Why, asked Kight, couldn't they arrange to have monthly dues deducted from members' checking accounts? Kight quickly began negotiating with local banks to do just that -- forever changing how millions of Americans pay bills.
In 1981, working out of his grandmother's basement in Columbus, Ohio, Kight forged a business out of electronic bill paying. Hiring a programmer to write software for his venture, which in time became CheckFree (CKFR
), he focused first on automatic payment of recurring bills at several dozen local health clubs. Then he turned to insurance firms that were looking for a predictable way to collect customers' monthly premiums: "We taught the marketplace how to do standing-order payments." But when he sought help with funding, more than 30 venture capitalists turned him down. (One called his operation "an interesting idea by a broken-down ex-jock.") So Kight turned back to the insurance companies to underwrite the next leg of his company's growth.
That came with the spread of personal computers in the mid-1980s, giving Kight the necessary conduit between consumers and billers. But some major billers were still unwilling to accept electronic payments, so Kight had no choice but to send paper checks on behalf of consumers who had authorized him to pay their bills. To pressure the billers, he made sure all of his customers' checks arrived at the same time, in large mailbags. He dubs the strategy "paper pain," and says that "it eventually did work."
In the early 1990s, major banks and software companies jumped into the bill-paying game, including a consortium comprised of Microsoft (MSFT
), Citicorp, and First Data. "They all thought they could create a technological shortcut," says Kight, "but there is [none]. They underestimated how hard the details of the business are." Foremost, he says, is learning the idiosyncrasies of the different financial institutions and adapting to them.Today CheckFree handles nearly 800 million transactions a year, giving it more than 50% of the online bill-paying market and more than $750 million in revenue.
As a philosophy major at California State University in Bakersfield in 1977, Kight wasn't a devoted student: "My real major was the pole vault," he jokes. He dropped out when he tore a hamstring his senior year. To pay his rent, Kight hosted a bodybuilding competition at a nearby auditorium, which led to a position as editor of Muscle Digest. Kight spent the next couple of years writing about leading bodybuilders, including a rising star named Arnold Schwarzenegger.
Now Kight's goal is to provide the back-office infrastructure for Wall Street firms to offer "separately managed accounts," wherein money managers create a customized portfolio for each investor. To date, these individualized portfolios have been more costly to offer than traditional mutual funds. By automating and streamlining the handling of each portfolio, Kight believes he can change the way Wall Street manages money. "We're two years away from allowing the separately managed account industry to reach the same low costs as the mutual fund industry," he says. Just as electronic payments are replacing checks, "a tailored account is going to win out over mutual funds." By Dean Foust