As Merchant Warehouse celebrates its 15th anniversary, I sat down with our co-founder and CEO Henry Helgeson to gain his perspective on the payments industry, how it has evolved since the company’s inception in 1998 and where it’s headed.
Me: Henry, how would you describe the state of the payments industry when you founded Merchant Warehouse some 15 years ago?
Henry: In 1998, the distribution model around payments and processing was completely different. Credit card terminals were pretty much distributed exclusively through local banks or door-to-door sales reps. The model was one that, at the time, supported healthy margins for the reps and banks, but was costly for the merchants. Most small and mid-sized merchants weren’t able to afford point-of-sale (POS) systems, so they relied on electronic cash registers.
At the same time the models for risk and underwriting were fairly unsophisticated, especially compared to what we have today. Fraud rates were low and card-not-present transactions were not prevalent at all because they were viewed as high-risk. And, conveniences that we feel like have been around forever - plastic gift and check verification – were pretty much unheard of. The industry had remained stagnant for over a decade.
At the time, there were approximately 300 registered independent sales organizations (ISOs) – there are over 1,200 today – and e-commerce was in its extreme infancy.
Me: What were your dreams for Merchant Warehouse? Did you have any one specific goal or objective that you felt defined ‘success’?
Henry: When we first started the company, we felt that if we wrote 200 to 300 deals per month it would be considered an enormous success. Of course, it took a few years to get traction, but we knew immediately through leveraging e-commerce to sell terminals that we were on to something great.
The beginning seems almost prehistoric now. With e-commerce just gaining momentum we relied on organic search and purchasing keywords from the leading search engines at the time – remember Alta Vista – to drive traffic and sales for the company. Nearly all of our clicks cost about one cent, until many of the leading search engines implemented a five-cent minimum. Now, they’re well over $20 per click.
Terminal deployment was similar to today, but setting up merchant accounts required a lot more work. Applications had to be sent via FedEx and we were even required to conduct third-party site surveys for a while.
There wasn’t even thermal paper at the time, until the Omni3200 was released, which was considered a giant step forward. For the first few years it was dot matrix printers with ribbons and two-ply paper.
Me: Over the past 15 years, what do you feel at the most significant milestones that have occurred in payments?
Henry: Wow, this is a tough one. I would have to start with what served as the foundation of Merchant Warehouse – the Internet and e-commerce. The move away from cash – in 1996, over 60 percent of shoppers used cash exclusively for purchases – to signature debit branded with MasterCard and Visa also marks a significant milestone. From there, I would include the introduction of the aggregator model – i.e. PayPal and the evolution of the point-of-sale (POS) making it more affordable and practical for small and mid-sized merchants.
More recently the most significant milestone has been the introduction of credit and debit acceptance through a smartphone or tablet device with Square and others, which launched an entirely new class of merchants to the payments ecosystem. But, mobile is and will be the key driver of change and evolution in the industry going forward, whether through payments, commerce, advertising or marketing.
Me: What do you feel has been your company’s most important contribution to the industry?
Henry: Merchant Warehouse has been, and continues to be, focused on simplifying the payments space from pricing to obtaining a merchant account to the delivery of new technologies that grow with a merchant’s business. Our philosophy is built around transparency and making sure that our products and services are fair and delivered with unparalleled service and support.
When we started in 1998, the average micro lease funded $1200 and within two years, it was down 40 percent across the entire industry to about $700. Merchant Warehouse was a significant driver of this change and we didn’t even have one percent market share at that time. With our positioning and the buzz of change, merchants were asking more questions, driving field sales reps to lower prices because they looked egregious.
Of course, as we look to the future, we are very confident that our most significant contribution will be Genius™.
Me: Payments has long been an industry with little to no change – today’s world is much different…how are you preparing Merchant Warehouse for the next wave of payments?
Henry: What’s here now and growing over the next two years will be way more change than what’s occurred over the past 15. The world of payments is evolving and expanding at a rapid pace and, with our recent launch of the Genius Customer Engagement Platform™, Merchant Warehouse is establishing its position as the technology leader.
For the past two years, our focus has been on thinking beyond payments, designing, developing and launching the Genius platform and integrating new technologies as well as mobile payment and commerce applications to drive enhanced opportunities around business growth for our partners and merchant customers.
As an organization, we’re not sitting on the sidelines waiting and seeing what happens, we’ve changed our DNA and culture to prepare our customers and ourselves and we’re doing it now.
Me: Where do you see Merchant Warehouse in the next five years?
Henry: Five years from now the company will be a lot different than it is today. As an organization we have been 100 percent focused on the payment and, as we look to the future, the payment is still necessary, but it will come second, as our focus is and will continue to be on driving more value in connecting merchants and the end customer.
The pace of change is so crazy right now. It’s increased ten-fold in the past 15 years and the change in 2013 alone will be five to ten times that. After 15 years, I could not be more excited about where the industry is and where it’s going. The opportunity is endless and I’m thrilled and proud that we’re out in front with the products and services to support the evolving payments marketplace.