For 18 months starting in 2003, serial entrepreneur Alfred “Chip” Kahn conducted an “anthropological study” of how small businesses made and received payments.
What Kahn found, he said, was an often slow, time- consuming process that diverted small-business owners from managing their companies and toward tracking bills and payments.
He also saw an industry – payment services – that in 2004 collected from consumers and businesses $206 billion in transaction fees, according to consulting firm McKinsey & Co. With that in mind, Kahn in 2004 founded IP Commerce Inc., a Denver-based software company that now employs 33 people. His efforts will come to a head today in Boston, where the 32-year-old will announce a partnership with technology giant Microsoft Corp. at its annual Worldwide Partner Conference.
“This software is a much more efficient and friction-free way to enable payments,” Kahn said recently from his Denver office.
That software, which launches on a limited basis this month, allows business owners to transform desktop computers into payment processing terminals.
In doing so, companies can receive payments, process transactions and pay invoices over the Internet and through software programs such as Microsoft Outlook. Kahn says that will allow companies as varied as coin-operated laundries and dentists to more quickly process payments, remotely deposit checks and better manage their streams of revenue.
But the company must still overcome hurdles.
If the Microsoft partnership fails to generate enough customers, IP Commerce would be forced to launch an expensive and time-consuming sales and marketing campaign.
Plus, it’s unlikely that entrenched payment devices such as credit-card terminals will vanish overnight. While that would not be catastrophic, it could crimp the company’s revenues.
Another potential roadblock is that established payment-service companies, which have so far been willing to work with IP Commerce, could change their tune and view the startup as a long-term threat.
The venture-backed company, which hopes to reach profitability next year, plans to raise additional capital in 2007.
That financing will keep it afloat until the software is distributed via Microsoft’s Windows Vista operating system. Steve Ball mer, Microsoft’s chief, said Tuesday that the long-delayed system is 80 percent likely to launch in January.
IP Commerce will essentially offer its software for free. The company will make money by collecting a slice of the transaction fees charged by companies such as Visa ad PayPal.
“The payments industry is monstrous,” said Chis Onan of Denver-based Appian Ventures, which in May invested $1.5 million in IP Commerce.
He added that revenues for IP Commerce could surpass $50 million to $100 million, often a projection venture capitalists hope to achieve.
To facilitate the software’s adoption, IP Commerce helped forge a consortium called Payments As a Secure Service, or PASS, with, among others, Microsoft, Pay Pal and Chase bank.
“It (the software) will save small businesses a lot of money,” said Kevin Gallagher, senior vice president for Chase Paymentech Solutions, a joint venture of JP Morgan Chase & Co. and Greenwood Village-based First Data Corp.
He said the IP Commerce software will eliminate – at least in part – the need for businesses to purchase stand-alone credit- card terminals. The software will also sort payment data, taking the place of accounting software such as QuickBooks.
For Kahn, a 1996 graduate of Colorado State University, IP Commerce marks his fifth company. The Rockport, Maine, native said this one is poised to be his most successful.
“This is the biggest opportunity I’ve been involved in,” Kahn said.
Staff writer Will Shanley can be reached at 303-820-1260 or wshanley@denverpost.com.
