InstaPay Systems Inc. (IPYS)
Interview with:
Harry Hargens, Director, President and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
PIN-based payENKRYPT® system that enables consumers to conduct secure ATM card transactions over the Internet without fear of identity theft.

wpe4D.jpg (6486 bytes)

Cover Story

CEOCFO Interview Index

CEOCFO Current Issue

Cover Story Archives

Future Features

Analyst Interviews

Corporate Financials

Archived Interviews


Contact & Ordering

This is a printer friendly page!

InstaPay Systems is giving Internet merchants the opportunity to lower transaction cost by providing them with the ability to accept payments online from consumers using an ATM card

wpe5B.jpg (4092 bytes)

Computer Services

InstaPay Systems Inc.

98 Shoreline Way
Hampton, GA 30228
Phone: 770-471-4944

wpe61.jpg (8343 bytes)

Harry Hargens
Director, President and CEO

Interview conducted by:
Lynn Fosse
Senior Editor
May 2004

Harry Hargens
Mr. Hargens was instrumental in the creation and early development of the business of automating credit card processing at the Point of Sale (POS).  He has been active in the payments/transaction processing industry since 1981, having held a variety of senior management positions responsible for sales, marketing, and product development.

Mr. Hargens first entered this industry in 1981, when he was hired by Omron to develop the business plan for, and then launch, a new business unit selling the first effective credit card reading terminal for the point of sale.   As General Manager of this business unit, Mr. Hargens took it from start-up to $11 Million in annual sales and 60% market share.

He then joined VeriFone, another terminal manufacturer, and quickly developed a new line of high-end terminals that became the standard for the gas station/convenience store industry, generating $10 Million in annual revenue.

He subsequently moved from equipment manufacturing to transaction processing, holding senior positions with TransNet (now part of Paymentech), HONOR (now part of STAR), and National Data Corporation (now Global Payments).

At TransNet, he was hired as Director of Marketing, reporting directly to the President.  When TransNet’s largest client gave notice shortly after he was hired, he was put in charge of the client relationship and turned the situation around, saving $5 million in annual revenue.  When TransNet was sold, he moved to HONOR’s POS technologies business unit.  As Director of Sales & Product Management for this startup business unit, he defined and executed all details of the sales and marketing strategy, and exceeded sales goals.  He then moved to National Data, where he was Director of Product Management for emerging markets.  He led the development of the industry’s first Level III Purchase Card acceptance product, and built a business unit to handle the unique marketing required for this product, thereby helping to attract new banks and merchants as clients.

Mr. Hargens left National Data in 1996 to pursue opportunities to provide strategic consulting services for a number of companies, including due diligence on two successful acquisitions by publicly traded (NASDAQ) companies.

After several years of successful consulting practice, in 2000 he decided to pursue the growing opportunities in eCommerce and launched Kryptosima, a company dedicated to developing new Internet payment methods.  Under his guidance, Kryptosima developed the first payment gateway that enables Internet merchants to accept PIN-based ATM card payments.  Mr. Hargens has been granted one patent in Europe and has another pending in the US for the processes used by this system.

In order to obtain better access to capital to develop Kryptosima’s business opportunity, in 2003 Mr. Hargens led efforts to merge Kryptosima into InstaPay Systems, a publicly traded company (OTCBB: IPYS).  Since March 2003, Mr. Hargens has been a Director, President and CEO of InstaPay, and remains President of Kryptosima, which operates as a wholly owned subsidiary of InstaPay.  In August of 2003 Kryptosima’s service went into production, and in March of 2004 Mr. Hargens orchestrated a $5M financing deal to fund expansion of InstaPay/Kryptosima.

Mr. Hargens holds an MBA with honors from The University of Chicago, and a BSEE with honors from Illinois Institute of Technology.

Company Profile:
InstaPay Systems Inc. (IPYS-OTC) is focused on the implementation of new payment services, such as ATM card payments from home or office. The patented, easy to use Kryptosima system works with any desktop or laptop computer, enabling consumers to conduct secure transactions from any location without fear of identity theft. The Company’s servers are in a secure facility with extensive power back-up, on-site operators 24 hours/day X 365 days/year.

InstaPay’s Internet payment service called payENKRYPT® is the first PIN-based Internet transaction system for ATM or Credit Card use, with the speed and cost advantages of a simple ATM withdrawal. The key to payENKRYPT® is a small, PIN-enabled ATM card reader, easily attached to any PC. With a swipe of a card and a PIN code, payENKRYPT® offers a new way for consumers, Internet merchants and the securities industry to do business. This is the only method to do an ATM transaction for the Internet under current ATM network rules requiring a “card present” with PIN device system. This is the same method used when making purchases with your ATM card at brick and mortar businesses such as grocery stores and gas stations.

CEOCFOinterviews: Mr. Hargens, will you tell us the vision when you started, and how that has played out now that you are under the InstaPay umbrella?

Mr. Hargens: “Our vision going back a few years was very simple. The founders of the company are people with 20 or more years of experience in the payments processing industry, helping to create products, systems and services that enable brick and mortar merchants to accept credit cards and then later to accept ATM cards. What we saw happen over the years in the brick and mortar world, was in most cases, credit card acceptance was there first and then ATM card acceptance came later and piggy-backed on the infrastructure that had been put in-place and it saved the merchants a lot of money because they paid a lower fee for the ATM card transactions. It seemed to us that the same thing would happen in the e-commerce market, which was and still is growing very rapidly. The e-commerce market was initially launched by relying primarily on credit cards as the payment mechanism; we just expected that ATM card acceptance and debit card transactions would come around and piggy-back on that credit card infrastructure. So we set out to create the first payment gateway, that would enable Internet merchants for ATM card acceptance.”

CEOCFOinterviews: Many ATM cards are used as credit cards; so why is this something special?

Mr. Hargens: “Our friends at Visa and MasterCard have totally confused the world with what they have created with their debit card, and you have to congratulate them, they have done a great marketing job and it has been a successful product for them. Many people don’t realize that Visa debit card transactions now outnumber Visa credit card transactions. I still have conversations sometimes with potential customers and potential partners who are laboring under ten or twenty-year-old ideas that if you don’t have a credit card you are not a credit worthy person, are un-banked and credit challenged. Nothing can be further from the truth; consumers simply prefer debit cards more and more, so debit card transactions outnumber credit card transactions. It is continuing to swing more towards debit vs. credit. What Visa and MasterCard did was persuade most banks and credit unions in the U.S. to put a Visa logo or a MasterCard logo on an ATM card, and the banks did that because the card would be used more and they would get more fees.

The piece of plastic in the consumer’s pocket is two different cards on one piece of plastic that can be used two different ways. The way it is used doesn’t matter much to the consumer; they will go with the flow and do whatever they have to do, but it matters a lot to the merchants. Let’s say you walk into Wal-Mart(Wal-mart Stores, Inc NYSE-WM) with one of those ATM cards that also have a Visa logo on it, and you press the credit button, well that transaction is going to be routed from Wal-Mart to Visa to the card-issuing bank, and Wal-Mart is going to pay the Visa discount rate of the transaction. Let’s say you walk into Wal-Mart with that same card and when you are checking out, you press the debit button; you will be asked for your pin number, and then the card will route through an ATM network and back to your card- issuing bank, and not through Visa. In that case, instead of paying the Visa fee, which is a percent of the transaction, Wal-Mart would pay a fixed fee, which is typically what is assessed for an ATM card transaction. If you are talking about a five or ten dollar transaction, there is not much difference, but when you are talking about fifty or one hundred dollar transactions, suddenly it is much cheaper for the merchants to accept the ATM card transactions. That is why Wal-Mart led that class action lawsuit that Visa and MasterCard both caved in to last summer. Now merchants have the right to say I will take your Visa credit card but if you present a debit card you have to press the debit button and enter your pin number and it is going to route from the ATM network and be cheaper for me.

Merchants have become very aware of the pricing differential between using a credit card and an ATM card and because of that, what we have created is that for the first time someone can take a debit button and put it on a website, and we think it is going to be attractive and popular for the Internet market. The example I love is Delta Airlines(Delta Airlines, Inc. NYSE-DAL); if you fly in and out of Atlanta, you are a captive of Delta Airlines, and their average transaction when they sell tickets is approximately $250 . If they sell their tickets at their website, Internet merchants pay a higher rate for Visa and MasterCard than a brick and mortar business, so it amplifies the difference between a Visa or MasterCard and an ATM card. When they sell that $250 ticket on their website, lets say they had a 2% fee for Visa and MasterCard; it is going to cost them five dollars in fees to sell their ticket. If they can take their frequent customers and move them to an ATM card transaction, Delta might pay sixty or seventy cents for that transaction, rather than $5, so there is a savings of over four dollars per ticket and those are the kinds of savings that get merchants to sign up for our service.”

CEOCFOinterviews: Why hasn’t it been done yet?

Mr. Hargens: “In terms of technology, when we first sat down, because we were people that were experienced in the industry, we looked at how this has been done in the brick and mortar world, and we were smart enough about technology to see how to bring it to the Internet.  We went out and filed for a couple of patents and I think we were just the first to think it through and file the patents and start developing the software. In terms of technology, we knew how the payments world worked and we had the specific knowledge that made it possible for us to envision the technology and make it sooner than other people. In terms of the business side, things have not moved as quickly as we thought they would when we had this vision four years ago, partly because it isn’t just about technology, it is about rules and permission and the way the banking and ATM networks world works. It took us a long time to get a sponsor bank to say, “yes, I will sign on the dotted line and be the sponsor of those transactions coming from Internet merchants. It took a long time to get one of the major ATM networks to say, “yes, I will let you sign up Internet merchants,” so there were rule changes.

The year 2003 was the year that as a result of a lot of hard work, some things fell in to place to put us in the position to finally take off. We got a sponsor bank and an ATM network to cooperate; so that has made the product viable overnight for an Internet merchant in the U.S. that wants to use us. We certified and went into production, which means that we are now doing live transactions for a small handful of merchants. We were acquired by InstaPay and became a public entity and that gave us much better access to start looking for working capital when we needed to grow the business. In the middle of March, we signed an agreement with an investment banker that would give us access of up to five million dollars in the next two years, which is all public information. So all the pieces are in place including working capital.

We have some inventory now, card reader/PIN pads. We are recruiting sales people and talking to potential marketing partners. The year 2003 and early 2004 is the time when all the pieces finally fell into place after all the hard work The rest of 2004 is going to be the period when I hope to see the growth take off. Last week, we attended the Electronic Transaction Association’s annual spring conference with all the powers that be   in the payments industry that we are in. We had many good discussions out there and many pre-arranged meetings. I think that we are now in the right place at the right time and it will start to take off. So far, we don’t see competition on the horizon for what we are doing. I think many of the larger companies in the industry have held back and thought that enabling debit transactions for Internet merchants is thinking out of the box, and they have decided to let someone else do it first. I am optimistic that we have a long lead on all the potential competitors, plus we have all of our patents, so I think the potential competitors are more likely to partner with us. I am not too worried about the competition.”

CEOCFOinterviews: Does the consumer need to have this device?

Mr. Hargens: “Yes, and that is one reason why this makes sense, because it is so different from what was going on in the past, and some of the potential competitors have stood back and let us be in the lead. With today’s technology, it is easy to have a low-cost device built, where the consumer will slide the card with their pin number, and  encryption occurs in that device, and that is very important because a PC is not a secure device and you are never going to be able to make it secure. If you were to key your pin number into the keyboard on your PC, and send it somewhere, it could be stolen by hackers. Even if you had some software in your PC to encrypt the pin number, there are already viruses and worms out there that can sniff and see your key strokes before any program can encrypt them. You are never going to have safe transactions occurring, even with credit cards, where the consumers keys in information to the keyboard. This little device is very important because there is encryption happening in that device, no one can open that device and get the encryption keys, so you slide your card, enter your pin number and encrypt it in this device and then the encrypted data is passed over to your PC via a standard USB port. That data gets further encrypted into the PC and comes securely to our gateway. We then go out to the ATM network and get the transaction approved, and the approval comes back to the consumer and then to the merchant. Now it is just like a credit card transaction as people do it on the Internet today, except the consumer’s data was encrypted before it went anywhere, and it can’t be stolen. The consumer is much safer, and the consumer’s card number never even goes to the merchant, and that is where a lot of big break-ins have occurred and many credit card numbers have been stolen.

So, there is a small low-cost device that gets sent to the consumer. We are not going to try to give the device to every consumer in the world, because that doesn’t work. If I am an airline, and I am trying to sell more tickets over the Internet, and I am trying to cut down on travel agents and save money, I know who my frequent fliers are. If I know that I can save three or four dollars per ticket by getting customers to switch to their ATM card, I go to may database and find the people who buy at least three or four tickets a year. I will email these customers and tell them; “I love you and you are a frequent flier.  I have this great new transaction method, which is easier and safer, and everything is encrypted. If you are willing to use your ATM card, I will send you this device for no charge that you can plug into your PC and encrypt all your data.” Surveys done by the STAR ATM Network, which is the biggest network in the U.S., say that 80% of  consumers will say “yes” if given the opportunity to make the transaction more secure, by plugging the device into their PC. If I am an airline, I go out and contact my frequent fliers and 80% of them say “yes,” I make the investment in deploying PIN pads to those people, and I start saving dollars on those transactions. Once we get a few big merchants to make that business decision we will start to have an installed base of consumers with devices. Even merchants who aren’t willing to deploy devices would then decide to sign up for this service. We think the business model works. I think we can get large merchants because of the money they can save to deploy hundreds of thousands, if not millions of devices over time. Once the concept is proven, we can go to big PC manufacturers, and tell them of the consumer demand and if they build it in, it will help them sell more products, and if they install it and put our encryption keys in there, we might share some transaction revenue with them. It can start out at a rifle shot at frequent shoppers, and then over a period of a couple years, it can evolve to something that is used by all e-commerce customers.”

CEOCFOinterviews: Why are consumers using their debit cards today more?

Mr. Hargens: “It is (happening in) e-commerceand brick and mortar stores and not just one market. It is also every kind of transaction. There are as many answers as there are consumers. Some consumers have had problems with credit cards and have decided they aren’t going to use them anymore. Some consumers just like the idea of paying with cash and the debit card is like cash. There are probably some people out there that are credit challenged and can’t get a credit card, but for most people it is either a preference for not using credit, and not owing money or it is a preference for using their pin number because they know that there is a more secure transaction for that. Regardless of the reasons, it is a huge overwhelming shift in consumer behavior.”

CEOCFOinterviews: What is the revenue model for you when you sign up the merchants?

Mr. Hargens: “The revenue model is simple; the merchant is our customer. The consumer needs the device, but the merchants relationship with the consumer will drive that. We simply charge the merchant a fee for transaction, and that is how the whole merchant payment processing industry has worked for 25 years, so it is a well-proven model. Each time a transaction occurs, we are going to charge the merchant for the transaction. It is a great business in the sense that if you know what you are doing and you manage it intelligently, as you grow, it is very leveraged. So much of the work is done by computers, that you need a core of staff within the company to sign up customers, run the system. As you double and triple your customer base, you are not doubling and tripling your staff and expensive. Once you have enough transaction volume to cover the fixed costs of operating costs and you start to grow beyond that, transaction processing is a very profitable business. That is why there are some big companies out there in this business.”

CEOCFOinterviews: Obviously, you are going to target companies that do a large volume of Internet business, but how do you get them to take notice and be in the forefront instead of waiting until it becomes common practice?

Mr. Hargens: “In terms of companies we are targeting, there are some vertical markets where we think we will do best. If you think about the business model, where it will begin is with businesses that have frequent customers and they have to know those frequent customers so that they can solicit them. The higher the average amount being spent, the more the merchants saves, comparing Visa and MasterCard fees and ATM card fee; that tells us we want merchants with repeat customers and a high average transaction amount. One vertical market that we are strongly focused on is the airlines and travel industry in general; people booking travel over the Internet. We are looking at upscale brands that sell on the Internet because they have repeat customers and a high average transaction amount. We are looking at the market of reloading prepaid cards, and prepaid cards is another market that has exploded over the last few years, there just seems to be a strong consumer preference. You walk into the front of stores now days, whether it is Target, Wal-Mart or 7 Eleven, and you see prepaid cards, prepaid Internet, prepaid wireless, prepaid long distance. Many of the companies selling the prepaid cards would like to have a way for you to go reload that card so you keep using it and they want to get that done as quickly and as easily as possible. We think there are going to be websites that a consumer can go to, to reload those prepaid cards and we think those websites will become our customers because letting the consumers use ATM cards, to load those prepaid cards, is going to be the cheapest and safest transaction they can do.

Another vertical market that we have targeted is online brokerages; they have no way to accept their customers’  deposits in real-time except for wire transfer. There are still day traders that want to buy stock, have to rush money to their broker, then sell the stock days or weeks later and pull their money out, and a week later they are rushing money back in. When I have talked to the online brokerages, I get surprised at how many customers like that they have, and wire transfers cost fifteen or twenty bucks for the sender and receiver; if we can replace that, I think the brokerage online market will be a good vertical for us. I am sure we will find some other markets along the way. In terms of how you sell it, it is just like any new concept; you have to get to someone senior and show him or her the benefits. The cost of accepting payments is a big cost item for all these companies we are talking about. When two or three percent of your gross margin is being paid off to a credit card company; that is something you pay attention to. If there is any way to reduce those costs, then that is something that your financial officer is going to look at very closely. It is an executive level sale, and you go to them and say “here is the business case, if you can move 10% of your frequent shoppers to using an ATM card you can save X million dollars a year. When you say a million dollars, people will sit up and take notice. It is not a simple sales cycle because you are selling the concept at the executive level but the savings are very big, so it is a very marketable concept.”

CEOCFOinterviews: I would imagine all the years of experience that your people have had in this industry will be helpful in getting this concept across.

Mr. Hargens: “We are great at getting this concept across and we are good at knowing what kind of people to call on. As we build up the sales force, hopefully we will pick up a few people that have that Rolodex of fortune-500 executives who can take the message and act on it. I feel very good about that.”

CEOCFOinterviews: In closing, why should potential investors be interested and what should they know that perhaps they don’t realize when they first look at the company?

Mr. Hargens: “I think that people that are looking at InstaPay need to keep a few things in mind. I think you are best looking at a company that has real fundamentals and a management team that can execute a business plan. When someone looks at InstaPay, the thing that may not jump out at you is that unlike a lot of companies in the bulletin board world, InstaPay has a management team and a board with real solid experience. We added a couple of directors in the past year, who also spent twenty plus years in the payments industry. I have been around since God made dirt, trying to create transaction-processing systems. There is a lot of management and horsepower here and it is the kind of team that puts together a plan that makes sense. If you look at the track record of the individuals involved, they are people who have gone out and launched successful businesses in the past. We have real technology here and not many small bulletin board companies have a patent. In our recent press releases we even have a link to a website for the European Patents office so people can go and see them and know they are real. We have a real operation and we generated a little revenue last year - it was just consulting and things preparatory for real production volume. If you look at the things we have accomplished over the past twelve months, we got a sponsor, a cooperating network and actually started doing live transaction and we got our patent granted. All the pieces are coming together and the potential is slowly becoming a reality. That is the road I would suggest people look for that perhaps doesn’t pop out at you because things in the payments industry and technology doesn’t always happen as fast as we would like, but you can still see them happening.”


Any reproduction or further distribution of this article without the express written consent of is prohibited.


To view Releases highlight & left click on the company name! does not purchase or make
recommendation on stocks based on the interviews published.