If anyone can claim to be the pioneer of electronic bill payment, it's Peter Kight. The former college decathlete was managing a handful of health clubs in Texas in the late 1970s when he saw first-hand how hard it was for gyms like his to collect monthly dues from members. So Kight convinced the gym's owner to buy a small IBM computer, then he devised a way for a local bank to deduct the monthly dues from each member's account -- and history was made.
In the early 1980s, Kight moved back to his hometown Columbus, Ohio, set up shop in his grandmother's basement and began building a business devoted to handling payments from consumers electronically.
Fast forward to the present: Kight's Atlanta-based company, Checkfree, now handles more than half of all electronic payments, generating more than $700 million in revenues. BusinessWeek Atlanta Bureau Chief Dean Foust talked to Kight on two occasions recently about his evolution from an admitted "anti-business" jock to one of the pioneers of electronic payments. Edited excerpts follow:
You went to California State University at Bakersfield. What was your major?
I left in '77. I was majoring in philosophy. I liked the opportunity to think as opposed to memorizing and repeating rote information. I argue today that it's a great major for entrepreneurs. At the time, though, I was just searching for a major that would also keep me eligible for the track team. I've joked that my real major was the pole vault. [Laughs].
But I dropped out my senior year when I snapped my hamstring and couldn't run track anymore. I was trying to fill the void of competing so I put on a track meet and held a weightlifting and bodybuilding competition. I rented an auditorium in Bakersfield. One of the people who came was the publisher of a fitness-based bodybuilding magazine. At the end of the day, he offered me a job as editor-in-chief of his magazine. So I took the editorship.
What was the magazine called? Tell us a little about it.
Muscle Digest. I tried to turn the magazine into more of an "everyman" fitness magazine. But I got to meet and become friends with a lot of bodybuilders. I enjoyed spending time and hanging out with Arnold Schwarzenegger. He was one of the most disciplined and aware people I've ever met.
I did that for two years. Then I was hired by the owner of a handful of health clubs [in Texas], to be general manager. State laws had changed the year before and had outlawed high-pressure sales techniques. That's why I was immediately looking for a different way to get payments from club members.
That's where you got the idea for a business that would handle payments electronically?
We just did the deal with a local bank. The health club bought an IBM 5120 and hired a programmer. We changed from charging $250 a year upfront to $75 down and $12 a month. We got a voided check from new members right on the spot, then hand-delivered a tape to the bank. In six months, the health club was profitable on the first day of every month. I said, "This is the business opportunity I'm looking for."
I moved back to Columbus, and set up an office in my grandmother's basement. I needed a place I could live for free. I had about $700 in my checking account when I pulled that U-Haul into her driveway. I didn't spend any money. She bought the food. My office was my late grandfather's workbench, with an old rotary phone.
But you needed a computer, right? How did you get access to one?
I didn't have a computer. But I convinced an apartment manager to let me use his computer if I put his apartments on automatic rent collection. It was an old IBM 5120, the first real tabletop computer. The local IBM office knew this guy who moonlighted as a programmer and he was between moonlighting jobs. I couldn't pay him very much. He was a chain smoker and drank Pepsi with caffeine pills. He programmed so fast if I wasn't there to tell him what I needed, he'd go off in a different direction.
We worked in a basement for seven months. I joked that between that and my grandmother's basement, I never knew what the weather was like in Columbus.
I ran the thing [myself] for the first two years. Then I hired a part-time clerk to help me with data entry. We had several dozen health clubs on the system. I just never spent any money until I had it, so we couldn't expand rapidly. But we had cash flow, so I went to venture capitalists to raise money in '83 and '84. We got turned down 30-some times. Most VCs didn't understand it at all. I still remember a venture capitalist turning me down, and I saw the memo he wrote: "Interesting start-up company by a broken-down ex-jock." [Laughs.]
An attorney in Columbus put us in front of three insurance companies. They understood exactly what we were doing. We did a $3 million deal that carried us up all the way to '88-'89 when we launched our consumer-PC-based business.
What was your real competitive advantage?
It wasn't so much technology as it was just seeing the opportunity and getting there first. But we designed bill pay for the consumer. Banks were trying to design it for the banks.
What kind of reception did you get from banks and other payees? Wasn't the dirty secret in those early days that bill-pay companies like yours were really having to make the payments with paper checks?
We were paying a lot of companies with paper checks. We'd call American Express and say, "You need to let us build an electronic [connection] to your computers." And they said, "Not a chance. You're the 15th institution to tell us the 'checkless society' is around the corner. They were wrong. And who are you?"
At that point we had a couple hundred payments going every day to MCI, AT&T, and others. At one point, we had three post office bags of envelopes we were sending every day to American Express. We tried to eventually build up enough "paper pain." The "paper pain" theory eventually did work.