Bill Reynolds - Life Real Loud - John Lefebvre, Neteller and the Revolution in Online Gambling

In those days, you did anything that needed doing. “Well, that was a great first day,” Rob says, “not even in the office.” You never knew what was going to happen.

Eltom, who was twenty-three, says he knew immediately this had to be what he loftily calls his “next stage of personal growth.” He became the night guy, coming in as everyone else was leaving. At that point he mostly just answered the phone and helped clients set up their accounts. Calls came in at all hours, so somebody had to be there — always. He worked fourteen-hour days and loved it. When the holiday season came along, he fell on the sword: “Guys, I’ll cover.” Eltom’s dad came down on Christmas Day to spend time with his son in the office. Eltom would get to know Lefebvre reasonably well, but he and Glesby were “two ships passing.”

In the beginning, it was work, work, work. Everyone put in extra hours, getting in early, staying late. “It was a fun environment, a big change from what I was used to, because you could still be yourself,” says Glesby. There were beer runs because they couldn’t leave. They had to bring the party to work: “Who’s going to get the beer?” was a common refrain. Glesby says, “We’d shoot the shit on the sofa. We’d start trying different beers — German beers, dark ales.”

This became the scene because Lawrence and Lefebvre had hired so many eager kids. They were in their twenties, they were working for a cool company, they were happy because their bosses treated them well, and they were paid decent money. It didn’t hurt that when it came to partying, Lefebvre, twice their age, could keep up with them no problem. Meanwhile, Lawrence and Glavine continued to fix the technical glitches and tried to keep the company one step ahead of online scammers, Edmunds supplied more and better information about their customers, and Lefebvre’s expanded service crew gained more experience and confidence.

Neteller had always wanted to be able to position itself as a reliable payment processing company specializing in electronic monetary transfers. Unlike PayPal, which became one of the first worldwide internet company brands and which people trusted with almost any kind of transaction, Neteller’s business focus was customers who gambled at offshore casinos using the internet — and most of those customers happened to be American. But there was no instant, out-of-the-box solution, like with an Apple computer. There were no IKEA-style easy-to-follow visual instructions or free hex key to guide you through how to get rid of the transactional bottleneck. The problem was not an easy one to eliminate, because there was not one bottleneck to clear but many.

In order to transfer money, Neteller in its infancy used one of the only automated methods available at that point, Western Union’s Quick Collect. It wasn’t exactly quick, but it was a useful way of moving funds from clients to bookies. According to Lefebvre,

You go into any Western Union office around town, and you put $1,000 in cash down on the counter and say, “I want this $1,000 to go to your Quick Collect customer 647443.” And they say, “Okay, here’s your receipt.” They give you a different number and then they telex your guy or you phone or fax your guy with this secret number. And when that guy in Costa Rica goes into a Western Union office and gives them the secret number, he gets the money. You pay Western Union fifteen dollars on $1,000, or 1.5 percent, for this service. That was the facility that Steve set up.

Western Union was tolerant, up to a point. When it thought its service was being abused for gambling purposes, it would bark. Neteller used Quick Collect throughout 2000–01, until they were told they couldn’t. Neteller also used credit card accumulators at this time, but the rates would have been quite high, around 9.5 percent or more. People also simply sent cash, checks, and bank wires.

Lefebvre says,

The main thing we needed was for customers to get money into Neteller. We needed their money so that they could have credit on our website to bet at poker sites. Eventually, a department, we don’t know who, leaned on Western Union. They phoned and said, “We’re not working for you anymore. We’re getting hassles from the government.” They might have made that up — as soon as they started doing Quick Collect to online gaming sites they started doing person-to-person to online gaming sites. The person-to-person fees were 7 percent, so they just increased their business from 1.5 to 7 percent — almost five times. Anyway, that was it — no more Quick Collect for online poker sites.

As systems go, Quick Collect was okay. It did its job, but it was slow and stupid, and everyone at Neteller knew it wasn’t going to be the yellow brick road to the Emerald City of gambling tollbooth riches, but at least it had worked until it didn’t. Now they had to find another system. Same deal with the credit card companies. They weren’t set up to move money back and forth, over and over and over. In other words, they assigned numbers to various types of transactions. A purchase involving betting on football games could be easily identified. Even if none of those problems surfaced, there was still a confidence issue.

Lefebvre says, “If you’re a customer, you’d not know if it was somebody you could trust with your credit card information. And then, if you won, bookies would be able to put money back on your credit card once, maybe twice, but after that they can’t do it. Credit cards aren’t set up to receive money. Occasionally you can reverse a transaction. But sooner or later the credit card company is going to say, ‘Hold on, what are you guys doing here?’”

What really turned things around, aside from abandoning the Neteller SmartCard in favor of personal identification numbers, was when Neteller started to use Jeff Natland’s personal PayPal account to process transactions. “We started directing customers to his account,” says Glavine, “and it started doing millions of dollars in transactions.” Now here was an access point that actually had access. The bouncer in the tux with the washboard stomach suddenly unhooked the chain and let Neteller into the wired party. To this point, Neteller’s money access problems were akin to a baby who had no nipple and a meager formula ration. Fortunately, Neteller had developed this new angle before Western Union pulled the plug on access to Quick Collect.

The company may have devised the idea of servicing the internet gaming money transfer business through the web, but the model they used wasn’t theirs. PayPal had come up with that excellent idea — the e-wallet. And since using a PayPal account to transfer money to and from gaming sites wasn’t even a flash in the minds of PayPal executives at that point in time, Neteller didn’t need to emulate the PayPal model — they could simply use PayPal itself.

PayPal was one of the original dot-com darlings. There was serious cash behind it, tens of millions. Unlike Neteller, the founders didn’t have to worry about burn rates. In 1995, Elon Musk, now better known as the head of Tesla Motors and SpaceX, dropped out of a graduate program in applied physics and materials science at Stanford after two days. With his brother Kimbal, he founded Zip2, which aimed to provide online content software for news companies. In 1999, the brothers sold their business to AltaVista (Compaq) for $307 million in cash and $34 million in stock options.

Elon Musk then founded X.com in March 1999 as an internet financial services company. The commercial draw with X was that you could email money to your pals. Of course, the money had to move from one bank to another, which meant that the two parties had to sign up and have a bank account. In essence, X.com’s innovation was simply a variation on the ACH process for banks. That lack of real innovation didn’t matter, because it was appealing to the young: Cool, I just sent my buddy Steve fifty bucks using email!