College of Science & Engineering Alumni Newsletter
Spring
2000
From Physics to Credit:
a Tale of Entrepreneurship in Cyberspace
How two former physics classmates
built one of the most valuable online finance properties and defied the
IPO craze
QSpace.com
is known as “the leader in online credit”. The first company to design,
develop and successfully market secure consumer credit reports over the
Internet has provided its customers with personalized tools to manage their
individual credit online since 1997. The firm is a pure Internet play,
yet you cannot find its stock on the NASDAQ.
With
thousands of affiliates and co-brand partners, including Yahoo! and Microsoft,
QSpace.com runs the largest online financial services affiliate network,
built in less than 16 months, reaching a massive number of consumers with
offers for individual credit reports, credit information, credit management
tools and loan referrals. It maintains long-term exclusive relationships
with such Internet financial services leaders as DaimlerChrysler Services
(debis) AG, Ford Motor Credit, Mellon Bank, First Union Corp., Digital
Insight and E-Loan.
The
company has won numerous industry and media distinctions, including Smart
Computing's Web's Best Bank and Investment Sites Award, the Top 20 Financial
Services Innovators list from the Online Banking Report, and Yahoo! Internet
Life Incredibly Useful Sites.
Behind
QSpace.com are two 29 year-old San Francisco State University former physics
classmates, I.O.A. "Ike" Eze (BS ’92, Mechanical Engineering) and
Arash
Saffarnia (BS ’91, Physics; BS ’94, Mathematics and Computer Science).
They started QSpace.com in October 1996 with a simple, but powerful idea:
provide consumers with their credit information before they begin shopping
for such big-ticket items as a home or car, or searching for an apartment.
"We
wanted from the beginning to revolutionize how consumers think about credit,"
says Eze, QSpace.com co-founder and Chairman. "The idea was to make it
easy for everyone to confidentially access, monitor and use their personal
credit information with a few clicks of a mouse."
Previously,
this information was difficult to acquire, and often entailed days of waiting
for a credit bureau to send a written report. The situation proved particularly
frustrating for consumers who were denied credit but wouldn’t immediately
know why. QSpace.com telescoped that process down to a few minutes and
extended the service with such innovative features as an online credit
analyzer providing a free projection of consumers' credit status and borrowing
potential.
A
key factor in QSpace.com immediate success was proprietary, a multi-step
authentication that protects consumers from having unauthorized persons
gain access to this highly personal information. Just one day after launching
a competing online credit reports service in August 1997, credit bureau
Experian pulled its service from the Web because of technical glitches
that resulted in more than one customer receiving someone else’s credit
report. The episode and ensuing public criticism over privacy concerns
left the entire credit industry scrambling for cover, giving QSpace.com
an undisputed leadership in the online credit space.
"Credit reports contain
significant information on more than 190 million Americans, every adult
in the United States," adds Saffarnia, QSpace.com co-founder and Chief
Operating Officer. "Our early challenge was to carry that information to
the entitled recipient over a secure connection in seconds."
Saffarnia's previous endeavors had indeed prepared him for such a challenge.
The native of Iran and recipient of three B.S. degrees -- computer science,
applied mathematics and astrophysics -- was working towards a Ph. D in
physics when he landed a coveted internship at Lawrence Berkeley Laboratory’s
(LBL) Advanced Light Source group and was asked to do some research on
the Internet. His next job left Saffarnia well suited for developing the
software that would provide QSpace customers with a secure environment
to conduct their transactions.
After leaving LBL, Saffarnia became a software engineer at Hughes Itek
Reconnaissance Systems, where he developed custom applications for U.S.
military communications satellites and for commercial clients worldwide.
Saffarnia also worked on custom software and hardware developed to transmit
secure data across T1 and T2 high-bandwidth telecommunication lines. In
addition, he was responsible for porting large industrial-grade applications
from MS-DOS to the UNIX/Solaris environment and worked closely with Cisco
Systems and Silicon Graphics to upgrade their communications backbones.
In the meantime Eze, an Osberg Scholar, had landed his first job as Special
Project Engineer at Pacific Bell. There he developed a novel procedure
for predicting the risk of failure on operation-critical switching and
building systems, which Pacific Bell still uses at its central offices
throughout California.
The Nigerian-born Eze
received his introduction to the Internet on a special assignment for Bechtel
Corp., where he went to work as a Marketing and Business Specialist, overseeing
construction projects and developing strategies for demilitarization in
Eastern Europe and China, after leaving Pacific Bell. His analysis showed
the Internet could provide Bechtel National’s Marketing and Business Development
Group with a competitive advantage in contract management.
The two college chums stumbled onto the burgeoning world of e-commerce
almost by accident. Intending to return to graduate school after their
first professional exposure, they were looking to start a portable business
they could run on campus from a laptop computer. One day a friend complained
about the frustrations of paying for too many credit checks while looking
for an apartment.
“We thought ‘wouldn’t
it be great if you could somehow go on line and get your credit report’,”
Eze recalls. “It just seemed like exactly the type of service the Internet
was designed to provide.”
They
went to work within weeks, putting together the blueprint for a secure
document delivery system over the Internet. The next step was to convince
credit bureaus that the procedure would work flawlessly. They successfully
went live in July 1997 after raising $100,000 from a private investor,
18 months of intensive lobbying, and a few technical improvements. The
speed and ease of use of QSpace.com captured the attention of the e-commerce
world like a storm.
Eze
and Saffarnia immediately knew they had a successful service, but no business.
They decided to build one. Over a year of talks with the credit bureaus
had convinced them that they should address the fundamentals of establishing
a strong company, instead of succumbing to the attractive proposition of
instant wealth, which was the prevailing culture amid the rapid fire of
IPOs. Rejecting several buyout offers and the "built-to-flip" mind-set
advocated by VCs, they kept on adding tangible value around their service,
bringing together a world class team, working diligently to build strong
partnerships, improving customers' experience, and keeping their eyes on
the bottom line in order to conserve cash.
This
strategy paid off in the summer of 1998 when Bill Melton and Steve Crocker,
the founders of CyberCash, injected $2.5 million of their own money into
QSpace.com, the only time the company substantially raised cash since its
creation, and Yahoo! agreed to provide online credit reports to its users
in an exclusive multi-year deal that was ranked by the Online Banking Report
among the top 10 online financial services milestones of 1998. It didn't
take long for the news to spread like wildfire, spurring demand for similar
partnerships from dozens of Websites. QSpace.com was prepared to respond
with a scalable Web architecture that allowed its technical team to automate
the creation of co-branded sites. Officially launching its affiliate program
on December 1, 1998, the company has multiplied its online partners over
100 times since January 1999, broken the million users ceiling and introduced
several new services.
Now
employing 35, QSpace.com rates as the best overall online credit site;
mainly because of its intuitive Website, strong customer service which
can answer all consumer e-mail complaints within 24 hours, up front offers
and individual customer profiles allowing users to repurchase credit reports
or apply for loans with a single click. A monthly newsletter informs consumers
about credit in general and the institutions that store credit information,
as well as credit fraud and protection. Online Loan Referrals provide a
side-by-side comparison of loan offers from some of the nation's leading
Internet lenders such as E-Loan, iOwn, CarFinance and NextCard.
On
the business side, QSpace.com chose the wisdom of pursuing a goal of profitability
from its inception. Proceeds from its lucrative credit reports business
were utilized to develop a loan decisioning engine which will be used by
hundreds of community banks and expand the reach of its core service. Shying
away from the expensive advertising that characterizes the marketing of
Internet companies, the firm saved millions of dollars in equity and patiently
built a strong distribution network that positions its services in front
of Web surfers who are the most likely to need it better than any competitor.
Who said the laws of
physics and business are so different? Business velocity is a function
of displacement in a certain direction over a certain period of time. IPO?
Eze and Saffarnia don't say no to the option. For now, their company has
clearly made the significant contribution they set it to achieve back in
1996 and inspired a few copycats in the process -- millions of Americans
ordered their credit reports online in 1999. They continue to build QSpace.com
to withstand competition and deliver sustained value, with a commitment
for a long-term view and allegiance to the customer.