March 16, 2000

Fast Facts

PaymentOnline.com WHO: A startup e-commerce solutions provider founded in 1997 by Don Vale. WHAT: Offers a complete range of e-commerce services centered around proprietary technology for processing credit card transactions. WHERE: Downtown Seattle.

Fast Fact #1: PaymentOnline is selling pre-IPO shares directly to the public.

Comment: Priced at $5 a share, buyers have snapped it up like hungry sharks. "People are just in kind of a dot-com feeding frenzy," says Vale, the company's CEO. The reason? Many Internet startups spark an instant runup in stock value when they go public, providing a windfall for investors who bought a piece of the company at or below the eventual IPO price. However, the general public rarely gets a crack at the windfall because brokerages and large investors usually get first shot.

Fast Fact #2: The stampede to buy stock has prompted PaymentOnline to rein in sales.

Comment: The Security and Exchange Commission authorized the sale of up to 800,000 shares of stock under a Regulation A Securities Offering. "Once the press got ahold of it, it became almost impossible to keep the phone from ringing," says Vale. Although several large investors weighed in, a flood of small investors made processing stock sales a chore and threatened to fragment the company's equity. Consequently, PaymentOnline no longer is selling stock in batches of less than 5,000 shares. In addition, it is holding back a big chunk of shares in hopes of luring other large investors. "We have to retain enough equity for [them] to have a substantial position," says Vale.

Fast Fact #3: PaymentOnline still may conduct a traditional public offering in the future.

Comment: The current stock sale is intended to provide early stage funding. By handling the sale itself, PaymentOnline not only gave the public a crack at the stock, it reduced the cost of raising capital.

Fast Fact #4: PaymentOnline will begin beta testing its transaction technology in the next four months.

Comment: The technology consists of proprietary software installed on PaymentOnline servers linked to a client's Web site. Vale says PaymentOnline is proceeding carefully. A bug-ridden transaction processing system could "ruin the reputation of a company ... overnight," he says. "We've taken our time because it's serious business. We want to make sure that everything is bulletproof."

Fast Fact #5: Vale is a former marketing consultant.

Comment: He got the idea for PaymentOnline while conducting research for clients seeking transaction processing. During those early days of the e-commerce craze, most providers were so eager to milk a hot new market that they weren't overly concerned about quality, says Vale. The typical company consisted of "20-year-old guys with motherboards on the floor processing credit-card payments," he recalls. "I couldn't deliver a quality product to my customers because there wasn't one." From that point on, "I just dedicated myself to bringing the right people together" to provide quality transaction processing.

Fast Fact #6: Vale says the recent hacking of Yahoo! and other large sites could benefit PaymentOnline.

Comment: Such incidents underscore the need for secure and reliable transaction processing. Vale says PaymentOnline will employ state-of-the-art online security measures for its servers such as shielded private networks, mirrored servers and redundant disks. In addition, the company's servers are housed in bomb shelters and protected by guards round-the-clock. "The only thing that could shut things down is a direct hit with a very large missile," says Vale. "And that's something we can't prevent."

Fast Fact #7: PaymentOnline isn't overly concerned about competition.

Comment: That's because annual sales over the Internet are estimated at $3 trillion. And transaction processing providers get a piece of that action through the fees they charge. "All those sales have to go through a technology like ours," says Vale. "We are happy if we get 1 percent."

Fast Fact #8: Transaction processing creates a payment gateway from a business's Web site to the banking system.

Comment: The gateway leads to acquiring processors. These computers, operated by separate providers, ensure a credit-card user has funds, verify the card is current and then route funds from the card's issuing bank to the merchant's bank.

Fast Fact #9: Transaction processing is not PaymentOnline's sole service.

Comment: While contacting potential clients for its transaction technology, PaymentOnline kept hearing requests for additional services such as Web design, secure hosting and marketing, says Vale. As a result, it will offer a full range of e-commerce solutions. But meeting client demand is not the only reason to go that route. Since PaymentOnline collects a fee for every transaction it helps process, it only makes sense to help its clients prosper.

Fast Fact #10: PaymentOnline is targeting small and mid-size businesses.

Comments: Assembling all the elements of an efficient e-commerce infrastructure is like "trying to put a Boeing 747 together in a windstorm," says Vale. And transaction processing is one of the most challenging elements. "There is the lure to try to do it yourself," says Vale, but most small and mid-size businesses lack the expertise. For larger companies that feel up to the challenge, PaymentOnline will sell them a server featuring its proprietary software. Such companies will need a system administrator, but if their sales volumes are high enough, the savings on transaction fees may offset the cost, notes Vale.