Next on Neteller's Agenda: The World

The year 2004 was a smashing success for online money transfer provider Neteller.

The company's April 14 initial public offering on the Alternative Investment Market of the London Stock Exchange at 200p per share raised £30 million. Now, exactly one year later, the company's stock price has more than tripled to 666p. Earnings per share stood at 28p at the end of '04, and the company reported a 20-fold increase in pre-tax profit to $45.8 million. Close to 2,000 new customers are signing up to Neteller every day, and the firm just recently registered its 1.5 millionth customer. Progress is expected to continue as the company works toward its "mission of becoming the world's leading money service system."

A great deal of Neteller's success can be attributed to the growing popularity of Internet gambling in the United States, but the company is also positioning itself to become a truly global operation.

At the end of May 2004, Neteller announced that it had officially completed the relocation of its corporate headquarters from Calgary to the Isle of Man. The island's central location gives the company access to its three primary geographic locations--North American, Europe and Asia--and permits it to better understand those markets. The Isle of Man also offers extremely low tax rates to corporations like Neteller.

In February 2004, Neteller launched what it calls the first phase of its global currency payment platform: an initiative that enabled its members and merchants to begin conducting transactions in British pounds, euros and Canadian dollars in addition to U.S. dollars.

The company's Neteller UK Limited subsidiary received permission from the British Financial Services Authority in October 2004 to begin operating as one of only a small number of legal e-money issuers in the European Union. The British Financial Services Authority was one of the first regulators to implement the European Union's e-Money Directive, which was created to insure consumer protection and to create a level playing field between banks and online payment providers and to maintain.

"We intend to passport this regulated status into all 25 European Union member states, opening previously untapped markets for the company," Neteller President and CEO Gord Herman explained. "This will enhance our competitive advantage in our pursuit of full-scale penetration of the European market, as unregulated companies that operate in the European Union in this sector are likely to come under increased scrutiny by regulators."

Neteller is also hoping expand further in Asia. Toward that end, the company in March 2005 acquired Quick Access Limited, a Macau-based debit card payment processor whose 1Pay online payment transaction system already serves online gambling operators targeting the Chinese market. The acquisition should enable Neteller to continue as a preferred service provider to its merchants that are developing services in China while also building the company's global brand presence. Herman says the Quick Access acquisition is only the first of several initiatives in Neteller's planned launch into Asia.

Although global expansion is no doubt Neteller's primary business strategy, the company has not neglected to expand its product offering. Last year it introduced its Direct Accept product for merchants, whereby online consumers can instantly deposit funds directly with the merchant picking up the transaction fees. The company reports that "the product has proven to be very popular and has resulted in shifting some members from no-fee EFTs (Electronic Fund Transfers) to fee generating transactions."

Neteller had 590,000 users in the beginning of 2004, with an average of 910 new customers registering every day. Membership swelled to 1.25 million by the end of the year, with 1,821 average daily signups. Annual revenue rose to $82.6 million, a 130 increase compared to 2003, and pre-tax profit rose a staggering 2,000 percent from $2.2 million to $45.8 million. The company expects its profits and numbers to continue at a strong pace in 2005.

What's Next?

Herman is hoping to form a joint venture between Neteller and a bank by the end of the year so that Neteller can perform instant cash transfers similar to those carried out by Western Union. With nearly 2,000 new signups every day, Neteller can offer some attractive benefits to any bank looking to acquire new customers. The fact that Paypal--an online payment processor that does not conduct transactions for gambling services--recently formed a partnership with GE Capital to offer consumer credit deals makes a future Neteller joint venture seem likely.