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E-Commerce: Taking Credit Cards Online

Interview with Darrin Ginsberg, Founder of E-Commerce Exchange

by Don Hamilton


E-Commerce Exchange is a Web start-up that's not public, but is rumored to have sold 30% stake for $30 million. That would value it at $100 million. Two years ago they were in a different business, but with a little entrepreneurial sprit and a lot of work they have become a Web-based powerhouse. I wanted to ask Darrin Ginsberg the obvious question: how do you do that? Darrin's infectious enthusiasm is a hint to the answer. He's a man on a mission. He's excited about it and he works hard—seemingly the secret to many people's success.

WWWiz: I noticed that you changed the company name to ECX in 1998. What was it before?

Darrin: It was called Card Service Laguna. We were a franchise office of Card Service International.

WWWiz: How did you get into the merchant card business?

Darrin: We were actually trying to start a paralegal business, selling a course on how to become a paralegal. We went to eight different banks and got declined everywhere we went. They said, "You haven't been in business for two years…you're working out of your home…give me two years' tax returns and a financial statement." As a new business I couldn't jump through those hoops. I finally found a company that would set us up doing the credit cards. Six months later I gave up on that business. I thought, you know, that merchant business sounded kind of interesting.

WWWiz: How old were you then?

Darrin: I was 22. I realized that no one was servicing the small business owner and it seemed like a big niche that was being missed. I thought, what if I could do all the work for these busy entrepreneurs, like filling out all the paperwork and submitting all the forms? All they had to do was sign a few papers and I would come back in a few weeks and show them how it works. I decided to test the idea. At the local county recorder's office I got a few of the new fictitious names and mailed out some flyers to them. We stamped envelopes, and every day mailed out 125 pieces of mail. The next day I would receive phone calls. People would call back and say, "I'm interested in that." I didn't even have a car. I would drive my motorcycle around to the different businesses. I did the work for them and charged them accordingly, and started to do fairly well. GT Enterprises was born.

WWWiz: When did you start to expand?

Darrin: In 1992 I told my wife Heather that I needed to show someone else how to do this so we could expand beyond Orange County. I could only ride my motorcycle so far, and, as one person, visit so many customers. Heather's brother Thad had just graduated from college and had moved to California from Iowa. I told him to follow me for two weeks, and he was lucky enough to have a car. We drove to all of our appointments; I told everyone he was in training, and he watched what I did. Two weeks later we started doing mailers to Los Angeles County. I have two brothers who handled San Diego and Riverside Counties, and we slowly grew the business. In 1992 we kept running into competition in the form of Card Service International, which was based in Agoura Hills. Their biggest claim to fame was that they were easy to get merchant numbers for. We primarily worked for a bank, and the bank we were working for was getting more and more difficult to work with, and they were making it harder for our merchants to get approved. We had more paperwork and the rules changed.

With Card Service it was easy to get merchant numbers, so we joined with them. Visa and MasterCard regulations required that we operate under their name, so we did. We operated as Card Service Laguna from 1992 until 1998.

WWWiz: What caused you to break from them and form the new business?

Darrin: We were growing beyond what their capabilities were, and they were constricting us too much. They wouldn't let us have a Web page, or let us do anything on the Internet.

WWWiz: How big were you at this time?

Darrin: We were the number-one CS office. For the last three years we were there we were the number-one office out of 200 agent offices just like us throughout the country. We were doing 10 times the business of the number-two office. We were doing 2,000 new accounts a month. In June of '98 I tried to negotiate a new contract, and they wanted to McDonaldize us and make us do exactly what they were doing. We shook hands, left 17,000 customers behind, and started up from scratch.

WWWiz: How was that transition to both cyber and new business at the same time?

Darrin: At the time we had about 50 employees and Card Service International did some pretty nasty things, which was to go after our employees. They tried to hire them on directly. We let a few people go, and they're still there today. We kept all the core people we really wanted. We had to get new phone numbers, letterhead, new look, logo and everything. We decided that we were going to stop focusing on street business and totally focus on the Internet. We did an aggressive campaign aimed at going after Internet businesses. We started advertising in magazines that Internet people would read. We only went after Internet business. Our first month in business we did 600 sales. Within six months we were back up to where we were when we left at about 2,000 clients a month. We now have 145 people in this office in Irvine, and offices in New York, Chicago, Utah and a few smaller states.

WWWiz: All those people are employees of the company?

Darrin: Yes. Tommy Struthers, who runs our New York office, I met on my honeymoon. Heather and I sat with him at dinner on a cruise. We had a great time together, and after our honeymoon I went up to New York, and Tommy followed me for two weeks. He's been with us almost seven years now and is doing very, very well.

WWWiz: I notice that you chase the small account. Does that mean that you exclude the larger accounts?

Darrin: No. We found that to go to a large merchant to sell them our services is tough. First they have everybody running after them, and you have to go through many decision-makers. It's much easier to work with a small mom-and-pop that actually needs your help. A bigger company will have a Chief Financial Officer, who will go out and get proposals from ten different companies and bid them against each other. A small mom-and-pop doesn't have time to do that because it takes away from their marketing efforts. I know who these people are because we were one of them. They have limited bandwidth or limited time to deal with things. What we are is a consultant that comes in and help them work with the right bank.

WWWiz: What about someone who has a merchant account but wants to be able to do Web-based transactions? Will they be able to economically switch from their current contract to you?

Darrin: We help them deal with their contracts. Most contracts do not prohibit them from moving from place to place. A few of them do. If they are going to save enough money to justify the move, then okay, but if not, we recommend they stay until their contract is over, and then switch.

WWWiz: What is involved in doing online transactions? What does the merchant have to do on their side? How much work is it to use your system?

Darrin: First we ask a few questions to find out if they need a real-time processing solution. Most people do. If they have a Web site and all they want to do is sell their product or service on the Web site, we help them install the four lines of HTML onto their Web site. It's just a cut-and-paste issue. In ten to fifteen minutes, with our customer service, everyone is up and online. Many of the other companies take four to six hours of technical work to install a client-side package. Our product is server-side based, so the merchant doesn't have to worry; everything is done from our side. From start to finish, from application for a merchant account to taking credit cards online, takes as few as four or five days.

WWWiz: What do customers see when they log onto the merchant site and click on Credit Card Payment?

Darrin: It's transparent to the user, and they won't know they're changing sites. We take their credit card number and the billing address to do the verification. It comes back and gives them an approval code, usually within three seconds. We also have a software package called Virtual Terminal, which does the same thing as the little card-swipe terminals. Rather than punching a transaction into the terminal, you go online and handle it from your computer. You can still take a phone order, mail orders, or if someone walks into your shop, you can still run a transaction. As we add new features to the software, we don't have to send out new versions; we just update the servers.

WWWiz: Is there an advantage to having a computer rather than a card reader?

Darrin: There are lots of different advantages. Many card readers don't have address verification that allows the merchant to check that the billing address is the same as the one they are shipping the product to. That's a fraud prevention feature that most terminal merchants don't have the ability to do. If you take more than a couple of orders in a day, you'll see how onerous punching in those numbers is. Each time you run a transaction on a terminal, you punch the card number, the expiration date, amount of the purchase, then the machine dials out to a land line. It dials up on a dial-up service, gets approval, hangs up, and tells you "approved." If you had ten of those transactions to do, think of the time involved. In our software, you can batch, upload and do ten transactions all at one time, and get all your approvals instantaneously. Our software doesn't break and it doesn't need upgrades. We auto-batch everything at the end of the day. You can do reports from a day back, or as far back as you want, because we save the data. On a terminal the information is lost at the end of the day.

WWWiz: If I'm selling something on the Web, maybe 50 items a month, what does it cost to set this system up?

Darrin: Forty-nine dollars a month. Forty-nine dollars to set up. That's it. One month's payment. We realize that small business don't have a lot of money. They don't have $1,500 dollars to pay for software, so we've made arrangements to lease the software and reduce the pain to a small monthly lease payment. We're able to approve everybody!

WWWiz: If I do a lot of transactions, do I get a discount percentage?

Darrin: We give all our small merchants the benefit of our larger merchants. We have one rate that we go out with for all of our merchants. If you're a small mom-and-pop, you get the advantage of 17,000 of our customers. They're bundled rates. If you go to the bank and you're processing $2,000 and under, you pay 8%. At $50,000 per month you can get down to 2.5% to 3% rates. If you're a seasonal merchant, this can be punishing. With us you typically pay about 2.49%. We give slightly better rates above the $50,000 to $100,000-a-month level.

WWWiz: Did you bring someone in house to handle your technical needs did you have that kind of talent?

Darrin: First we hired people outside to host us, and we hired a company to write our software. We eventually brought the server and the software company inside. Now they work for us. Our technical staff now is four people.

WWWiz: When did you go live on the Web?

Darrin: June of '98.

WWWiz: You funded the business with your own money in the beginning?

Darrin: That's correct.

WWWiz: Does your software run on Macs and PCs?

Darrin: Absolutely!

WWWiz: What's your educational background?

Darrin: A year and a half at UCI. I dropped out to work. I worked in the family business for a short while after high school, then I started at UCI. I couldn't take having people tell me how to do things when I felt a lot of what they told me was wrong from my experience. Heather has a Master's in psychology.

WWWiz: Is she in charge of Human Resources?

Darrin: (laughs) She used to be, but not anymore.

WWWiz: You come from an entrepreneurial family?

Darrin: Yes. My stepfather ran a seminar business traveling all over the county selling products and services, so I learned how to sell on the road. My real father was always an entrepreneur. He was a pharmacist by education, but he had endless sideline businesses. He was a realtor, and at times sold perfume. I used to take little metal pins that women would wear on their lapels, and ride my bike around town when I was 12 or 13 and sell these things for $2 or $3 apiece. It all came from my dad. I just always wanted to sell. At 14 I sold lighted baseball caps at drive-in movie theaters. I always had some business going as a kid.

WWWiz: What's in the future for ECX?

Darrin: We are definitely leading the market in the payment area, and we're going to try to go public sometime next year. Sixty days ago we moved from 12,000 square feet to 22,000 square feet and we're already full, so it's growing faster than one could project.

WWWiz: How many customers do you have now?

Darrin: Almost 16,000. We will be handling 4,000-5,000 customers per month. We have the infrastructure for it now.

WWWiz: Now that you have some money, did you do the Internet thing and go out and buy a new house and car?

Darrin: No, it was really weird. The day after we got this $30,000,000 funding in I came to work at 7:30 the next morning and everything was just normal and I realized how little my life was going to change. I'm not going to buy a new car or a house. I'm happy with the things that I have. What it mostly gives me is some financial freedom to have some time to myself. The biggest thing that money is going to buy for me is time. I will have the flexibility to do what I want when I want. I enjoy what I do. We built the business with friends and family. I enjoy coming to work every day.

WWWiz: What advice would you give other people?

Darrin: Give it your all. No matter what field you're in, you just have to work hard. A lot of people think you were lucky or you were in the right place, and it's a combination of all of those things, but primarily it comes from hard work.

Editor's note: Darrin has a couple of secret weapons; he plays golf and loves sports, and feels that golf has helped his business, in that it has allowed him to spend time with clients in a relaxed environment. He also doesn't have a TV. Coincidence? We don't think so.


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