Q&A: Dan Geraty On Clearent's Startling Growth

We couldn’t help but notice at ISO&Agent that a certain processor has been growing at an incredible rate.

Clearent, which is based in the St. Louis area and employs 125 people, processed $4.4 billion in transaction volume last year, an increase of 61% over the previous 12 months.

How did it grow that much? We persuaded CEO Dan Geraty to explain his company’s explosive increase in volume.

ISO&Agent: You’ve had phenomenal growth.

DG: The key metric is that total volume growth last year was 61%, and I think it was in the high 70s the year before that.

The technical underpinnings of the company allow us to reach scale and to be flexible in terms of what we can do for our customers.

The other key thing in terms of continued growth is the culture at Clearent. The people here are really committed to the success of merchants and our sales channel partners, the ISOs and agents. It’s a culture of transparency, honesty and respect. People love coming to work here every day.

ISO&Agent: How did you get into the acquiring business?

DG: I was part of the founding team at Clearent. We started the company in 2005.

ISO&Agent: Were you in acquiring before that?

DG: I wasn’t. I came from the telecom software business. Like a lot of people, I really hadn’t thought much about payments until I was introduced to some of the people who are now on our board of directors. They introduced me to payments and the opportunity in payments for a company that’s differentiated through its technology.

That’s how we got started.

It’s hard to imagine these days what it was like back in 2005. It was kind of a sleepy business in terms of innovation. Now, it seems like there are new innovations just about every single day.

ISO&Agent: How did you happen to connect with the future board members?

DG: My company was sold to Cisco. I had time to think about what I wanted to do next, and I was in the process of networking with people from different industries. One of the guys I met randomly through networking was Norm Tice, who’d spent 17 years on the MasterCard board and three years as the chairman.

And it was that meeting that started the process of thinking about how we could enter the market with a differentiated and better offer.

ISO&Agent: The company was already differentiated when it started?

DG: We started completely from scratch. From the beginning we were determined to build our own back end. We thought the back end was the critical part in controlling your own destiny. Features, functionality, etc., are all there. So we started by hiring a development team and building our own back end from scratch.

At the same time we were building that core, we were building our suite of tools that we refer to as Compass. Our concept right from the beginning was to try to make Compass a uniquely powerful tool for ISOs and agents. It’s where you can go to board merchants very quickly online at a single point of entry. It has residuals reporting and detailed residuals downloads. It’s where you go for profit reporting.

We were very careful to solicit the advice of ISOs and agents and people who came from that space to try to make that the most useful tool possible. It still remains a big differentiator for us. Plus the fact that we are the processor, and we control the funding cycle. We control the data. We take those things, and we make the lives of our sales channel partners better as a result.

We were in the software development cycle for a couple years before we even presented ourselves to the public.

ISO&Agent: You spent a couple of years in development?

DG: Right. We started writing code in 2006. One of the big milestones for us was we certified the back end with Visa, MasterCard in 2008 and Discover in early 2009.

ISO&Agent: So you started from a strong position. How has the company changed since then?

DG: At a high level, our strategy has remained pretty consistent–that is working with the sales channel with Compass, with our back end. It has delivered great growth for us.

At a day-to-day level, it’s a constant evolution to try to scale the company to keep up with our growth, to keep up with regulatory changes, and to keep up with the features and functionality that our customers are requesting to help them be more successful in the market.

That original strategy of building a back end and supporting our customers through Compass is still very much what we’re doing right now. 

Although we recently announced our own proprietary gateway and API that developers and others can write to. So that’s a big evolutionary step forward for us in moving to the front end, and it’s something that we just started this year. Now, you can get processing all the way through from the gateway to the back end with Compass. The gateway allows us to participate in a part of the business we’ve historically relied on partners for.

ISO&Agent: What are some of the highlights of the company’s day-to-day evolution?

DG: It’s kind of a blur–five years of this.  Next-day funding is one thing. Our product is cut off at 11 p.m. Eastern time and it’s bank-agnostic. That’s pretty powerful in the market. There’s also compliance for our partners, making it easy for them to do PCI and comply with IRS regulations, etc.

ISO&Agent: What else differentiates Clearent?

DG: The payments business is still an execution business. It’s about doing things really well and--in as many cases as possible--better than your competition can do. That’s how we think about our business.

Around here we’re focused on continuous improvement of our business processes, our technology, the way we interact with our customers. 

ISO&Agent: You’ve brought some good people into the company.

DG: We’re really a mix. We have people who have strong entrepreneurial backgrounds, and we have people with as much as 40 years in the payments business. And we bring people in from outside to get a fresh perspective.  Our CFO comes from Microsoft. Our vice president of product management comes from Quicken. I could give you other examples.

 ISO&Agent: Does Clearent have a sales staff that contacts merchants?

DG: We have a direct sales team. It’s not very large–it’s about 70 people. It focuses on different geographies and a different class of merchants from our ISO channel. The ISO and agent channel is still definitely our biggest channel, and we’re continually investing in that channel.

ISO&Agent: Would the direct sales team handle the big national merchants?

DG: They’re regional merchants, but they are larger.

 ISO&Agent: What percentage of your business comes from the direct sales team?

DG: Some 10% to 15% of our new merchants come through that direct channel.

ISO&Agent: How many merchants does Clearent have?

DG: About 25,000.

ISO&Agent: How many ISOs do you work with?

DG: In any given quarter about 250 ISOs and agents submit deals.

ISO&Agent: Are you looking for more ISOs and agents?

DG: Absolutely. We have four ISO advisors in the channel trying to recruit people. That’s a key part of our business.

ISO&Agent: What do you foresee for the industry in general?

In the near term the big trend in payments is going to be integrated point of sale. We’re prepared to compete in that space with our gateway and front end and back end.

We keep a watchful eye on all the other things that are happening in the market– mobile payments, mobile wallets, etc. We think it’s a very complex business, and it’s a highly regulated business.

Massive short-term disruption is unlikely. We expect EMV to roll out over time and mobile wallets, in certain industries, to take off over time.  

ISO&Agent: What advice would you have for ISOs and agents?

It’s Important for our partners to focus on vertical specialization. You’ll be able to talk about your merchant’s industry when you go in to see him. When you’re going out prospecting, you’ll be able to talk about current events in that industry. It adds a dynamic to the conversation when you have industry-specific solutions for your customers.

It’s more and more important.

If you’re in a less densely populated area and you have less competition, you have to be a jack of all trades because there isn’t enough volume in any one particular vertical to specialize. We see a lot of these folks who are still generalists, and their relationship with the merchant is still key, local support is still key—you belong to that chamber of commerce and that’s still key.

As you get into more and more densely populated areas, it becomes more and more important to focus on verticals. That’s how we see it shaking out in our portfolio.