San Antonio Express-News (Sunday)
Payment processor’s pandemic role — and CEO’s battle with the virus
San Antonio-based Usio Inc. may not be a household name, but it operates in the background of a lot of people’s lives.
Usio is a payment processor. Its technology is embedded in other companies’ software and is, for instance, used by tens of thousands of doctors’ offices to facilitate payments.
“A lot of times you’ll use us and you won’t even know it,” CEO and President Louis Hoch said. “But we sit in the middle of a payment transaction and take money from a consumer or business and pay out the business.”
The publicly traded Usio provides all types of automated clearing house, or ACH, processing, as well as credit and debit card-based processing. Its ACH processing services enable businesses to disburse and collect funds electronically using echeck, which is an electronic debit to a bank checking account that can be initiated at point of sale, via the internet, by telephone or through the mail.
“So this little company here in San Antonio, our technology is driving so much payments through the United States,” Hoch said. “And not many people know about us. You probably used us twice last week and didn’t even have a clue that you did.”
Usio also offers prepaid cards to consumers as a tool to stay on budget, manage allowances, and share money with family and friends.
Last month, Usio completed the acquisition of Information Management Solutions LLC, a
San Antonio print house, for $5.9 million and warrants. IMS assists clients in presenting invoices and statements to customers via email and text. Its roughly 35 employees became part of Usio, which now employs about 90.
Hoch, 55, joined the company as its president not long after it went public in 1998. He added the CEO title in 2016. The company started under the name Billserv.com Inc., then Payment
Data Systems Inc., before changing its name to Usio in 2019. In its more than two decades of operation, the company has lost money in all but five years. It was on pace in 2020 to lose money for a fifth year in a row.
Hoch recently sat down to discuss Usio’s operations, the
IMS transaction, how it’s helping people during the pandemic and his own bout with COVID-19. The following transcript has been edited for brevity and clarity.
Q:
Would someone starting a small business go to Usio to process credit card payments?
A: We can do that, but we typically don’t sell to individual merchants. Our customers are typically software vendors. We try to sell on a leveraged sales model, where you make one sale to a software vendor and get access to thousands and thousands of clients. A good example would be PracticeSuite. We have telemedicine companies that are providing telemedicine services for these doctors. We process the
payments.
The big drug companies, we do all their clinical trial payments. If you go to a Pfizer clinical trial, you’ll get issued one of our prepaid cards with a Mastercard logo on the front and a Pfizer logo, and you get compensated that way. So every time you go back, they put more money on your card. We have customers in every industry vertical: mortgage, insurance, utilities.
Q:
Do you get a piece of every transaction?
A: There are four parts to our business. First, we do ACH payments. We get a transaction fee for that. ACH payments are direct debits off a consumer or business checking or savings account. We also push money into those accounts. ACH is a big part of our business. We are an industry leader. If we were a bank, we’d be the 50th largest bank in the United States based upon the volume that we pump through the Federal Reserve.
The second part of the business is we do credit card processing and credit and debit card processing. We also do pinless debit. That part of our business, we receive a percentage. So when you go to Amazon and do a $100 charge, Amazon gets like $97. Three dollars is split up among all the players in the payment ecosystem, including the card issuer, the card association — Visa, Mastercard, American Express and whoever processed that payment. So in our case, we’d be the payment processor and we’d make about 50 basis points, or half of a percent. The rest of the money, the majority, goes to the card issuer and then a chunk of it goes to the card brand.
Our customers are the merchants in the case of card-processing. In the prepaid part of our business, we actually issue and process Mastercards. In that case, we get about 2 percent. The majority of our cards are issued by companies. A good example of a client you’ll understand is OpenTable. If you use that app to book your reservations for restaurants, you earn reward points. And you can redeem those points for an OpenTable Mastercard. That’s us. We also have the top 28 universities in the United States that we print gift cards and reloadable cards for.
If you’re a (University of Texas)
fan, you can get a UT gift card. It has UT branding on it. And then it has a Mastercard logo on it. And it can be used any where Mastercard’s accepted worldwide. But we’re a processor, so when you swiped that card, the message comes to us and we approve it or deny it. We actually pay the merchant.
You say in regulatory filings that your prepaid cards help consumers with budgeting. How so?
A: The majority of our traffic for prepaid comes from corporations (or) entities like universities. We do have one consumerfacing program that’s called Akimbo card. So you can go to Akimbocard.com. A lot of people use those cards for budgeting.
In my case, I have a primary
card on my kids of varying ages. They have secondary cards, and I can move money from my card to their cards, and they can spend the money however they want. Like my 12-year-old son uses it to pay for his games online. But he can’t over-withdraw. It’s not tied to his credit — he doesn’t even have a credit profile. If he gets in trouble, I can turn his card off. I can take money off his card, too.
Some people will get a primary card. They’ll have their paycheck deposited to that. And then they’ll allocate money to different cards for different activities. They’ll have a grocery card, they’ll have a gasoline card, they’ll have an entertainment card. They may even have a rent card.
Q: Talk about the acquisition of San Antonio’s Information Management Solutions, which you completed last month.
A: It’s a local print house. They print statements for companies like Security Service Federal Credit Union, for utilities all throughout Texas — hundreds of them. They print voter registration cards for the state of Texas. They’re a print house, but they’re very much technologyfocused. That part of the business, everything they do is with PDFs.
We were interested in buying that business because it was profitable and a well-established company. And, of course, (it’s) in San Antonio. But their technology allows us to go back into electronic bill payment and presentment. So that we can take those PDFs, wrap payment around it and actually deliver bills electronically to consumers and businesses and let them pay, as well.
Q:
What’s the biggest concern about your business or industry?
A: It’s always regulatory, what’s going to happen with regulatory agencies. In a lot of ways, we’re just like a bank. Those same regulators could institute policies or laws that cause us to have to change part of our business.
Q:
Usio has been increasing revenue, but when is it going to become profitable?
A: We’ve been intentionally focusing on the top line, growing or scaling our business. We wanted to get to $50 million of sales as quickly as we can. I think we’re going to be really close to that this year. We haven’t been really focused on generating cash. We had two business lines, prepaid and payment facilitation — which is credit-card processing, that we invested a lot of capital in, and we’re doing it by design. So the ACH part of our business was extremely profitable and we were … providing that cash to those subsidiaries. This year, we will (achieve) positive cash flow.
Q:
In May, Usio announced an increasing number of governments and charitable organizations would issue prepaid cards with Usio as a way to distribute relief funds to those affected by the pandemic. Any idea how many cards have been distributed?
A: We haven’t really released those numbers. A lot of the cities we work with did have COVID relief programs. We also have the charities like United Way, National Domestic Workers Alliance, One Fair Wage, which helps out service-industry employees. But there’s quite a bit. If you talk in terms of dollars that got distributed or loaded during that time frame — I’m just doing this off the top of my head — seven months, about $150 million.
Q: Usio received an $813,500 loan through the Paycheck Protection Program. Given a lot of businesses needed PPP money to keep their doors open, did Usio really need that money when it had $1.7 million on its balance sheet at the end of March?
A: Yeah, we did. So at that time, we had some money, but at the time we were burning (through) $300,000 a month. We were going to go out and raise money this (past) summer. When COVID hit and that (PPP) money became available, we thought the stock market was going to crater. Usually in times of stress like that, people do not invest. There’s no capital available. It turns out there was capital available for … certain companies, and we were able to raise money. (Usio raised about $7.3 million from a public stock offering and $3 million from a private offering in the quarter ended Sept. 30.) But we spent the PPP money as directed.
Also, during that time frame in March, I had COVID, and I had it pretty bad. Back then, when you had COVID, the news was telling us you’re likely going to die. So there was a lot of uncertainty there with the goforward position with our company. (Among the risk factors Usio cites in regulatory filings is it may not be successful if Hoch ceased be active in its management.) We did take the money and we didn’t lay off any employees. We actually increased our headcount during that time frame using that money. That money has since been forgiven.
Q:
What was the worst part of having COVID?
A: The worst was the uncertainty. I was totally drained. Couldn’t even move in bed. If I wanted to flip over, I had to think about it for minutes before I could flip over. But just having that crushing feeling on your chest and knowing whatever’s happening with your body, you’ve never felt before.