Pete Kight would love to be able to tell you that when he founded his electronic payment company CheckFree in 1981 – long before the arrival of the Internet – he knew he was going to change the way everyone manages their money. It would also be beyond prescient for him to say that when he moved the company to Norcross in 1996, he foresaw becoming the godfather of the Atlanta financial technology industry cluster.
“I’d love to tell you that I had a much deeper, scientific analysis behind it,” Kight said, “but I just saw a pretty straightforward, simple equation: Digital is going to replace paper. I looked at a paper check, and I just thought there’s no way that’s going to last.”
Fast-forward to 2016, and the wired and wireless networks around and above Atlanta Tech Village are buzzing with 70% of the country’s financial transactions being processed by Georgia fintech companies, according to state economic officials. Meanwhile, inside ATV on Monday night, Kight was passing along secrets of his stellar startup success with CheckFree to those attending the ATV’s Category Creators event.
Yes, Kight was able to sell CheckFree to Fiserv in 2007 for $4.4 billion, so far the biggest exit by a local entrepreneur. But dealing with the banking industry he was trying to help usher into the future made his efforts a true gamble. “We lost money and then made money, and then lost money again and then made money. Each time the market changed, we doubled down. By my counting, we bet the company seven different times at seven different plateaus.”
Kight sat down with Hypepotamus before the event to talk about how banks approach technology innovation, the obstacles he encountered while running CheckFree, and what 2016 holds for Atlanta’s fintech startups.
What made you think that technology would not only be able to handle major financial transactions, but be able to move them in a way that would maintain the confidence of businesses and consumers?
The confidence was the really big issue. When I first brought it up, the banking industry 100 percent told me that there’s no way this will work. Businesses won’t do it, consumers won’t do it. “They don’t trust us and we’re banks.” They’re certainly not going to trust a non-bank.
The answer revolves around one of my pet theories: why entrepreneurs are usually the B students, not the A+ students. You have to be reasonably bright, but also have a selective amount of what I refer to as balanced ignorance. If I was an A+ student I would have understood more of the significant barriers that had to be overcome. I was more enthusiastic than I was the deep analytics guy who could predict how tough it was going to be. By the time I found out how tough, the trust wasn’t as big an issue as the banks thought, and we worked our way around that.
What made it tough: the technology, or banks fearing disruption?
It was a healthy balance of both. The electronic funds transfer system we used initially because it provided universality, which meant individual banks couldn’t stop us, which was critical. It was called Automated Clearing House (ACH) back then, and it was loose enough that there were a lot of glitches that we had to figure out how to overcome. We had to create a much tighter network. That was much more straightforward and knowable then all of the socio-political issues. The banking industry in general is very, very difficult to innovate. The joke is even as we were saving them from Bill Gates and (Intuit’s) Scott Cook, as we were saving them by keeping the consumer with them through our infrastructure, which we ultimately delivered through the banks, they were fighting us tooth and nail.
As you were dealing with all that, what was your lowest point in building out CheckFree?
There were two different times when the banking industry itself created conglomerates that were pulled together just to try to build what it was that CheckFree had built. The first time it happened, it was shocking. The second time wasn’t shocking, but I was deeply disappointed. These were our clients who had gone behind our backs. They were asking deeply technological questions from us, and they were using their status as clients to get additional information. It wasn’t that we thought they were going to be materially successful, that they were going to be huge threats. We became quite adept at knowing how to stop that kind of association from forming network effects. But it got to be so discouraging that an industry would act like that, because there wasn’t any way that you could say what they did was honest.
What’s the outlook for Atlanta’s fintech startups in 2016?
The biggest difficulty in fintech is predicting when the banking defenses begin to come down, as they realize they have to react to the fact that banking services are going to be delivered digitally. Those bricks are coming down one brick at a time, unfortunately, as opposed to the wall coming down. But they are coming down, and my advice is don’t burn all your money thinking you can knock the wall down. But if you’re sharp and pay attention, and you can tailor your product and spend to the right trajectory, you can pace it so as the bricks come down, you’re able to go over the top.