Back in cave man days when people wrote checks for groceries and computers had their own special rooms, financial pioneers were slashing paths into the electronic jungle. In the future, they predicted, monies would flow along in a digital Amazon that could instantaneously deliver dollars and pesos and francs to banks and stores and people around the world. Their problem: How to get all the financial institutions to agree on a protocol.
Donald Licciardello, then a 37-year-old assistant professor in quantum physics at Princeton University, devised software for electronic check transfers between banks and businesses, and he founded Princeton TeleCom in 1984. He started out with a five-person office at the Carnegie Center. Though he and his graduate students presented the first electronic bill on the Internet, the firm was the underdog in its market. Yet it prospered, changed its name to Princeton eCom, and was purchased last year by Online Resources (see following page).
Licciardello cashed out in 1999 and started a new career as a daytrader, but not for long. Whisked off by his wife to Aruba for an enforced vacation in 2001, he was lying on the beach when she showed him a New York Times article about Mexican immigrants lined up at grimy storefronts to send money home. That, plus a contemplation of his own debit card, ignited his second company, American Cash Exchange. Established in 2004, it is angel-funded and expects to break even this year.
Once more this CEO is struggling to implement a brand-new financial paradigm. Licciardello’s bold goal: using ATM and point of sale equipment to revolutionize how individuals send cash from one country to another. He created the Poni PIN Card, a U.S.-to-Mexico money remittance card, similar to phone and gift cards, that is sold in even peso values. Though he is starting with the Mexican immigrant population, he aims to spread his PIN-card gospel throughout the world.
“Even though E-com eventually sold for a little under $200 million, this new idea is much more sophisticated,” says Licciardello. He suggests his newest brainchild transforms a method of doing business on the worldwide ATM network that functioned for 30 years, and it could transform the way Mastercard and Visa do business.
Yet Licciardello’s technology requires absolutely nothing new, nothing that banks and financial institutions don’t already have in place. It doesn’t even use anything as fancy as a smart card but relies, instead, on the networked ATM machines — Mexico has 26,000 of them. But until the Poni PIN card came along, they were not available to the Hispanic immigrants to the United States. According to the Pew Hispanic Center, 8 million Hispanic immigrants have no bank accounts. “We can give access to the entire unbanked population,” says Porter, “which will never have a bank account or a pin.”
Now, after five years, American Cash Exchange has only a seven-person office in Pennington, plus several consultants. But it has raised $11 million in angel funding and is trying to raise more from institutional investors. It has completed its beta test, and its next hurdle is find partners who can sell the solution to thousands of stores.
Waiting, for Licciardello, is not new. At his first company, his technology for back office transactions took a long time to prevail. For this new company, which sells directly to consumers, Licciardello has an additional advantage — a wife and business partner, Debra Porter, who just happens to be a marketing expert. He has also just hired a point-of-sale expert from IDT, Margaret Lockwood, as the company’s new president, and the appointment will be announced this month. If the Licciardello-Porter-Lockwood trio can get past daunting regulatory hurdles, the Poni card has a real chance for big time success.
Porter, the company’s chairman, points out that the Poni concept is so unusual that many people in the banking industry can’t wrap their minds around it. They can’t believe that money can transfer instantaneously. “This is the first time in the history of the world-wide ATM network where a PIN can work on ANY ATM access card,” she says. “In every ATM network in the world, the ATM card is aliased to the funding account. In other words, the card references the money. In Poni, the PIN references the money and the card is irrelevant,” says Porter.
The market for Licciardello’s remittance technology might eventually extend to online auctions (such as E-bay) and cash payrolls, but for now the company is concentrating on international immigrant remittances between the United States and Mexico, and that, in itself, is a huge market.
In 2005 a reported $52 billion was transferred to Latin America and the Caribbean, according to a study by Georgetown University scholar Manuel Orozco, and the remittance companies accrued more than $5 billion in fees. Porter says that, despite these profits, the clients are not well served. “Current services that serve these payments are slow, inconvenient, expensive, intrusive, and antiquated in execution,” says Porter.
Here is how the Poni card works. If a migrant worker wants to send his mother $300, he now stands in line at a check cashing business to buy a money order to be sent through the mail, or he buys a wire transfer, typically costing $14.99, from Western Union.
Under the American Cash Exchange system, he goes to a retail outlet or a bank to buy a Poni PIN. He pays for an even number of pesos, for about a $2 markup, at that day’s exchange rate, plus a $9.99 sending fee. He calls his mother (a free five-minute call that comes with the Poni PIN purchase) to reveal the secret PIN number. His mother takes her Poni ATM card (more than a million have been distributed, for free, in Mexico) to an ATM machine at a convenience store or bank. Using the secret PIN number she withdraws the exact number of pesos that her son purchased. She needs no bank account, and she is charged no hidden mark-up or back-end fee.
“The PONI card is a unique way of sending money in a manner that is simple and enables the retailer to conduct the transaction in an easy manner,” says bicultural executive Randy Stockdale of AdSpan Hispanic Inc. “Unlike the debit card products of today where a card has to be mailed, in-country recipients can gain access to their own PONI cards and continue to use the same ones — thus creating loyalty.”
The technology of Licciardello’s idea: To connect cash to a one-use-only 12-digit PIN number generated randomly, rather than to an account number printed on a card. (In contrast, credit cards and debit cards attach money to their card account numbers, and their owners authenticate those cards with short PIN numbers. Also on credit cards, an additional security number is a three digit string printed on the back of the card, for any retail clerk to see and steal. The current use of printed, static and multiply-disclosed published numbers contribute to the annual loss of billions of dollars to frauds and identity thieves.)
Any credit or debit card transaction permits an associated short (4 or 6 digits) PIN for ATM or point-of-sale (POS) use, but no one ever thought to link the PIN number with a dollar value. With a Poni transaction, the clerk prints out the 12-digit PIN number or hands over a magnetic-strip card with the numbers under the scratch-off patch. This innovative use of modern random numeric techniques is the intellectual property on which Licciardello based his patent, which has been allowed by the U.S. patent office. “Any cash card works with any PIN,” says Porter,
“The solutions yield an anonymous, instantaneous, convenient, safe, and reliable method for individuals to transfer small amounts of cash inexpensively,” says Porter. On the bank side, the process generates traffic, deposits, and recurring transaction fees that require a low level of service. Because the entire amount must be withdrawn at one time, the bank does not have to maintain accounts over time. Because the amounts are limited to only $300 or $400, this transfer method does not attract crooks and money launderers, and if it did, it has built-in tracking devices.
The Poni fee is $9.99 plus an exchange fee, about $2 or $3, or about 3 to 4 percent, a competitive rate. As reported by the Pew Hispanic Center, fees for pesos sent to Mexico averaged 4.4 percent in 2004. But the daunting competition, led by Western Union, includes MoneyGram and major banks (Wells Fargo, Bank of America, and CitiBank). Taken together, American banks have only a three percent share of the market, according to the Pew researchers.
The competition is “very steep,” admits Porter, yet the Poni card has jumped over several big hurdles. Licciardello and Porter beta tested it in Arizona, talking to every merchant about inventory management, presentation, and merchandising. They seeded the market, giving out free terminals and products to be sure it worked flawlessly. “We physically lived in our test market,” says Porter. “You can’t compete with the giants unless you are down in the trenches, living with people and speaking their language. Our Spanish teacher is one of our employees.”
After the beta test they climbed out of the trenches, signing a contract with Q Comm International, a prepaid transaction processor for prepaid phone cards and prepaid debit cards. Q Comm has 5,000 terminals on which Poni software can easily be installed. “The holy grail for our business is to not physically supply the terminal,” says Porter. “Don is shifting back to the more typical E-commerce model, where we will process the transactions from large point of sale providers. But we couldn’t have done what we did without being there.”
The firm also signed a contract with Oxxo, a large Mexican convenience store chain.
“The Poni solution is attractive to those dedicated to Mexican migrant issues,” said Jorge Durand, a sociology professor at the University of Guadalajara and an expert in migration studies, in an ACE press release. “It provides a fair remittance option for working migrants in the U.S., and Poni gives a portion of the profits to the Poni Foundation, a non-profit dedicated to improving the lives of Mexicans on both sides of the border.”
Many among Licciardello’s former Princeton E-com staffers, now work for him again. “Some were absolute stars,” he says. Two of them — Alex Peterhans and Larry Greenberg — are founding partners.
And though Licciardello was frustrated by the direction his first company took, he is confident of his management skills for this one. His chief challenge, he says, is listening to technical staffers air the concerns in long meetings. “Patience is not my long suit, but I have people who can do that.”
Regulatory hurdles will be a challenge, but Licciardello thinks he has an inside track. The authorities are unhappy with the current state of money transfers, which is driven by clerks and money agents, many of whom are in not much better shape than their customers. For such operations to form the front line of defense for money laundering, most agree, is absurd.
Licciardello enlisted the help of Stuart Eisenstaadt, former U.S. ambassador to the European Union and deputy treasury secretary for the Clinton administration, for introductions to two Bush administration officials — Stuart Levy, the current U.S. czar of money laundering, and Robert Warner, director of Financial Crimes Enforcement Network, the Department of the Treasury agency that regulates all money services businesses.
The officials, Licciardello says, are receptive to an electronic agentless solution that could help prevent crime and track atypical behavior. After the customer buys the PIN number, the software has a few seconds to decide whether to release the money. The system favors legitimate migrants and is inconvenient to the criminal. It will function, he believes, like a centrifuge, absorbing the legitimate businesses and leaving the illegitimate business exposed.
Licciardello grew up in Trenton, where his grandfather, Joseph, had founded a produce business: “He was an 18-year-old immigrant from Sicily who bought a buggy and a fish, made a profit, bought a truck, and branched out to produce.” His parents were told they would never have their own children, so they adopted Don — and then had two more sons.
As with most Italian families, the business was handed down through Domenic (now 87 years old) and Licciardello’s siblings. Unlike them, Don did not stay with the business. “I was a little bit of a black sheep, because I made a right turn and went into science.”
On the advice of a nun at the Cathedral School, he majored in physics at the University of Scranton, Class of 1968, and went on to earn his PhD from the University of Virginia.
He was introduced to Porter by someone who thought they would make an interesting couple. It is her second marriage, his third, and together they have six children — two in college, two married, and two younger ones from prior relationships.
Porter’s father was a senior healthcare executive, a turnaround specialist who worked at companies such as Pfizer and moved frequently, and her mother was a nurse. She earned her degree from the University of Bridgeport, Class of 1988.
A benchmark of her marketing career was launching Grey Goose, the vodka that made importer Sidney Frank a billionaire. For the launch they chartered the Concorde to take food writers reporters to Bordeaux. On the West Coast the kickoff was at Wolfgang Puck’s restaurant, Spago, and, in New York, at the French consulate. “It was a very different world,” says Porter.
When she saw her new husband becoming consumed by day trading frenzies, she insisted he relax in Aruba. There, she showed him the pivotal New York Times story.
With his banking background and her marketing background they make a good team. They formed American Cash Exchange with former E-com employees including Greenberg and Peterhans, who are partners, plus Leena Mammen, Maryke Seldes, Chris Lemper, Gary Feng, Pete Cion, Sergey Golub and several eCom consultants, including David Romero. Licciardello, Greenberg, Peterhans, Porter, and Romero are listed on the patent as co-inventors. Greenberg, who is president of a separate organization, Poni Sales, thought up the name, which means little horse and has an endearing connotation in Spanish.
Lockwood, the incoming president, will provide distribution expertise. “Retail distribution is critical to the success of our project,” says Porter. “We hired Peg Lockwood for her unique growth experience within the POS industry. This former EVP at IDT built a $200 million phone card business by successfully negotiating wholesale agreements with the largest POS card activation processors. Peg will soon move from consultant to the role of president of ACE”.
A creative thinker like Licciardello can’t be sidetracked for long. His co-authored paper on two-dimensional quantum diffusion was selected as one of the seminal works of the past 100 years by the American Physical Society. Before he founded his first company, he consulted in theoretical physics to IBM, Schlumberger, Bell Labs, and RCA Labs. “His brain does work differently from other people’s,” says Porter. “We had thought about bringing in venture capital money, and one fund from Menlo Park was courting us. They wanted psychological executives of our CEO. Don’s came up creative, through and through. You would think that a physicist might be more analytical.”
The result of his creativity: “We have turned the banking industry on its head,” says Porter. “Very creatively and subtly, we have shifted — utilizing existing networks — the ubiquity of the ATM machine. We are the only true instant transfer in the world; the buyer can withdraw the money in a second.”
American Cash Exchange, 12 North Main Street, Pennington 08534. 609-537-0086. Donald Licciardello, CEO. Home page: www.ponicard.com