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Morgan Beaumont offers an open scalable, compliant debit card network in
all 50 states and licensed on a federal and state level to conduct financial transactions
from state-to-state that is appealing to banks, prime and sub-prime individuals and online
companies
Technology
Application Software
(MBEU-OTC: BB)
Morgan Beaumont, Inc.
6015 31st Street East
Bradenton, FL 34203
Phone 941-753-2875
Company Description:
Morgan Beaumont, Inc. is a Technology Solutions Company located in Bradenton, Florida, and
is one of the premier providers of Stored Value and Prepaid Card Solutions in the United
States. The company has developed the SIRE Network(™), a secure, reliable, point of
sale (POS) and PC based software platform that connects retail merchants with multiple
Stored Value/Prepaid Card Processors and Issuing Banks, in addition to private transaction
networks and IVR and CRM technology. The company owns and operates the SIRE Network as a
standardized, national network of Stored Value and Prepaid Card cash load stations located
throughout the United States. Morgan Beaumont is a MasterCard Third Party Processor Member
Service Provider (TPP MSP) and a Visa Independent Sales Organization (ISO).
Clifford Wildes
Founder, Chairman & CEO
The Founder of Morgan Beaumont, Mr. Wildes has over
20 years of executive management experience in private and public companies. Prior to
becoming CEO and Chairman of Morgan Beaumont, Mr. Wildes was the CEO and Founder of
several companies within the High Tech sector as well as business consulting services. He
was the President and Founder of Meridian Capital Inc., an investment banking consulting
firm that specializes in Mergers and Acquisitions, reverse Mergers into public shells, and
general business consulting. He is also the Founder and former CEO of Microtech
International Inc., a private company that he sold to a Japanese public company in 1995,
and is now a subsidiary of SCM Microsystems (NASDAQ: SCMM); as well as the Founder and
former CEO of Nova Interactive Inc., which he sold to a public company in 1997. From 1997
to 2001, Mr. Wildes consulted or was employed by various public companies holding the
positions of CEO, COO or Vice President, his responsibilities included interfacing with
the SEC and the operations of those companies.
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
September 14, 2006
CEOCFO: Mr. Wildes, what was your vision when you founded the
company, and how has that developed?
Mr. Wildes: “I
founded Morgan Beaumont in 2000, and I looked at it as an opportunity to provide products
and services to the sub prime market. Originally, we started marketing debit cards and
services to that particular segment. I found that one of the problems with the debit card
industry, because it was rather new and we were one of the pioneers, was that the consumer
had many ways to utilize the money on the card. Meaning, they could go to point of sale
terminals, conduct telephone transactions, go to ATMs and take cash, but the real issue
was, how do they “elegantly” put cash onto that debit card. For you and
me, it is easy, we do a payroll deposit or we have our debit card linked to our bank
account. The challenge to the sub prime consumer, which is about forty or fifty million U.S.
consumers, how do they do that if they do not have a bank account?”
CEOCFO: How did you
solve that problem?
Mr. Wildes: “We
pretty much stopped marketing products and focused on developing a national, open,
compliant, and dedicated debit card network, the SIRE Network™. It is being
deployed in numerous locations across a very large footprint in the U.S. and allows the
consumer to bring either his check or cash to the point of presence, easily deposit easily
via the SIRE Network and be able to load cash onto the card.”
CEOCFO: Are these in
check cashing places or supermarkets, and how are you spread out geographically?
Mr. Wildes: “Yes,
to all of those questions. Morgan Beaumont spent probably three years developing the
technology to deploy this particular network, bearing in mind that there would not be one
particular region or one particular sector we would be addressing, being that sub prime
consumer is found in grocery stores, gas stations, check cashing facilities, convenience
stores, etc. What we had to do was develop a technology that was scalable and easy to
deploy. That became a challenge after 9-11 because we now had to deal with Patriot Act
issues, as well as money laundering issues. We spent our time over several years
developing our technology so we support a national footprint. That footprint now consists
of over 100,000 active locations in all fifty states. Recently, we signed some initiatives
with about 48,000 pharmacies to do our point of sale adjudication, which would bring our
active locations up sometime in 2006, to about 153,000, distributed throughout the United
States. It is not any particular geographic area, although there is a concentration in
major metropolitan areas.”
CEOCFO: Are unbanked
consumers really looking for this type of card or do they need to be educated to the
benefits?
Mr. Wildes: “Yes,
according to the banks and processors that we work with, there are between 40-50 million
debit cards out there; and around 6 to 8 million active debit cards that the sub-prime
consumer is using. That is a lot of cards being used on a daily, weekly and monthly basis.
We have made the SIRE Network robust enough to add certain features to our card programs,
and onto other card programs - not necessarily programs issued by Morgan Beaumont, but
issued by other marketing companies - that increases the consumer experience to more
closely resemble a banking experience. For example, it is not just a debit card; we have a
feature enabling consumers to write electronic money orders from their debit card to pay
bills, which is very convenient."
CEOCFO: Are most of the
unbanked consumers able to do that easily and how is your typical customer going to use
the money order/check feature?
Mr. Wildes: “Most
people think of the un-banked consumer as someone who is unemployed or someone without
banking needs, from the research we have reviewed, the reality is that many of the
sub-prime consumers are, for example, restaurant workers. Seventy-five percent of the
people that work in restaurants are considered to be sub-prime because they are cash-based
and do not have a bank account. They do have the means for Internet access via home
computers, at the library, an Internet cafe or various other locations. If they have
access to a computer, they have access to a secure website anywhere in the United States
or in the world. They can now pay their bills online with an electronic money order
or they pay their bills by going to a Morgan Beaumont point-of-presence and paying their
bills with a debit card. If they are at home, they are able to print that check out and
mail it. When we did our research we discovered that the sub-prime market does
have the availability to access computers, and they can use these features and they can
use that particular feature to make their bill-paying experience more easily.”
CEOCFO: Do you have a
prepaid phone card feature?
Mr. Wildes: “That
is correct! There are companies that add prepaid phone card features onto their cards, but
those companies do not control or own the switches in the back, therefore, the consumer
may experience high rates, line outages or pretty much the experience is dependent on a
third party. Morgan Beaumont, early on, wanted to make sure it controlled the consumer
experience and was able to address their needs. We therefore, bought the necessary
switches and equipment, and we certainly have the personnel that have experience to run
Telco companies. We own MBI Services Group, which is located in Miami, and we
control the consumer experience. How we provide that experience has worked out very well
for us. It is also easy for somebody utilizing prepaid phone cards to migrate to a
reloadable debit card and to start to understand that. Additionally, we wanted to be in
the Telco business for the following reasons, most people do not know that phone cards are
supposed to be legislated at the state level, and if the card provider is not properly
licensed in that state to sell a product carrying a stored value on it, it is sold
improperly. We think this is going to be a big issue in 2006 and 2007 and a lot of
prepaid phone card companies are going to go out of business because they cannot conform
to the compliance and regulatory issues. By adding it to our cards, we are able to ensure
that the consumer who generally uses prepaid phone cards is able to carry one card in
his/her pocket, which allows him/her to make phone calls, make point-of-sale transactions
as well as write checks.”
CEOCFO: Are you
addressing the Spanish-speaking consumer?
Mr. Wildes: “Spanish
and non-Spanish; we have products for both.”
CEOCFO: Will you tell us
about the pharmacy solutions and healthcare solutions that you are working on?
Mr. Wildes: “HRA
and HSA, people generally know what that means; it means people can take money from a
dedicated account and use it to pay for medical type expenses and it is tax deductible.
The problem has been that you cannot really do that on a credit network because you are
not really extending credit, you have to take pre-tax money to conduct that particular
transaction. There was no national network that was open, compliant and certified to be
able to do this. Morgan Beaumont network became PCI certified in late December. We had
been in negotiations with a number of companies to conduct point-of-sale adjudication on
our network once it was certified. We are fortunate enough to have a relationship with
privately held Product Benefit Systems Corporation (PBS), which owns patent-pending
methodology that does part of what we do. What they needed was Morgan Beaumont’s
network to conduct what they do. Point-of-sale adjudication means that a consumer –
prime or sub-prime – has money on one debit card, and on that debit card there would
be two “purses”. Let’s say you are at a grocery store and you have milk,
bread, cough syrup and band aids in your cart, you go through the checkout and at the
point-of-sale, because Morgan Beaumont is processing the back-end and doing the
adjudication via UPC codes, we would be able to determine what is HSA-eligible or
HRA-eligible and what is not. It would distinguish what is bread and milk and what is
aspirin and band-aids. It would pull the IRS deductible items from one purse, which would
be your pretax dollars, and your milk and bread, etc. would be paid from the general
spending purse. We own the technology and the network and it is a very big market. We
recently announced that we have struck an agreement with about 48,000 pharmacies and we
are in the process of deployment and at those pharmacies you would be able to conduct
those point-of-sale adjudications.”
CEOCFO: How are you
making money on your process?
Mr. Wildes: “We
give it away to all of our competitors and allow processors to join our network; I2C was
the most recent processor to join. We are currently negotiating with other processors to
join our network, and enable their cards to be loaded on the SIRE Network®. It is simple,
we make money when they conduct a transaction on our network. We receive a small fee. We
make money when we sell our cards, when they conduct transactions; so it is a very good
business model. With respect to our phone card features, we make money when somebody makes
a phone call; that works very well for us.”
CEOCFO: What is the
financial picture of the company today?
Mr. Wildes: “Very
good! We have been spending a lot of money for a lot of years developing the network and
the technology. We have spent a considerable amount of cash and we have been fortunate
enough to establish a robust footprint of over 100 thousand active locations today. We
should have our pharmacies up and going within the next 90 days or so, which would give us
150 thousand plus footprint in the US. It has cost a lot of money; we received our PCI
certification, we built out a lot of features, we own a lot of technology and a lot of
processes. We are now in the selling mode, I think you will start to see revenues increase
this next quarter and the following quarter. We are very happy with how the company is
progressing and we look to sometime in 2007, to start to deploy the SIRE Network® on an
international basis.”
CEOCFO: How do you reach
your potential customer?
Mr. Wildes: “For
the HSA and HRA customers, via a written agreement with Product Benefit Systems (PBS),
they have distributors that work with insurance companies. We are deploying on or around
April 15th to about 2800 insurance agents that currently insure about 14
million consumers. They are going to be deploying (inaudible) for their existing lives
under contract. We are also working through PBS and their distributors, working with
various employers, adding this particular feature to their existing payroll cards. We are
also, through PBS and our own initiatives, working with some of the third party
administrators of various health programs. It is a matter of reaching the consumer that
already has an HSA account, or would like to establish an HSA account. Morgan Beaumont is
unique in that most card program managers work with one bank. Morgan Beaumont works with
multiple banks and processors. Those banks and processors are bringing all of their card
programs to Morgan Beaumont to allow those cardholders that currently have a card to
utilize the network, so it is an established base that we are tapping into. On the retail
level, many of these retail consumers currently use prepaid phone cards. Many are
currently using a Morgan Beaumont prepaid phone card, so we are educating the retailer to
educate the consumer by saying, ‘instead of buying this particular prepaid phone
card, you can pick up this debit card and have this same feature on it and your advantage
is that your money is not tied up on a prepaid phone card but on this card that you can
use for phone card, point-of-sale, ATM, or checks’.”
CEOCFO: Will you tell us
about the competitive landscape and why you are the company to succeed in all of these
areas?
Mr. Wildes: “If we
were using competitors as program managers or marketing companies for card programs, there
are probably a half-dozen program managers out there with various banks that have any kind
of size to them. I think they would be considered a competitor. The real advantage of
Morgan Beaumont, and this is why we are unique, is that we are primarily a technology
company that owns and operates an open, compliant, certified and scalable debit network,
licensed at the federal and state level to conduct financial transactions, coupled with
the fact that we are also program managers. To our knowledge, there is not another
company that can do all of that. Could somebody get into this marketplace? Sure they
could; but it is going to take a lot of money and time, and they are going to have to be a
technology-based company to accomplish some of the things that we have already done. Why
do we think that is not likely to happen? Because of our business model, we are giving it
to our competitors, we are saying you do not have to build it, here it is, just pay us
when a transaction occurs.”
CEOCFO: Why should
investors be interested and what do people overlook when first considering the company?
Mr. Wildes: “I
think the first thing they miss is saying how many cards are out there when I do not think
they understand that it is about the SIRE Network. We have a debit network and nobody has
been able to tell us about another open debit network that exists that can do what we do.
I think that our particular investors miss that it is not about issuing cards, it is about
building out the SIRE Network. That was our foundation and cornerstone to our business. If
I could speak to the investors directly, and I do from time-to-time, I would say let us
stay focused on the Network, what that means and how it is going to generate revenue in
the future. Also, what is under the surface perhaps is that Morgan Beaumont is growing
globally. On an international scale, they understand our business model maybe more than we
do in the United States. When you think in terms of having an open scalable, compliant
network in all fifty states and licensed on a federal and state level to move money back
and forth and conduct financial transactions from state-to-state, etc. That would be very
appealing to banks that want to do business as a depository in another state. It is very
interesting for bill payment, very interesting for any online company that would like to
tap into a vast market that maybe does not conduct online transactions. What I mean
by that is, if somebody wanted to buy something from an online company and they did not
have a credit card but a debit card, or a consumer that was afraid to type in their debit
or credit card on the Internet, they would be able to go to a Morgan Beaumont POP and make
that payment. Those are interesting things. That is what is under the surface, how dynamic
and scalable this particular Network is, in that it is cash and not credit based.”
CEOCFO: Do you see a
time where people will be using your services, not because they don’t have a checking
account but just because of security issues?
Mr. Wildes: “Absolutely!
Let me give you some examples. When I go on a cruise with my wife and daughter, I do
not give my daughter a card tied to my checking account because she could very well lose
that card. What I do, is have a card that is not tied to my checking account. I think,
with some of the discussions with credit card companies and banks that have debit cards
tied to somebody’s checking account or savings, it can expose the cardholder to
significant inconvenience, possible credit damage, and certainly, somebody can go in and
wipe out a checking account. It makes more sense when people travel to limit the amount of
money they have on the card and they can replenish the card from any computer or Morgan
Beaumont POP location. They can say, “I want $200, or $300 or $1000 more on my card”.
They can put it on when it suits their needs, so the exposure to the cash is a prime
benefit to anybody that was to carry our card. The exposure is limited to the amount of
cash on the card should they lose it or be foolish enough to give their PIN to someone.
Anybody that has HSA or HRA would definitely want one of our products; I think people
understand that it is better to use pre-taxed money than post-taxed money to make your
prescription purchases.”
CEOCFO: In closing, with
some many opportunities, how do you remain focused and not lose direction, as some many
have done in the past?
Mr. Wildes: “That
temptation has existed for a number of years. I have gotten a lot of pressure from
investors over the past year-and-a-half, since we have been public, to generate a lot of
revenues and go down a path that seems like it is easy, to go out and just issue cards.
However, it would result in having those cards unable to be activated and the loss
of a long-term consumer. Our initiative was to remain focused on building out our Network.
I stayed true to that core business model. It is about the Network, about SIRE,
about the banking relationships, compliance and processor relationships, so, that is our
core business. From that, now is the time when we can start to implement some initiatives.
It may look like we are going in a lot of directions but we are not. These transactions
are run from our Network and our footprint. For us, it is a transaction. For us, an HSA
account transaction is the same as a phone card transaction. We are just moving a
transaction of money back and forth, we are conducting something that goes on in the
background, but it is just a transaction. Our debit card making a point-of-sale purchase,
whether it is a payroll card or a card you picked up at a retail store, it is just a
transaction. We are a transaction based company that has recurring revenue, which is very
appealing to our investors.”
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