Innovating in Fintech: Jason Hogg, CEO of Lending.com (Part 3)

Sramana Mitra: At that point, what did you tell them? What were you going to deliver for them?

Jason Hogg: I was going to build them the first non-proprietary credit card network in America that would simultaneously have peer-to-peer transfer capability which only PayPal had at that time. I could build a proof of concept to test out the technology with $1 million. I had provided them a budget. I had thought this all through in advance.

Sramana Mitra: You were thinking of launching this network on somebody else’s brand, and white-labeling this for other people’s brand?

Jason Hogg: No, I wanted to create a brand. I was thinking big. At that time, this concept of white-labeling was not as prolific as it is now.

Sramana Mitra: You wanted to create a brand and they were willing to finance you to create a brand?

Jason Hogg: To create a technology that would differentiate me to create a brand. The other thing that’s absolutely critical, I always feel, is I always try to seek to solve problems whether it’s fragmentation or some type of dissatisfaction. At that time, merchant retailers were greatly dissatisfied and up in arms with regards to the processing fee that credit card companies were charging. Providing them with a solution that had no interchange – that only had 0.5% processing fee versus, at that time, up to 3% – was a massive disruptor. That’s what we were looking to do – put that technology in place that would disrupt payment network industry.

Sramana Mitra: This company was going to become an investor then?

Jason Hogg: That’s correct. An investor and a strategic partner because they were a bank. They were going to look to help us be able to fund receivables, transactions, and provide the necessary licenses for us to conduct the transactions. With that, we ended up negotiating a term sheet. We negotiated a convertible debenture, and started the company in March of 2005. After I got the proof of concept up and running, it was pretty exciting because I remember being in a conference room demonstrating to all these people who all had credit card, banking, and payment experience. We set up the demonstration. They talk about MVP now. What we were trying to do was just prove it out.

We had created a system that had enabled us to scan barcodes and swipe mag stripes and various other form factors, and transmit that information securely to our server to generate an authorization, and then send it back to the point of sale. Essentially, we set up a little shop and let people use it. They were pretty amazed at that time because there was only four networks that controlled that type of transaction. At that point, we knew we had a game on our hands. We went out and went to raise a formal A round. We had the foundation of our operating system in place.

If you talk about the entrepreneurial journey, it was very good in the sense that you have to be prepared to be told no a lot. We went out and did a number of presentations all up and down the north-eastern corridor and out on the West Coast. We got a bunch of no’s and a lot of questions. It tunes you up and gets you a lot smarter because a lot of the questions were very good questions. Every time we debriefed afterwards, we’d say, “What’s the answer to that question?” It forced us to think through things at a much granular level.

After 30 to 40 no’s, we refined our story. We were out having partnership discussions. We were saying, “We have the technology. Can we begin doing partnerships?” A mutual friend said, “I’m going to be with Steve Case tomorrow. Do you mind if I show him your information here and talk to him about it?” I said, “No, that’d be great.” Two days later, I was down in Steve’s office in Washington D.C. having a discussion about what it was. The best part was, at that point, I’d been told no so many times and also, everyone was trying to carve the idea down. They were saying, “You’re trying to do the PayPal thing and MasterCard. Why not do just one of those things?” Steve was the first to ask me, “How can we make it bigger?” He was so orthogonal in his thinking compared to everyone I talked to. Steve ended up making an investment. We raised a $10 million A round. That was effectively when we constituted the business. Then it became about getting the right people and the right team.

This segment is part 3 in the series : Innovating in Fintech: Jason Hogg, CEO of Lending.com
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