Matt Medlock isn't hard-wired to be an entrepreneur.
The Valentine, Neb., native was born a banker. His dad was a banker. His grandfather was a banker. His great-grandfather was a banker. All worked at First National Bank of Valentine, which the family owned.
And for most of his life, Medlock, 38, has been a banker, too. “Banking was in my blood.”
That was until last year, when Medlock founded PaySAFE, an online service that provides escrow services for consumers and small businesses to help them execute transactions safely and conveniently, while making sure that both parties get what they expected after signing a contract.
This takes a concept that long has protected homebuyers and sellers and expands it to a wider variety of transactions.
PaySAFE — SAFE is an acronym for “secured audited funding and escrow” — is like a traditional escrow account in which a third party holds funds then distributes them according to pre-determined legal terms.
PaySAFE, however, can be used by any consumer for almost any transaction where there's a lack of trust or familiarity. That means, for example, home improvement projects, landscaping, purchasing a product from an international vendor or buying a car or expensive equipment online.
A state regulator and a business watchdog urged consumers to read the agreements carefully when dealing with any type of escrow company.
While there are other online services similar to PaySAFE — like Escrow.com of Rancho Santa Margarita, Calif. and Safefunds.com of Indianapolis — Medlock said his company differs in that it's simple to use and would appeal to tech-savvy 20-somethings or grandparents.
A simple, third-party escrow solution would have helped Brian Gorton evade the headaches, financial losses and stress that came with the addition of his new deck.
Late last year, Gorton of Omaha, along with another homeowner in Glenwood, Iowa, were scammed by a company called New Exteriors and Decks that took thousands from consumers who paid for projects upfront and didn't finish the jobs, according to complaints filed with the Better Business Bureau office covering Nebraska, Western Iowa and South Dakota.
According to Gorton, he was asked for a $9,000 down payment on the deck, half of the total estimated cost, to finish the project in 10 days. Gorton agreed and cut a check.
The check was cashed within 30 minutes.
Two weeks later, work on the project started and continued for “two or three” days, Gorton said, before the contractor stopped showing up for two weeks, failing to return a barrage of phone calls or text messages.
The contractor eventually returned, but requested more money from Gorton to pay for materials. Gorton, wanting the project to be done and over with, paid him.
The contractor took the money and ran. In total, Gorton paid $12,000 and was left with an unfinished deck with no steps or railings.
Next time, Gorton said, he plans to use a third-party service like PaySAFE to handle his money.
“I think that would be an excellent idea,” he said.
According to data from the Better Business Bureau, problems like Gorton happen regularly in the Midlands, and they're on the rise.
In 2011, there were 550 complaints filed with the BBB in Nebraska, western Iowa and South Dakota regarding disputes and financial fraud related to home improvement and construction projects. In 2010, similar complaints totaled 359.
Nationally, 30,000 complaints were filed each year in 2010 and in 2011.
Some of those might be contractor disputes rather than fraud, said Jim Hegarty, president and chief executive of the regional BBB office.
“When paying in advance of performance, the customer is at risk. And, when not getting paid in advance, the contractor is at risk,” he said.
Although PaySAFE is a member of the BBB, Hegarty urged consumers to use caution when picking a traditional or online escrow service. He said customers should investigate the fine print and find out how their money will be handled, what happens in the case of a dispute and check with the BBB and other sources to make sure the escrow company is legitimate.
In addition, John Munn, director of the Nebraska Department of Banking and Finance, said his agency plans to follow up with Medlock to discuss PaySAFE's policies, including the service's terms of agreement, which waives a user's right to a jury trial and sends any disputed transactions to arbitration.
“That's not to say we think this is improper,” Munn said. “I'm just interested in learning more about it to make sure the appropriate protections are in place.”
Because of Medlock's history, he said he understands both the technical and personal sides of the contractor-consumer equation.
After graduating from the University of Nebraska-Lincoln in 1996, Medlock was working in construction lending at a bank in Colorado and saw firsthand the issues small construction firms and contractors faced when collecting money they were owed after completing their work.
Later, in 2006, Medlock took a job at First National Bank of Omaha, where he became a vice president at the company, serving as a corporate banker for large businesses.
Then in 2008 and 2009, the Great Recession changed everything, Medlock said.
He saw the construction industry dissolve. Contractors weren't getting paid and consumers were skeptical of signing a home improvement contract because they were unsure of contractors' financial health and intentions.
In November 2010, Medlock decided there had to be an answer for those problems, aside from the sometimes timely and expensive process of securing a letter of credit from a bank, or slogging through the process of securing a traditional escrow service.
In many cases, securing a traditional escrow account, which typically isn't used for small transactions like home improvement projects, can take up to two weeks. Setting up a transaction in PaySAFE takes just minutes and is similar in execution to a payment through PayPal.
“As a bank, you're typically showing up after the car wreck and trying to do triage,” Medlock said. “So, I thought: why can't somebody create a level playing field that provides that trust and create a software program that we can push the cost down so that everybody can use it, not just the wealthy and the biggest contractors in town.”
In June 2011, Medlock left First National and after contracting a handful of developers to build the backbone of the platform. The service went live in October 2011.
Medlock declined to say how many transactions have been processed, but said the company is growing and now has four full-time employees, including a full-time developer. The company makes money by taking a cut of each transaction. All deals up to $5,000 are charged a $35 fee, and transactions above that price net a fee starting a 2 percent and as little as 0.8 percent for much larger purchases.
One of PaySAFE's first customers was Conly Schulte, a 44-year-old attorney who late last year moved from Omaha to Boulder, Colo. Schulte purchased a home in Boulder that needed “a lot of repairs,” he said, but since he knew few people and even fewer contractors, he was nervous about paying upfront for projects.
So after using the traditional route for a pair of small projects and getting dinged by squabbling contractors, Schulte turned to PaySAFE, which helped him set the terms of the projects and set a fixed price that didn't allow for projects to balloon in price.
“It worked really well,” he said. “It saved me quite a bit of hassle, and the contractors seemed to like it. They were comfortable with it and liked that they got paid right away and didn't have to send out an invoice.”
Medlock, who is finding that he likes his new role as an entrepreneur, said that in a perfect world, the customer will get what he paid for, and the good or service provider will be paid in a timely fashion after every transaction.
“There's nothing more personal than money,” he said. “It ruins families, it rips countries apart, it's the most personal thing.”
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