Many banks providing card processing services to merchants try to steer clear of Internet start-ups, telephone- and mail-order shops, and other companies with a high risk of fraud and chargebacks.
But these are the bread and butter of Cardservice International Inc., which Charles and Lisa Burtzloff started in their California living room 10 years ago.
What began as a modest independent sales organization has become the 25th-largest merchant acquirer, processing more than $4.5 billion of annual charge volume for 100,000 accounts at yearend 1997.
Handling higher-risk retailers is "one of the things we do better than anybody else in the industry," said Mr. Burtzloff, president and chief executive officer. His latest focus is on signing up Internet sellers and traveling vendors who rely on mobile telephones.
Cardservice's success has helped polish the reputation of independent sales organizations-ISOs-that were once regarded as the sleazy underbelly of merchant processing. Mr. Burtzloff and Cardservice helped pull others along with them and improved their relationship with MasterCard and Visa through a trade group he helped found in 1991, the Electronic Transactions Association of Kansas City, Mo.
Mr. Burtzloff was president of the association for its 1997-98 term.
"Ten years ago, every ISO was considered the lowest life (form) in the banking community," Mr. Burtzloff said. "Now it's the only way to be in the merchant business."
American Express Co. has begun to do business with Cardservice, which "three years ago they would never" have done, Mr. Burtzloff said.
In another sign of respect and acceptance, First Data Corp. bought a 50% stake in Cardservice for $60 million last year, according to the First Data annual report.
First Data, the largest processor on both the cardholder and merchant processing sides of the bank card business, had already been processing transactions for Cardservice and topped an offer from a rival, National Processing Inc. of Louisville, Ky., according to Mr. Burtzloff.
With Nova Corp.'s PMT Services Inc. gobbling up ISOs left and right, Mr. Burtzloff said, "I just thought walking down the street with the 1,000- pound gorilla was the right decision."
First Data of Hackensack, N.J., maintains merchant alliances with a dozen major banking companies. Cardservice's connection to the processing giant gives it access to referrals from these alliances.
Cardservice, based in Agoura Hills, Calif., also picks up business from 200 banks that have signed referral agreements. These institutions would refer merchants that they consider too risky to take on themselves.
Cardservice has a sales force of 2,200-Mr. Burtzloff calls it the "largest in the industry"-who bring in more than 5,000 merchant accounts a month.
One of the fastest-growing customer groups is Internet merchants, of which Cardservice already claims 17,000. "If there is somebody with more merchants on the Internet, I'd like to see him," Mr. Burtzloff said.
In partnership with Clearcommerce Corp. of Austin, Tex., Cardservice has unveiled a new private-label Internet package for merchants. The product, Virtual Linkpoint, is an extension of the Linkpoint software Cardservice uses in its proprietary point of sale terminals.
"We honestly believe that every retail storefront, merchant, or home- based business should" have a terminal for both regular business and Internet commerce, Mr. Burtzloff said.
Last week Cardservice announced a deal it hopes will further expand its appeal in nontraditional directions: a partnership with U.S. Wireless Data Inc. of Emeryville, Calif.
The arrangement will let Cardservice distribute terminals with modems that use cellular digital packet data, or CDPD, technology. Advocates of the format say it will encourage more merchants to accept credit cards because transaction times are shorter.
By shaving authorization times to five seconds from 15, Cardservice and U.S. Wireless hope they can sign up businesses-taxicabs to fast-food restaurants-that have traditionally shied away from card acceptance.
Since ISOs generally assume the risk of the retailers they sign up, they are left holding the bag when a criminal posing as a business owner runs off with the money.
"There is always risk when you take on the less established merchant," said Stanley Anderson, president of Anderson & Associates, Arvada, Colo. "The secret is being able to manage that risk."
Cardservice accordingly charges higher discount rates than are usually paid by face-to-face merchants. Though Cardservice does not disclose its prices, observers said its discounts go as high as 8% of a transaction amount, at least four times the bank card norm.
Meanwhile, Cardservice has invested heavily in its back end to keep tabs on merchants. The company monitors all transaction activity, looking for unusual amounts or volumes. It also sets strict guidelines in its agreements with merchants.
Paul Martaus, president of Martaus & Associates, Clearwater, Fla., said Mr. Burtzloff has prospered through his vigilance and his vision of how to expand credit card acceptance.
"He recognized that start-ups and high-risk merchants would be willing to pay much more than the going rate," Mr. Martaus said.
Before founding Cardservice, Mr. Burtzloff, 43, helped create the now- defunct Electronic Clearing House Inc., which he described as "a very small First Data Corp. with a sales force."
After the company went public in 1987, investors bought Mr. Burtzloff's stake, and he went into temporary retirement. The day after his 18-month noncompete pact expired, he and his wife started Cardservice.
"We started working one day a week, and before you knew it we were working eight days a week," Mr. Burtzloff said.
He credits his wife with putting the operation on a professional level. "One day she woke up at 7:30 and there were five people in her living room, and she finally said, 'That's it, get out of my house.'"
This month, the company celebrated its 10th anniversary by opening a 75,000-square-foot "international headquarters" abutting a 35,000-square- foot building.
Mr. Burtzloff said his emphasis on employee satisfaction and customer service fueled the growth that the new building symbolizes.
"Our concept is to try to do the right thing, keep your nose clean, and keep moving forward," he said.
