GPWA Times Magazine - Issue 29 - July 2014

chants ultimately are in a situationwhere they don’t want to pay a very high incre- mental cost for value-added technology. What we do today from a KYC perspec- tive and an authentication perspective – we’re pretty good at it without having to dovoice recognitionor facial recognition. I think some of the companies that are trying to get into the market have really good technology but two pieces: 1. No one is paying $20 or $30 to authenticate a transaction. The economics don’t work. So unless that can come down to some cents per transaction, that technology won’t proliferate itself. 2. I think also the onlineoperators arevery consciousnot to introduce anything that’s intrusive to the process.Anytime there’saprocess that’sa little complex, requires a fewmore steps to openup an account, there’s a reticence todo that. I think timewill seewhere this all falls, whether Apple has some finger- print technology they incorporate in a way that’snot that intrusive to customers, butwe don’t have a problem authenticat- ing the users we have. Between geoloca- tion, knowndatabasesandall theotherel- ements thatwe go through and collecting a passport picture and a driver’s license, we’re inprettygood shape. VN: Therewas really stronggrowth for thecompanybetween2012and2013.What were some of the keys to that success? JL: What happened for themost part is NETELLER went from a $33 million run rate on an annualized basis to a run rate of $70 million – so it was a massive uptick in our business. We did a lot of things toproliferate that. Themargins are about 83 percent on NETELLER – a big chunk of that outgrowth has just gone to the bottom line.We’ve seen great growth there andwe’ve seen great growth in our NETBANXbusinessaswell andwe’re just hitting it on all cylinders. It’s just a very fortuitous year. It’s hard to grow by close to 100 percent every year. But we have good inertia and a strong run rate and newopportunities.We’re looking at some M&A (mergers and acquisitions) now so we’re poised hopefully to continue pro- ducinggreat results for our shareholders. VN: When players or affiliate pro- gramsor affiliatesdon’t getpaidandyou hear themysterious “payment processor issues” excuse,what’sgoingon? JL: Listen. Groups like oursmanage a lot ofmoney, onbehalf of a lot of groups. It’s funny. When we got started in 1996, 1997, that’s when we started processing (in) the gaming industry. We came in and we were a public company. We in- troduced ourselves to the industry and we quickly learned that payment proces- sors show up onemonth and sixmonths later they just disappear and there’s $10 million that’s just gone. We pretty much established ourselves as a very trusted payment group because we were public and I personally established relationships back thenwith all the operators, with all the gaming companies – so it was a very small community and we became the safe haven. And I think that for groups that are looking to process payments anywhere in the world, they need to be very careful about whom they get into bedwith. It really is a partnership and a trustedpartnership. We’re FSA regulated. All the funds that are not our funds, all the consumer funds that we hold are segregated in a separate bank account. If anything negative or ne- farious happened to our business, every single card member, every NETELLER holder, would get every penny back of their balance. That’s just by virtue of the fact thatwe run averyprofessional, cred- ible, regulatedbusiness. But there areproblems from time to time. I think that processors get in troublewith VisaandMasterCardat times,where they stray away from the center line. There have been problems in the past with the miscodingof transactions.We never have and never will (miscode transactions). Visa andMasterCard are partners in this world andwe need tomake sure that we are compliant withwhatever the require- ments are. Others take chances. They get into situations where they get fined and shutdown. That’swhenall thebad things start happening. For themost part, it’s a very complex de- cisionas towhomyouwant toworkwith. Andhopefully, a company likeourselves, that’s been around since ’96, and that’s probably going to be around for a long time, becomes trusted partners for the community ingeneral. VN: What areyourkey strategypoints for the future? JL: We’re looking to continue our organic growth in Europe, both with NETELLER andNETBANX. And then in NorthAmerica, continue trying to sustain the organic growth that we have. But for the most part, we’re looking to acquire about $10millionofEBITDAona run rate basis. Market expectations are $51.5 mil- lion to $61 million in 2014 of EBITDA. If we can acquire another $10 million, that will give us a run rate of $70-oddmillion of EBITDA andwe’ll take it from there. I think it’s a mad dash to $100 million (of EBITDA). The question is how quickly canweget there?We’rehopingwecanget there sooner rather than later. We just acquired principal member- ship in Europe, which means that we are granted the same interchange type rates for acquiring Visa andMasterCard transactions as themajor banks. Thatwill make us more competitive. All of those elements are coming together in a very effectiveway. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VinNarayanan is the editor- in-chief of the GPWA Times Magazine andhas been covering the online gambling industry for the last eight years. He’s also an expert on the legal and regulatory landscape of online gaming in theU.S. THE EXECUTIVE CORNER When graymarkets turnwhite: Payment processing in a regulated environment