The Realex world
By Adrian Weckler
Colm Lyon’s online payments company, Realex, is a big success. It employs 75 people, is consistently profitable and processed more than €9 billion in transactions last year. That’s why Lyon is restless.
‘‘Realex is entering a very strong growth period,” he said. ‘‘Our trading volume is up 40 per cent on last year and our turnover is up to €7 million. When I worked for a bank, the job was secure, but I had itchy feet. I’m getting the same feeling now.” When Lyon’s feet get itchy, he embarks on big business projects.Ten years ago, he left a ‘‘cosy’’ job in Ulster Bank to chase a dotcom dream. That dream became Realex, Ireland’s largest online payments processor. Nowh e is trying something even more ambitious.
‘‘We want millions of people around Europe to be able to pay each other and their bills online instead of using cheques. The future of money is digital. I believe that we can make it happen,” said Lyon. To achieve this, he has set up a new company called Carapay. Its modus operandi bears strong resemblances to PayPal, eBay’s money transaction service. But the service will not link to credit cards. Instead, it will link directly to any bank account in Europe. It can be used to pay bills, club memberships, school fees, bets with friends or any other type of money transfer normally conducted using cheques or cash. It will be free to use and it will be sanctioned by all European financial regulators.
Lyon’s goal is to compete with PayPal and to kill off cheques in Ireland. He is aware that this sounds just a little ambitious. ‘‘Yes, it is, I suppose,” he said. ‘‘But that’s part of the problem we have had. Over the past five years,we haven’t been ambitious enough.We absolutely need to do this.” Ireland has a love affair with cash and cheques.We withdraw more cash from ATM machines and write more cheques than almost any other country in Europe. According to the Irish Payments Services Organisation, Irish people withdraw €6,500 each from ATM machines every year – that’s 50 per cent more than the second highest country,Greece. ‘‘We also write more cheques per capita than any country bar France. By comparison,we are third from the bottom of the list of EU countries that pay for goods and services electronically.
‘‘People do want to pay money to one another electronically. There’s just no handy way of doing it at the moment,” said Lyon. ‘‘There are more than 100 million cheques written in Ireland. Why? Because your local rugby club or school can’t get merchant agreements from a bank. They can’t take Laser cards. They can’t take payments online. It’s a pain for these organisations.” If there is an Irish technology entrepreneur who has the credentials to embark on such an ambitious project, it isLyon.
After a decade in business, Realex has 3,000 business customers and processes most of the online payments made by Irish web shoppers. When internet users book an Aer Lingus flight, renew their motor tax online or take out an insurance policy with Aviva or Quinn Direct, Realex’s system is involved. Last year, more than €9 billion was transacted through the service. Realex’s latest accounts show turnover of €7 million in the financial year to the end of April, up 8 per cent from the year before. Its 2009 accounts show a profit of €621,000. Lyon owns 75 per cent of the company, which employs 75 people. The remaining shares are held by family members, other directors and a small number of the company’s original Business Expansion Scheme investors.
For Lyon, a would-be challenger to PayPal and 9,000 European banks, the road to entrepreneurship began at age 11.Together with his brothers, he formed the Clontarf Newspaper Deliver Service, which succeeded in capturing Clontarf’s best paper rounds. It also attracted prestige customers, such as Fianna Fail’s PJ Mara. Best of all, it amassed higher-than-average profit margins on each paper delivered. It did this by adopting a strategy that Lyon still uses: cutting out the middleman. Instead of dealing with shops, the Lyon boys delivered papers directly from the Irish Press, Irish Independent and Irish Times.
Some 35 years and an internet career later, Lyon is about to try the same trick.This time, he is taking on European banks and one of the world’s biggest internet companies. Lyon has only accepted external investment once, when Realex raised €320,000 in its initial BES scheme (it has since bought out half of those investors). But given the scale of what he wants to do with Carapay, he is considering taking on outside capital. ‘‘This time, we’re open to bringing in external investors,” he said. ‘‘To scale this up and get the traction we want could require more funds. We are talking to some equity houses at the moment to brief them on the product. But, if we get this right, the VCs [venture capitalists] will be knocking at our door.”
No one in the Irish technology industry doubts that Lyon has the perseverance to give his latest initiative a real go. After leaving Ulster Bank to set upRealex, his first full year out on his own was tough. Money ran out. Lyon had to sell his car to keep his finances afloat. He had to use professional contacts to try and get resources on goodwill. ‘‘John [Mooney, future Realex director] was emigrating,” said Lyon. ‘‘So he gave me his car, an old wrecked Honda with a leaky roof. Niall O’Cleirigh [founder of Macalla Software] let me use part of an office in his building. Stuart Fogarty [formerly of McConnells Advertising Agency] gave me great help and advice.
‘‘John Fleming [new media director, Thomas Crosbie Media] let me use some office equipment. These guys were brilliant to me. I’m sure they were also sick of me banging on about online payments.” Eventually, Lyon’s ‘‘banging on’’ secured Realex its first customer, Dublin ski operator, Directski.com. Soon after that, the company landed several seminal customers, including Aer Lingus.Then global customers started to call at Lyon’s door.
Today, Realex’s stable of clients includes international web operations such as Virgin Atlantic and PartyPoker.com. Mooney, an old friend from University College Dublin, remains on the board of Realex. In 2006, the company attracted a heavyweight chairman in the form of Laurence Crowley, former Bank of Ireland governor. The company has offices in London and Paris, as well as its main Dublin office. This September, Realex hopes to commence business in Italy.
‘‘We have a commitment from a bank in Italy which will open that market up to us in September. In Britain and Ireland, we’re trading with every bank and we’re starting to do the same in France,” said Lyon. It is Lyon’s exposure to payment methods in other European markets that is driving his enthusiasm for Carapay. Cheques have been virtually obsolete in Scandinavia for five years. In Holland, Germany and other northern European counties, they are being phased out.
‘‘We went looking for payment methods that have gained acceptance across Europe, and found systems like Ideal in Holland,” said Lyon. ‘‘Ideal is accepted by 89 per cent of websites in Holland. If you want to book a flight with KLM, you get redirected to your bank, which asks whether you want to continue with the purchase. Once you confirm this, the money goes from your bank account to KLM. It’s integrated.” Lyon believes that he can deliver this type of service Europewide. But because of the quasi-banking nature of Carapay’s service, he has had to get a special ‘payments service licence’ from the Irish Financial Regulator.This is a new instrument created by the Payment Services Directive, a law backed by former European Commissioner Charl i e McCreevy.
Lyon insists that using the service will be free to consumers paying others from their account, giving it an edge over cheques.They will have to pay an unspecified flat fee every time they transfer money from their Carapay account back into their bank account. For businesses, Lyon is banking on the fact that it will knock out the fees – up to 3.5 per cent per transaction – that retailers must pay for the use of credit cards. Lyon concedes that the entire business plan is very ambitious and there will be many institutions betting that he fails. But he knows a thing or two about sticking the course.
‘‘Business is really about perseverance and waiting,” he said. ‘‘Many people just slink home after a year with their tail between their legs. But we’re still making a profit and the cash is going up. If you asked me five years ago would I do this, I would have said no. But now I think, why not? It can only go wrong.”
