A lot has changed since 1997.
Back then, Amazon was a small online bookseller, a boy named Mark Zuckerberg turned 13 and few were thinking about digital in the payments space.
Someone who did have their finger on the pulse of digital payments 20 years ago was Joel Leonoff, founder and CEO of online payments company Paysafe. In a recent interview with PYMNTS’ Karen Webster, Leonoff reflected on those early years in online payments, speaking to how much has changed since then — and where he believes the space is headed.
In the early days of the internet, it was clear to Leonoff that eCommerce had potential — huge potential. Most others weren’t on the same page.
“We were looking at the payment space, seeing that eCommerce was going to evolve and wanting to build the technology to help companies accept Visa and Mastercard on their websites,” Leonoff said. “Although we were very excited about eCommerce, the rest of the world wasn’t. We were ahead of the curve.”
SureFire Commerce, which was listed on the Toronto stock exchange, was his first venture.
This was in 1997 when there were only two main areas that had material online transactions, Leonoff said. The first was the adult entertainment industry, which wasn’t a priority for the company, and the other was the online gambling industry, which SureFire began working to facilitate. At the time, there were only a few online casinos, sport books and payment companies that processed card transactions on the gambling industry’s behalf.
Wild West Days of the Web
Leonoff characterized the early days of the internet as untamed — a Wild West, cowboy-type era — in which payment processors would exist for a few months and then disappear, along with the reserves and deposits.
“It was unruly,” Leonoff said. “The industry was looking for a trusted partner.”
By being publicly traded, SureFire built itself up as that trusted partner. Between 1997 and 2000, Leonoff said SureFire processed around 85 percent of the entire online gambling industry’s transactions — reducing fraud, risk and chargebacks while working to reign in some of the industry’s unruliness.
“We processed for European and offshore gaming merchants, who in turn were focused on servicing the U.S. consumer market. It was a single currency, a single language and mostly Visa and Mastercard,” Leonoff said. “There was a simplicity to it, and the market was massive.”
Then, in the early 2000s, when major U.S. banks got cold feet, everything changed.
It wasn’t a legal issue, noted Leonoff, but rather that banks didn’t want their customers to finance gambling on their credit cards. As a result, Bank of America, Citi, Chase and others started rejecting transactions.
This created a small crisis in the industry and inspired the concept of what we now know as the digital wallet. It also led SureFire to transition from a credit model to an ACH model.
“I think the banks were more comfortable with [ACH],” Leonoff said, “because, in order to move money in an ACH transaction, you actually had to have money in your account. There was no credit, and there was no debt.”
At the same time, SureFire took the strategic decision to expand into broader eCommerce payment processing, working in travel, online auctions and digital downloads. There was one common thread among these and other endeavors.
“Throughout those years, we looked at industries and merchants that had a certain level of risk,” Leonoff said. “We started getting involved with industries where we felt we could better evaluate the risk of the business, better manage it and better monitor it in real time.”
This focus gave SureFire extensive expertise in risk, compliance and complex regulatory environments. These were all attractive qualities for Optimal Group, when it purchased the business and renamed as Optimal Payments in 2003.
Three years later, Joel left to join PartyPoker as COO. That same year, 2006, the U.S. Unlawful Internet and Gaming Enforcement Act came into play.
“When that happened, Optimal shut their wallets business down the next day, gave everyone their money back and focused instead on processing,” Leonoff said.
It was in 2008 that Joel got a call from the Optimal Payments managers to rejoin the business and help orchestrate an MBO, which he did. Since then he has focused on harnessing state-of-the-art technology, driving sustainable organic growth and identifying and integrating bold acquisitions.
Two acquisitions in particular transformed the business. The first was taking Optimal back into the digital wallet market through NETELLER, which had a well-established business in Europe. The second was the $1.2 billion acquisition of online payment and money transfer company Skrill in 2015. At the time, Skrill was following a similarly ambitious acquisition path — which included paysafecard and payolution. The combined group was renamed Paysafe and listed on the London Stock Exchange.
Always looking to where the future of payments in heading, Leonoff’s more recent acquisitions as Paysafe CEO have included mobile-based business FANS Entertainment and affiliate management software company Income Access.
An Interesting Ensemble
“We’ve assembled an interesting ensemble of products,” Leonoff said. “As the market is developing, we’ve been driving forward and consolidating all of our offerings into one platform to stay one step ahead.”
This consolidation is key as the payments industry is going through another rapid period of evolution.
“Payments has been static for a very long time,” Leonoff said, “but that’s changed drastically in the past two to three years. For one, the lines between online and brick-and-mortar are starting to get very blurry.”
Leonoff’s belief in the potential of eCommerce is being realized as 2.1 billion smartphone users globally power demand for mobile transactions and alternative payment methods. This is reflected in rapid growth in mobile enablement driven by merchants, along with an increasing desire to access consumer information and leverage actionable data analytics. There’s now more value than ever in providing not just payment services, but also information that creates relevance.
And relevance is paramount, as the payment landscape becomes more crowded, Leonoff said, noting that, for example, behemoths Amazon and Uber process payments, Google is getting into payments and Facebook just recently launched P2P payments.
Still, Leonoff believes that Paysafe is in a unique position given its long history of working in complex vertical and niche markets, as well as its core capability and specialist expertise in processing payments for industries with higher risk profiles or more stringent regulations.
“We’re increasingly leveraging that knowledge to service eCommerce verticals with conversion challenges — from bringing global customers to local eCommerce sites, to emerging marketplaces with specific challenges, to complex subscription and platform businesses,” Leonoff said.
As for what the future holds, Leonoff envisions one where brick-and-mortar retailers leverage Paysafe’s mobile ordering platform, GOLO, for pickup and delivery — as well as for adding eCommerce capabilities to their websites, with Paysafe combining all of that data into a single dashboard.
Leveling the Playing Field
“The future for companies like ourselves is to become a one-stop shop with a real omnichannel perspective,” Leonoff said.
As the industry continues to evolve, it will be about more than just processing payments for Paysafe and others like it, noted Leonoff. Also important will be how companies enable actionable insight from consumer and merchant data and leverage analytics to provide a holistic and real-time view of operations.
“Even in this day and age, many merchants — large and small — just don’t have these capabilities,” he said. “So for us, it’s about building value beyond payments to advantage customers in new ways — that’s the common denominator across all our propositions.”
“Take our GOLO app for example, which gives local merchants such as restaurants, florists and pharmacies access to the modern technologies the big guys compete with. By super-serving an underserved market segment in this way, we’re effectively leveling the playing field. Which brings me back to relevance once more — ours stems from the distinct ability to provide payment solutions that adapt and acknowledge specific local, segment or vertical characteristics. This is where we see the future for payments.”