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

He continues, “Our business took off. Huge. It went from good to massive. You know, we thought it was a big deal when we got one million in business, period. And then it was a big deal when we were getting one million a month. We thought that was really a big deal. By 2007 we were tracking for fourteen billion a year — over a billion a month. It was the gift that kept on giving, and we just ran with it.”

Neteller’s e-wallet system was recognized by bookies as superior, and now it had little competition in the money transfer field. With its credibility established, market penetration deepened by the week. Lefebvre explains,

The only impetus bookies had to go with another provider was price, but when you’re jacking the guy down on price you’re jacking him that much closer to being a failure. There are only two incentives from the bookie side. One is to spread the risk, so if one company does fail you’ve only lost half your money. The other one is to put you in a position so that you can bargain your transfer rate down. Some guys tried and some guys succeeded at it, but they only got, at the biggest, to four percent of our penetration.

And that’s because we there was really no reason for anyone to go anywhere else — especially to someone who was trying to get market share by offering lower rates, which amounts to getting market share by making yourself more risky.

These other companies included OnePay and FirePay and later on E-Cashworld and WorldPay. Most of these companies will not offer their services to gamblers in the U.S. because the DOJ has made the market — the world’s largest — inhospitable not only to gambling sites but to e-wallet companies servicing the gambling market.

With Neteller in such a good financial position, Lawrence began to look at other forms of electronic moneymaking. He looked at the so-called credit card accumulators and wondered if Neteller could beat them at their own game of lending out money to hapless customers who needed cash fast at usurious rates. Companies like FirePay and CCBill made it their business to lend out their relationships with Visa and MasterCard for a hefty fee. Porn sites tended to be its type of customers. The reason the rates were so high — nine percent, ten percent — was the credit card companies charged FirePay rates in the 3.5 to 4 percent range, so it needed to take its own profit. The money was in the transaction fees in this corner of the business as well, almost like a surcharge on so-called vice activities.

Lefebvre says,

At one point, we went into competition with all of those accumulators with a business called ProBilling, which did the same thing. We allowed our credit card facility out to the people for an increased rate. And one of the things we decided to do with ProBilling was price-compete on credit card accumulation fees, which were roughly around 9.5 percent in those days. We set it around 7.9 percent.

So then we started getting calls from CCBill and some other guys, saying, “What the fuck are you guys doing?” We said, “Free country. We’re just competing — got a problem?” They said, “No, you got a problem!” We get up the next morning, and Neteller and ProBilling logos appear on about fifteen kiddie porn sites. How dirty can you get? And we said, “Uh, okay,” and backed away. We don’t know if they really appeared on kiddie sites, but what they sent us was links that sent us pages that looked like kiddie porn sites with Neteller logos all over them. They could have made them up, but we got the point. They weren’t above using the real ones. It was the frontier out there then.

It didn’t really matter that Lawrence’s schemes to diversify the business, plausible in principle, went nowhere. The real cash cow, Neteller, had udders gushing milk in every direction. Milk the cash cow, ride the pony, the roller coaster is all downhill, baby, so hold on and mix all the metaphors you want. The laws of physics have been breached. What goes up must go up.

Let the Good Times Roll … and Roll

After Lefebvre arrived in Costa Rica, Neteller moved into a different phase of growth, what he calls the “professional era.” Gordon Herman joined Neteller in September 2002, taking the position of chief operating officer (COO). A smart, experienced corporate businessman and a guy they had known for several years, Herman had a reputation for turning around, fixing up, or tuning up companies. He was well educated in business administration, receiving his bachelor’s from Brigham Young University in 1980 and his master’s from the University of Notre Dame in 1984. Herman had been president of General Electric Capital Leasing Inc., a division of General Electric. He had also been chairman of Madison Companies, a Canadian public company, and managing director of Chell.com, an application services provider based in Calgary. And, of course, he had been president of the insurance company Harding Hall & Graburne, which was where he and Lefebvre met in 1995.

Lawrence’s plan was for Herman to eventually replace him as CEO. But after attending a few important business meetings as COO, Herman increasingly felt like he needed more clout — people would take the meetings more seriously, he thought, if they were dealing with the top guy — and argued for a faster timetable. Lawrence agreed and appointed Herman CEO ahead of schedule, in February 2003. (When it came time for the public offering, in 2004, Herman was both president and CEO.)

Herman knew what he was doing. The company’s monthly revenues shot from $866,000 in September 2002, when he joined, to $4.335 million in December 2003, ten months after he had taken over as CEO. Neteller had 685,945 member accounts as of March 1, 2004, growing at a rate of 1,600 accounts per day. North Americans held eighty-eight percent of those accounts. About 1,250 merchants had signed up to use the Neteller system, and the growth rate in that department was about thirty merchants per month.

When Herman took over, Lawrence moved to being president, a responsibility recently vacated by Lefebvre, and also assumed the duty of chairman of the board. Both Lefebvre and Lawrence knew Herman was the right guy to transform Neteller from a Canadian company based in Calgary to an Isle of Man company with an IT office in Calgary.

In the meantime, Neteller outgrew its Midnapore operations in south Calgary. There were only so many spaces for lease, and it was getting chaotic. Herman landed the old Servpro building on Fortieth Avenue NE and moved the company there — eighteen miles north of Midnapore (on the bright side, it was only four or five miles from downtown). The Servpro building was part of Greenview Industrial Park, an industrial zone in a four-block span between Centre Street and Edmonton Trail, where the old Sunset Drive-In used to be. Once Neteller moved in, it took over the entire building, floor by floor, building one section, moving up, building the next section, moving up. The underground space was gutted and turned into a parking lot. By 2003, there were over five hundred people working there, many of whom were running security checks, grooming accounts, and helping customers. Neteller was on fire.

Herman managed the growth fine, but it changed the culture of the company just the same. Glavine recalls, “When you have two hundred people, you can’t know everybody in the company by name. And we were constantly hiring. There wasn’t a day we weren’t hiring. You came into work and there were four or five faces you didn’t recognize. The next day there were twenty more faces you didn’t recognize. So you can’t just walk up and say, ‘Hey Johnny, can you do this?’”

Neteller going public would be in the works for a while — the company went public on the London Stock Exchange in April 2004—but already the money had started to flow. Lefebvre recalls,