off our strengths on
being bank friendly.”
Formerly known as M&I Data Services, Metavante was renamed about five
years ago to account for such new services as E-banking and wealth
management. Metavante’s founder, Dennis Kuester, is CEO of M&I Bank.
Last year Metavante bought two companies for back end processing:
Brokat US (a Germany-based software firm), and Atlanta-based Derivion
(which does much of Paytrust’s processing). It also bought one of
three firms doing front-end interface, CyberBills. Meanwhile PayTrust
bought the second entry, PayMyBills.com. Now Metavante owns the
market.
“Metavante and Paytrust are the only two facilities that do paper
bill truncation (scanning bills and presenting them online to
consumers),”
says Paytrust’s McLaughlin. “We have each developed technologies
that are complementary, and ours brings a lot of value to the
transactions.
We expect to achieve synergies by combining the work we have done.
We don’t foresee any increases in pricing.” Insiders say what
will make this acquisition work is that Metavante, Derivion, and
Paytrust
have always been open with sharing information and distributing bills.
Another factor that will make it work is the chance to market services
to online bill paying’s initial users. Most of the users go to their
credit card site to pay just the credit card bill. “Now we can
work with those people who are paying that bill and offer them the
opportunity to pay other bills.”
“Paytrust is powering sites for CapitalOne, CitiBank, and American
Express, and Metavante is working with Chase and partnering with Wells
Fargo,” says McLaughlin. “Through this combination over a
third of the credit card population is represented by providers that
we already have an agreement with, which makes us incredibly well
positioned.”
“The combined organization will have 5 million monthly payments
and establish Metavante as the clear number two to the largest
provider
in the market, CheckFree,” says McLaughlin. “Going forward,
the value of the partnerships we have established will come to the
fore,” says McLaughlin.
The deal was signed late on Monday, July 1. Employees were told, and
press releases issued, the following day. The buyout should close
in the next several weeks.
The company is not ready to say what will happen to Paytrust’s
branding
but it seems likely that clients will continue to do business with
Paytrust as a brand name. Metavante typically operates behind the
scenes and its name is not familiar to the consumer.
Nor will anyone predict which of Paytrust’s 50 employees in
Lawrenceville
will keep their jobs. Paytrust has 50 to 60 employees on Brunswick
Pike and another 250 nationwide, most at a call center in South
Dakota,
but Metavante has a 100,000-foot state-of-the-art call center in
Milwaukee
and another in Nevada. “We are going to take this time to decide
how are we going to look and what are we going to do to provide the
best services,” says Patneaude.
In 1998 Paytrust was the third start-up for co-founders McLaughlin
(Wharton, Class of 1987) and Flint Lane (Rensselaer, Class of 1988).
They met at Logic Works, formerly on Campus Drive, now part of
Computer
Associates. Their mothers-in-law and other relatives provided seed
funds, and the firm announced, then withdrew an IPO in March, 2000.
After Wharton McLaughlin designed large-scale document transmission
for such clients as Motorola, Florsheim Shoes, IBM, and Martin
Marietta.
Lane had developed a method for scanning bills — automated ways
of identifying forms and of lifting information off of the “scan
line,” the string of numbers along the bottom of each bill. This
enabled Paytrust to include an image of the original bill with the
paper check.
Both Metavante and Paytrust offer a seamless turnkey solution that
allows clients to maintain the integrity of their websites. If you
are a client of Chase, for instance, you would not know you are using
a Metavante website. Their huge competitor is CheckFree, which often
provides only links from client sites to its own site. But CheckFree
reportedly processes 25 million transactions per month, compared to
the 5 million attributed to Metavante/Paytrust. And these numbers
are paltry when compared to the number of paper checks that get
processed.
The utopia of paperless bill presenting and payment is still a long
way off.
“From anecdotal feedback, people that use online services like
them, but most don’t want to turn over their mail to another
company,”
says analyst Bruene. “And Paytrust has a narrow niche within the
bill payment field. If 20 million households are paying bills online,
I would speculate that Paytrust has less than one percent of the
market.”
He says that most of the online payers — 10 to 15 million
households
— are paying single bills online to a credit card. They use the
online system so they can pay at the last minute, yet know the bill
has been paid.
Metavante’s Patneaude agrees that the industry is a year or two behind
original projections but quotes a report by Elizabeth Robertson of
the TowerGroup, who says that online bill payment has grown from one
percent of households in 1998 to seven percent in 2001. She claims
that by 2005 at least 19 percent of U.S. households will pay at least
one bill online. Says Patneaude: “As a company we are experiencing
double digit growth.”
“Paytrust investors were looking for financial stability,”
says Lane, the Paytrust co-founder who now has a new company, Factor
Systems. “And Metavante saw the market in the value that Paytrust
had established. It had bought the smallest of the three companies
in the market and liked the market so much they wanted to own it.
Competing against CheckFree, they saw Paytrust as significant.”
Paytrust Inc., 2572 Brunswick Pike, Lawrenceville08648. Glenn Hazard, chairman and CEO. 609-720-1818; fax,609-720-1819.Home page: www.paytrust.comTop Of PageFactor Systems — Flint Lane’s New CompanyFlint Lane’s new business is the reverse of his formerbusiness, Paytrust. Paytrust helped consumers pay their bills online,but Factor Systems, which has 10 people on Everett Drive, helps smalland medium-sized businesses present their bills online.”At Paytrust we always struggled with how to get small businessesto send their bills out electronically,” says Lane. “At FactorSystems we get billing statements out more efficiently by taking acomplete electronic feed from a small business. We take care ofdistributingthe bills, whether by putting them online or by printing, folding,stuffing, and mailing them.””Big billers have always outsourced their billing,” says Lane.”They know they can’t be as efficient as someone whospecializes.”Specialists get economies of scale in equipment, paper and envelopes,and postal discounts. “But no one has ever offered this to smallbusiness.”The challenge of processing all the different varieties of electronicfeeds used by smaller companies — those sending fewer than 50,000bills a month — have driven a couple of other companies away fromthis market, says Lane. “There are pure mailing shops, and pureE-mailing shops, but the business model for this company hasn’texisted.”In contrast to most mailing shops, he focuses almost exclusively onbilling. “It is a whole different animal. Each piece is distinct.Each one is printed in a special way and needs a reply envelope. Wework with each business to come up with a billing format they arehappy with.”What will make Factor Systems succeed, he believes, is that it worksboth with cyber bills and snail mail bills. “We will help youwith all your bills today, but down the road we can convert all yourbills to an E-stream. It will be a long road.””One of the problems trying to convert someone to electronicbillingis the start-up costs,” says Lane. “Let’s say I can convert10 percent of my recipients to electronic mailing, and each snailmail invoice costs $1. If I have a million customers, I can save$100,000a month, but if I have a small business, savings might be $100 amonth.”Some of his customers turn over as few as 15 bills a month.Lane’s father died when he was young, and he had his first job whenhe was 11 years old. “I liked the concept of making money. Incollege I started a painting company — it is amazing how muchmoney you can make painting. My mother always told me you can changethe world as long as you believe in yourself.””I still want to change the world and am excited about theprospectsof this company,” says Lane. At 35, he is the father of two girls,ages six and four, and a baby boy. “I had been involved with fouror five different startups and am glad that Paytrust found some goodsuccess with the Metavante acquisition, but right now am reallyfocusedon my own company.”An alumnus of Rensselaer, Class of 1988, he joined BrownstoneSolutions,a mainframe repository software company, when it had just sevenpeople.When he left there were 50. It was bought by Platinum Technologiesin 1995. Then he was an early employee at Logic Works, which was alsobought by Platinum Technologies and in turn was swallowed up byComputerAssociates. In 1998 he and McLaughlin founded Paytrust; he waspresidentand McLaughlin was CEO. He left Paytrust in June, 2001, andsimultaneouslystarted FactorSystems. The terms of his contract cannot be disclosed,but Lane says it was “an amicable agreement. My leaving was atime of change for me.”He started the pilot service in January, went live in April, and isnot discouraged by his progress so far — he has a couple ofthousandclients. “Consumers and small businesses don’t change habitsovernight.It is much like the ATM market. Everybody believes it happenedovernightbut it actually took 20 years for people to use ATM cards. It is stilla huge opportunity, but it is the kind of thing that takes time. Mygoal is to build a successful profitable venture, and I expect thisbusiness to be around for 35 years.””Working with all these startups gave me the confidence to gooff again,” says Lane. “Paytrust was a great experience, andI would do it again in a heartbeat.”A nine to five job would certainly be easier, he says, “but lifeis not about easier. A lot of people take the easy route but thatis not for me.”Factor Systems, 51 Everett Drive, Building B, Suite50, Princeton Junction 08550. Flint Lane, president. 609-580-0050;fax, 609-580-0041. Home page: www.factorsystems.comTop Of PagePrinceton eCom Lands Lazard FundsYour company might have the greatest payment technologyin the world, but if the bankers worry about your stability, theywon’t go near you with the proverbial 10-foot pole. That’s the problemthat companies in the young electronic bill presentment and paymentindustry are having.So when Princeton eCom announced last month it had received $10millionfrom Lazard Technology Partners (LTP), it was a very good sign. Threeprevious investors had chipped in $21 million more for a total of$31 million for the College Road East-based company. It was Lazard’sprestige, as much as the money, that will talk to Wall Street.”Lazarddoes very few technology investments in a year and is noted for theirincredible due diligence,” says Princeton eCom spokesperson TomHealey.”Lazard has a rich history of investing in exceptionalcompanies,”says Manu Rana, vice president of Lazard Technology Partners. “Thecompany’s next-generation payment and presentment products offerdemonstrable,achievable value. Princeton eCom is poised to enhance its leadershipposition in the emerging bill presentment and payment market.”Previous investors who contributed a total of $21 million were NewCentury Equity Holdings (NCEH), Mellon Ventures, the private equitypartnership of Mellon Financial Corporation (MEL), and Terra LycosVentures L.P., a venture capital firm associated with Terra LycosInc. (TRLY).Princeton eCom’s interim CEO Craig Kirsch, who comes from the SanAntonio-based New Century Equity Holdings, believes the latest roundof financing will provide large billers and banks with the assuranceof financial stability they require. “This financing providesus with significant financial resources as we bring online powerfulnew technologies that will clearly enhance Princeton eCom’s industryand technology leadership,” says Kirsch.Princeton eCom was the first company to present a bill on theInternet.Founded by Don Licciardello as Princeton Telecom to process electronicpayments for bank clients, it provides integrated electronic billpresentment and payment services to some of the country’s largestutility, telecommunications and financial services consumer billers,including about 20 Fortune 500 companies. It also offers a “PayAnyone” payment processing service to more than 1,400 banks andfinancial institutions, including eight “super regional”banks.Between December, 2001, and March, 2002, the average number of paymenttransactions processed by Princeton eCom increased by about 1 millionpayments per month, up to 4.5 million. It added nine new billerclientsfor a total of 83, including those that require telephone presentmentand payment. It presents more than 750,000 bills online through billerdirect websites and handles more than 1 million telephone billpresentments.In addition to its core billing and payment services, Princeton eComalso offers electronic collection and one-time-payment services aswell as electronic balance transfer services.Princeton eCom is on good terms with Paytrust and has a strategicagreement to deliver electronic bills for distribution to Paytrust’scustomers. COO Ron Averett says that the project was scheduled tobe completed this fall and that he believes that the project willgo forward.Last year Princeton eCom tried to enter Paytrust’s space, to offerdirect interface with consumers, by acquiring Quicken’s Bill Managerservice. Then it backed away. “Everybody who does online billpayment loves it, but there were not enough to stay in thatbusiness,”says Healey. “We purchased it but shelved it.”For now, Princeton eCom focuses on its core business. “Theso-calledburn rate was substantially reduced in the first half. We have feweremployees, about 200, because our computer processing for paymentsis more efficient,” says Healey. “Together with cost control,we have increased business.””We expect to be cash flow positive in the second half of theyear,” says Healey. “That means that most of the Lazardinvestmentwill be on the books as an asset at the end of the year. As we moveup the chain to larger billers, that will be important. We have beenadding financial institutions in record number, but generallyspeaking,they were regional ones.”Princeton eCom Corporation, 650 College Road East,Princeton 08540. Craig Kirsch, interim CEO. 609-606-3000; fax,609-606-3297.Home page: www.princetonecom.comTop Of PageTrintech’s Payment SoftwareTrintech is the fourth company in Princeton’s onlinepayment lineup. Not a headquarters, it develops software for anelectroniccommerce firm based in Dublin, Ireland. Rather than offer turnkeysolutions like Paytrust and Princeton eCom, it supplies card paymentsoftware and electronic products for bankers and retailers.This software development office was set up with a handful of formerPlasmaPhysics engineers, had grown to 31 people in more than 6,000square feet. Now it has 15 to 20 workers, says software engineer KevinMcGuire, the oldest of three brothers who founded the firm (U.S. 1,December 3, 1997). This office works on banking software, acquiringand issuing credit card software, dispute resolution software, andweb-based payment applications.Trintech recently bought GlobeSet, a Dallas-based firm that has asuccessful cash payment reconciliation product.Trintech (TTPA), 5 Independence Way, Princeton08540. John Cahill, executive vice president. 609-919-6000; fax,609-720-1020.Home page: www.trintech.comNext StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
