FaceCash’s Aaron Greenspan Is Out to Kill Plastic with Mobile Payment System
For Aaron Greenspan, president and CEO of Palo Alto, CA-based Think Computer Corporation, it’s been a long road to FaceCash. The mobile payment system, which next week launches a new feature that allows shoppers to place orders before they even arrive at a store, is the result of years of work that started when Greenspan founded the company as a 15-year-old high-school freshman. It’s not a typical Silicon Valley start-up story, but he’s not a typical entrepreneur. “It’s not the kind of thing where you see a lot of people working on ten-year projects,” he says. “I see that as medium-term. I like big problems.”
In 1998, as people were flocking to the Internet, Greenspan started helping companies and individuals get set up on the Web. Soon, he had enough work that he decided to incorporate to protect himself. “I was anxious to do something other than homework, and I also didn’t want to get sued for fixing a company’s computer and find out I had given them the wrong diagnosis or something.”
Fast forward to college, and Greenspan was working on creating the predecessor of Facebook at Harvard—a Web service he called houseSYSTEM, with a social networking feature called the Face Book. According to Greenspan, houseSYSTEM predates Mark Zuckerberg’s facebook.com by about four months, and Zuckerberg was an early subscriber. Greenspan detailed the whole story in his self-published book, Authoritas: One Student’s Harvard Admissions and the Founding of the Facebook Era.
As all of this was going on, Greenspan was also working on the problems of the family business. The company sold promotional products like T-shirts and coffee mugs, but had a “really awful” order management system. So from 2001 to 2009, while finishing up college and then developing custom software for companies, he tinkered with ways to improve the family’s homegrown accounting system. But after all of that time and effort, he had a problem. “Most companies don’t want accounting software from a startup,” he says. “It’s risky enough even buying it from a big company.”
At the same time he was trying to figure out what to do with all the work he’d put into this accounting program, he was also shipping 100 copies of his book around to people he thought might be interested. Standing in line at the post office with 100 packages to send didn’t appeal to him, so he decided to ship them through media mail, a cheaper way to send books, CDs, and DVDs through the U.S. Postal Service. Media mail uses a specific type of barcode called Code 128-C. If the post office could use them and airlines could use them, so could he. “It kind of just clicked at that point,” he says. “If you could use barcodes for boarding passes, why not use them for payments?”
With an accounting backend already built, it wasn’t long before Greenspan was able to launch FaceCash, a mobile payment system that allows merchants to accept payments by scanning barcodes off of shoppers’ phones. “The basic idea is that carrying plastic is kind of inconvenient for consumers and a giant nightmare for vendors because it’s so expensive to process,” he says. Every time merchants run a credit card, they pay between 3.2 and 3.5 percent in interchange fees to the card company. But FaceCash is linked to bank accounts and works more like a debit card—you transfer money from your bank account to your FaceCash account—and FaceCash charges vendors a flat fee of only 1.5 percent per transaction.
The system also retains data from the sales and integrates with the ThinkLink accounting network, free accounting software for merchants who use FaceCash. “If you did all of your sales through FaceCash, at the end of your year you can press a button and your taxes would be done,” Greenspan says. Because FaceCash stores information about its users like their addresses, ages, and genders, it allows merchants to target coupons directly to demographics they are trying to reach, like people who live within five miles of a store, or males between 18 and 35. The coupons are also easier on merchants than signing on with daily deals sites, which often demand a 50 to 90 percent discount on their products, Greenspan says. At FaceCash, a dollar-off coupon works just fine.
For consumers, the system offers identity protection. When the code gets scanned, a picture of the buyer pops up on the register screen, allowing merchants to make sure it’s really them. (Hence the name FaceCash.) To make it work, the company gives small businesses a free cash register program that works in a browser. As long as they have a computer, laptop, or iPad, they can turn it into a register that accepts FaceCash. For bigger companies, FaceCash can integrate with fancy point of sale systems, basically by adding a button. The service comes with detailed records of purchases for consumers too, and paper receipts are no longer necessary. Frequent flier numbers or grocery loyalty program codes can be linked, and FaceCash will even figure out your tip, or split the bill for you, something a credit card can’t do on its own.
“The idea is to kill plastic, and that’s a pretty audacious goal, but it’s going to happen within the next five years, somehow,” Greenspan says.
Greenspan isn’t the only one who thinks so. When FaceCash launched, it entered a crowded field of businesses pushing mobile payment technology, including well-known names like PayPal, Visa, and Intuit.
But, Greenspan says, FaceCash is different. Most of the other companies link mobile payment systems directly to your card. “They’re middlemen between your credit card and your phone,” he says. Which means that vendors don’t get the same financial incentive they get with FaceCash.
This set-up does mean that when consumers go online to sign up for FaceCash, they have to hand over personal information, a process that takes longer than say, signing up for Twitter. But because the site works more like a bank, the company wants to give its customer the protection of a bank, and that takes time.
Others like Verizon and Bling Nation are developing payment systems that use a radio technology called near-field communications to get account information from a device or a tag into merchants’ systems. But only a few phones have near-field chips so far, and Greenspan sees the technology as “a bit premature.”
And while going up against big-name companies is intimidating—particularly for someone self-funding his company with everything he’s got—Greenspan believes everyone is really starting in the same place, with zero market share at retail shops. “No matter how big your company is, everyone has the same adoption problem, whether you’re Google or Apple or us,” he says.
So far he’s got about 20 vendors on board, including Ace Hardware and Subway, which are starting pilot programs in the Palo Alto area. He’s also targeting smaller businesses, particularly around Stanford University. “It’s a low number, but then again, a few months ago we were at six.”
To use FaceCash, merchants just have to have a CCD scanner—laser scanners don’t work with phone bar codes. FaceCash sells them for $30, and the low cost makes it possible for even really small businesses to accept their payments.
It hasn’t been out long, but FaceCash is already getting a lot of positive feedback, including requests to expand to overseas from people in places like Kuwait, South Africa, and most of the countries in Europe, Greenspan says. Unfortunately, Greenspan has enough problems expanding between states to think about crossing international borders. States can set up their own laws regarding cash transactions and business permits, which means the rules are completely different everywhere. So, while Greenspan can easily set up shop in California and New York, going into Pennsylvania would require a million dollars, while Hawaii would charge $1,000. So why the big discrepancy? “It’s not at all clear,” Greenspan says. “I think no one actually knows why these laws are still on the books.” Starting up in all 50 states plus the District of Columbia would cost about $7 million, a quagmire that effectively prevents small companies from getting into the mobile payments game across the country.
Greenspan is also keeping a close eye on the Durbin Amendment to the 2010 Dodd-Frank financial reform legislation. It does two main things: it directs the Fed to set standards for interchange fees that are proportional to the costs incurred by big companies (small banks and credit unions with assets under $10 billion are exempt), and prevents the big credit card companies from penalizing sellers who offer their consumers discounts for using other payment methods. Sounds good on paper, sure, but it’s a problem for small banks, credit unions and the up-and comers trying to launch mobile payment systems: now they have to compete with the lower rates mandated by the Fed, something many can’t afford. “There isn’t actually increased competition, because no one can enter the market,” Greenspan says.
But until Congress figures out a way to deal with the issue, Greenspan is continuing to focus on building his business, and on the successes of another big company that has started to use barcode scanning technology for payments: Starbucks. “It’s a huge deal,” he says. “They didn’t just pick any way to do it, they picked the exact same way.” He sees the similar service as a huge validation of his technology.
“I clearly believe in it,” he says. He even pays his rent with FaceCash–to a landlord who works at eBay, but won’t accept PayPal because of the fees.