Card-Server Business Booming in Cyberspace
If this were the California Gold Rush, Chuck Burtzloff would be the proud owner of Shovels ‘R Us.
Burtzloff, president, founder and chief executive officer of Agoura Hills-based Cardservice International, owns a business that is neither a highflying cyber star nor a techno-wonder.
But each time a consumer swipes a credit or debit card at the local mall, or stockpiles an online shopping cart, the expansive grin on Burtzloff’s face gets just a wee bit wider.
Burtzloff’s 11-year-old company is part of the electronic transaction processing industry. It’s made up of dozens of firms, some huge, that handle the back-end work, allowing merchants to accept credit and debit cards and recoup their cash from the cardholder’s bank. Those firms get a fee for every plastic or cyber dollar you spend.
This holiday season, with Internet shopping poised to pull in an estimated $4 billion, Burtzloff can hardly contain his glee.
“I get really excited when I start talking about this,” he said. “Just the energy that this thing has created has been so exciting.”
Burtzloff and his wife, Lisa, an executive vice president, began processing bank card payments out of the living room of their Woodland Hills home in 1988, long before cyber surfing became an international fixation.
Now, the company provides payment services to nearly 30,000 Internet merchants--25,000 of whom were added this year alone. It is clearly the fastest-growing part of his business, which this year will process $9 billion in electronic transactions, up from more than $6 billion last year.
And Burtzloff, 47, predicts that in the not-too-distant future, Internet transactions will surpass those of his brick-and-mortar customers--long the foundation of his business.
Thus, Cardservice becomes one of the growing number of non-dot-com companies whose futures are inextricably tied to the Web. Think back to last month, when Atlanta-based United Parcel Service Inc., the world’s biggest package delivery company, created a Wall Street feeding frenzy with its initial public offering.
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The message was clear. You can gamble on which Internet start-up will stay up, or you can bet on the boys and girls who make up the back shop--the suppliers, the enablers, the facilitators.
While Burtzloff isn’t looking to take his privately held company public any time soon, he too believes there’s gold in them thar’ bills. And like the merchants who sold 49ers shovels and pans, he and his competitors are banking that some of the biggest fortunes can be made away from the mines.
Consider:
* This year, Burtzloff anticipates that he will process $500 million in Internet transactions, up from $40 million last year, for a growth rate of 1150%.
“It’s growing just that fast,” Burtzloff said.
And while that’s just a fraction of the amount he processes for traditional retailers ($4 billion) and mail/catalog merchants ($4.5 billion), Burtzloff sees those proportions changing rapidly.
“Next year . . . I honestly think we should do somewhere in the $2 billion range on the Internet,” said Burtzloff, adding that he thinks Internet transactions will catch brick-and-mortar sales within two years.
* The company now services more than 170,000 merchants, up from about 100,000 a year ago. The current tally includes 80,000 brick-and-mortar operations, 60,000 mail order and catalog customers; and roughly 30,000 merchants who sell exclusively online. (Another 5,000 merchants sell both online and off.)
* Last year, the company more than doubled the size of its Agoura Hills headquarters, expanding the amount of space devoted to Internet-related activities and creating a new customer service and merchant assistance hub.
* Several analysts called Cardservice a player in the rapidly evolving--and consolidating--electronic transaction processing industry (technically, the company is known as an “acquirer.”) On a list of the top 50 acquirers, Marc Abbey, a principal with First Annapolis Consulting Inc. in Baltimore, Md., placed Cardservice in the top 20 and said it was moving up quickly.
“They’re a very well-run company, very entrepreneurial,” said Abbey, who tracks the industry. “Chuck and his team built it out of nothing and created a big company.”
In this business, size does matter.
In the quest to grow the number of transactions, the industry saw a wave of acquisitions and consolidations earlier this decade, according to Sheila Navis, associate director of the Electronic Transactions Assn., a trade organization. That helped some of the big players, including First Data Corp. of Atlanta, get even bigger.
Cardservice has grown, company officials said, by accepting almost any merchant who applies, a risky proposition since Cardservice would ultimately be left holding the bag if a new operation turned out to be bogus.
“We have close to 50 security officers,” said Tim Miller, vice president of operations, noting that each one monitors incoming transactions closely to watch for fraud--either on the part of the consumer or the merchant.
It’s a complex process in which computers flag transactions that deviate from the norm for particular businesses. Security officers follow up with a phone call that can eventually lead to criminal prosecution if fraud is discovered.
“We trust them on the front and watch ‘em like heck on the backside,” Burtzloff said, adding that the company’s fraud rate is decreasing.
Some industry observers say that Cardservice’s open door policy has resulted in the company accepting some of the seamier merchants on the Web, including those in the adult entertainment industry.
“If you look, that’s where their growth has been,” said one industry observer.
Miller denied that the company’s growth is fueled by steam heat.
“It’s a very small portion of our business,” said Miller, 38, who previously worked in merchant services at Bank of America and has been with Cardservice for four years.
“But we do have some, since we like to take almost everything that comes to us. Of the Internet business overall, I’d say it’s under 5%.”
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Though privately held, Cardservice is 50% owned by industry leader First Data Corp., which is publicly traded. Among his biggest competitors, Burtzloff counts Wells Fargo, which also has a joint venture with First Data.
Debra Rossi, executive vice president for electronic payment services for Wells Fargo said this year her company is expected to process $25 billion in credit and debit card transactions, more than double the size of Burtzloff’s business. She said about $1 billion of that is Internet commerce.
She declined to comment on the numbers given by Cardservice, but said her company does “a lot of Internet business,” and counts EBay among its biggest customers.
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Like other observers, Rossi sees a definite link between the future of her industry and the future of the Web. She sees increased opportunity not only for more debit and credit card processing but also for integrated systems that will one day allow consumers to use checks and other payment methods on the Web.
“We don’t think anybody has figured out a fully integrated system on the Web,” said Rossi. “This is the opportunity that can grow this business even more.”
Abbey, the analyst, is not yet convinced that the sky’s the limit on the Internet.
Noting the consolidation of retailing within the physical retailing world, Abbey said the same thing may happen in the ethereal world.
“There is no reason to think there are going to be thousands of merchants on the Internet long term,” said Abbey, adding that he envisions a scenario in which a few large e-merchants rule cyberspace.
“If you process for the big online merchants, you’ll do well. If you don’t, you won’t.
“It’s a great opportunity for acquirers today. But if you think through what the implications are, I could see it being much different in just a few years.”
Until then, Burtzloff will remain undaunted.
“I don’t think anything can stand in front of the Web growth today,” Burtzloff said. “It’s a big, long freight train rolling downhill on a greasy track.”
Valley @ Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com.
