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StockHouse.com Interview - May 31, 1999
Doug Steiner, CEO of Versus: Has Captured 15% of the TSE & ME
Business; Some Days up to 40%. More Alliances to Be Announced
• • •
VERSUS Technologies Inc., together with its wholly owned subsidiary VERSUS Brokerage
Services Inc., is a leading provider of electronic securities trading services to the Canadian
marketplace. VERSUS develops, distributes and provides access to electronic securities trading
services and related products for both retail and institutional investors through its electronic
trading network.
VERSUS continued strong revenue growth in the second quarter ended 31 March 1999, the
Company's inaugural quarter as a public company. The significant growth in revenue was driven
by VERSUS' retail trading business, E*TRADE Canada, which contributed $1.8 million in revenue
for the second quarter, an increase of 230% over the second quarter of 1998, and up 64% from the
first quarter of fiscal 1999. To view the E*TRADE website, visit www.canada.etrade.com
StockHouse spoke with Doug Steiner, CEO of VERSUS, about the company's retail trading
business, security issues, future challenges and the explosive growth potential for online trading.
• • •
StockHouse: You seem to be 'the' player in terms of online trading these days. Where do you see that
going?
Doug Steiner: We have been in this business for almost six years now. We have been preaching the
gospel, and people have slowly been converted. It has only been in the last nine months that people have
really figured out that what we are doing is not only good for the retail market, which is our newest
business, but it is also a very large business on the institutional side.
StockHouse: It may be slow, but the numbers are certainly coming in now, it seems.
Doug Steiner: We are the preferred method of entry to the Toronto Stock Exchange by the buy side,
and we are trying very hard to make sure that the inter-mediation costs, the actual commission costs
and market impact costs, are as low as possible just by using a telecommunications interface. We are,
on some days, delivering up to 40% of the orders to the Toronto Stock Exchange. It is much different
when people look at Versus Technologies; we are very proud of the E*Trade business we are doing and it
is growing very fast. However, I think people are losing sight of the fact that we are a very large network
processing literally tens of thousands of orders a day for all the major investment dealers as well.
StockHouse: How safe is your encryption hardware?
Doug Steiner: I think the safety issue is still on people's minds, but it is not a big issue any more. We
have taken great pains to tell people that when you are in a restaurant, people walk away with your Visa
card information, and people feel okay doing that. We have not had a single problem in retail with using
the encryption technology. We have processed probably upwards of ten billion shares and haven't had a
problem in the institutional market either. For people who understand what we are trying to do, and the
fact that we are running a private network which is very difficult, never impossible, but very difficult for
people to get into. I think it is an issue that people are feeling more and more comfortable with.
StockHouse: What is the difference between the retail and the institutional side of the business?
Doug Steiner: Retail access is VTN, which is the Versus Trading Network through E*Trade Canada on
the Web. For retail customers, the transaction is approved through order guiding, and nobody can buy
securities, for example, without the appropriate funds in the account. They can't sell a security without
the security in their account, so it is a fairly generic business in terms of online. So there is an issue
there that we don't take risks and the client doesn't take risks in terms of buying more than they should.
The institutional market it is quite different because we have rules. The TSE says if you are a qualified
institution [and] you have assets of one hundred million dollars or more, you can get direct access. They
rely on the capital that we have in our brokerage subsidiary to complete trades and we have not had a
failed trade in the institutional business since we started.
It's not so much an issue now of safety, it is an issue for us of how big can we make this business.
When we started this business we thought that we might be able to capture 15% of the market. We now
have captured 15% of the combined trading on the TSE and the ME through the network, of which a
great proportion is on the institutional side. We now feel that we're going forward because we can do a
lot more things with the trading that we are doing. We have stated in our prospectus that we are very
interested in trading other securities besides equities. But we are also very interested in matching
securities as well, which we don't do right now.
StockHouse: That's something that you are looking at?
Doug Steiner: Very definitely. It is a very exciting time in our business. It took a long time to set it up.
We have very good and longstanding clients - like Goldman Sachs, Merrill Lynch, RBC Dominion,
Nesbitt Burns - all the big names in the industry. People are very focused on us making announcements
and I think people appreciate that what we are trying to do is show people that we are a steady
business. Our institutional business makes quite a bit of money for us - we are investing in the E*Trade
brand.
We don't want to be viewed as the next great thing. I think in terms of a short-term thing, we are trying to
change the way people are trading and we are reaching some success. We feel we'll win because
eventually the whole market will go electronic. We will not have people dealing on the phone five years
from now, and our opportunity is - can we capture that entire market?
StockHouse: So you see investors eventually just leaving their full-service and trading exclusively with
the E*Trades and the Schwabs?
Doug Steiner: No, I think they are going to be communicating with advice givers electronically much
more so than just picking up the phone because people want information given to them in digital format,
in hard copy. I think what is very important is, as people ask for certain things, the value that they are
getting is going to be given in the advice. People pay for a lot of bad advice from brokerage firms, and
now people are starting to focus on getting good advice and good information.
What we are trying to do is provide people who are intelligent with the information they need to make
their own decisions. It is a very different market. There is still going to be a huge business for good
advice giving intermediaries and good brokers, because there are many people who want to have good
advice and good financial planning advice.
StockHouse: There are growing numbers of investors who are interested in trading online. Is this just the
tip of the iceberg for the industry as a whole?
Doug Steiner: There is a huge demand, in our opinion. We are into a stage now where we are seeing
the initial clients we had were your 35-year-old engineer from a high technology company. The people
that are walking in here opening accounts [now] are in their 50s and 60s and are very comfortable with
interactive voice response and with Web access and don't see it as any different from any other method
of getting financial advice, which is very encouraging for us. This business is definitely going mainstream
as people like Schwab are coming into the market. We are also excited about that, because the more
people that preach the gospel in terms of where we want to see it go, then it becomes a mainstream
business.
We have the marketing muscle of the E*Trade brand in the US. We don't pay for the ads on CNNfn - that
is [the US] E*Trade spending $250 million a year. We get a huge amount of [customer] spillover, and we
have that brand in perpetuity in the Canadian market. It has been a huge help for us. We have more
people say 'I love your ads.' They are not our ads. I think we have been able to compete very effectively
with Green Line.
When we did the deal with E*Trade in 1996, they had 130 people. They have 2400 people working in that
firm now. We are hoping that we can follow their success. But the nice thing for us is, we are not
pioneers. We can lean on people like the E*Trade group in the US to give us some expertise in terms of
marketing programs, in terms of how to educate customers, in terms of what works and doesn't work.
We can compete in this market and because we run this network, and because we process so many
transactions at the back end, we feel we are the cheapest provider of brokerage services already in the
Canadian market.
StockHouse: E*Trade in Canada certainly has a sizable following.
Doug Steiner: For us it is very important. We have to have a rock solid Technology. We have to be
upstanding corporate citizens and the people who work in this company. This company is growing like a
weed and keeping this place going - and the energy that is in here compared to any other place - is
astounding. The fun thing for me is I started in the business, I used to be a VP and Director at RBC
Dominion, based on a notion that you can have fun in this industry and not take yourself too seriously,
but take your customers very seriously.
If we really want 10 million shares a day to be the average daily volume in our liquid securities instead of
400,000 shares, we are going to have to adopt an electronic algorithm like they have in the US. So you
can have half a cent bid/offer spread and you can do a transaction for $15. So people feel comfortable
buying a thousand shares, or 5,000 shares and holding it for an hour and selling it, because that is what
adds liquidity to the market. I think what people are starting to realize is, instead of spending 5 cents a
share on a trade at the dealer level, they might only be able to charge a penny or two, but they are going
to get five or six times as much business, so in the end they are much better off.
StockHouse: What would you say is driving you right now?
Doug Steiner: The most exciting thing for us is that this summer the Ontario Securities Commission,
as well as all the other commissions in Canada, are going to have new proposed rules for securities
trading in this country, which is going to allow competition for electronic trading systems. We are
excited the most about that, because we have terminals in every major institution in this country, save a
handful. We have electronic connections to every exchange in the US, and we want the Versus Trading
Network to be the highway for financial transactions, like Interac is the highway for cash transactions in
this country. You can look forward to more strategic alliances and more announcements in that area with
regard to ways that we are going to expand that business.
StockHouse: Does E*Trade tend to be a bit of a tail wagging the dog?
Doug Steiner: Quite honestly, it was in January and February, but right now our focus is year 2000
compliance, which is the biggest effort of any technology company. Upgrading our server technology, we
are trying to get to a stage where we can handle one hundred thousand transactions simultaneously.
And then going into the fall, and into the RRSP season again, building the brand and sitting out there
saying we are an alternative to the banks in terms of deposits. We are doing it cheaper and we still want
to be the market leader in terms of commission and flat fee pricing and mutual funds for no
commissions.
StockHouse: How are you going to stay competitive in this increasingly competitive market?
Doug Steiner: The market is telling us to invest everything we make, which we are doing. We are
making money in the institutional business, and the money we have raised is going into building the
profile and the brand. We raised slightly over $53 million in the public issue. We have some unexercised
warrants from private placements, which adds another few million dollars, and we had seven or eight
million dollars on hand before we started. Nine months ago, we were looking at a company with seven
million dollars and now we have one with nearly ten times that amount of money. We intend on safely
deploying those funds in the market to build our brand and our reputation.
StockHouse: What would you say are your biggest challenges?
Doug Steiner: Finding great people is always the biggest issue. We feel that finding customers on the
Internet, plus institutional customers online, will never be easier than it is now. We started this company
with three people and we have a good reputation in the market and a great market share in Canada. We
just want to get better. I want to encourage other people, if they want to get into the online and the
Internet space, to go as fast as they can, because you can do it from nothing.
StockHouse: At the end of the day, what would you say sets you apart from the other guys?
Doug Steiner: I think we have great technology here and we are trying to make it easier to use all the
time, but in the back end it is complicated. One of the key ingredients to the success of the company is
the technology, which is outstanding, and a very, very good group of people, but also, there is a general
tone around the company of 'we're doing it because we are having fun.'
StockHouse: It sounds like your corporate culture is a good one.
Doug Steiner: Yes, it is very cohesive. When we went public, we made sure that [our] people
understood the ramifications. This really does provide for us a new place from which to grow and people
have been very energized by that. We are very focused on making sure we don't blow it, which is very
important because many people are pioneers and end up leaving the road to somebody else, and we
don't intend on doing that in this business.
StockHouse: Your revenues are looking good, but you are still operating at a loss. When do you expect
this to turn around?
Doug Steiner: I think if you look at our prospectus you will see that the core business, which is the
institutional business, is actually quite profitable. We are investing in retail for two reasons. One is
because you won't get customers on the Internet cheaper than you will get them now. It costs us just
over $300 to acquire a new customer, and those numbers are going up quite steeply over time. We are
two years behind where we are in the US in terms of customer acquisition costs. We are spending as
much money as we can acquiring those customers on that $300 level.
You make money in the retail business two ways. By trading transactions, and they are going up
geometrically in this business. Also, when you get the confidence of a customer, they will leave money
on deposit and you do make money just like a normal bank does, taking a spread. Now, our spread is
quite a bit smaller than a normal bank, and we do get trailer fees from mutual funds. We are in a
business of scale and how do you get your scale? You have to spend money marketing to get the
customers in the door.
We have told people we are going to run this business at a loss for a period of time. The market has
accepted and basically embraced that; you can see that in our stock price. And we have gone to great
pains to tell people we will not be profitable for quite a period of time.
StockHouse: How much money is in your treasury right now?
Doug Steiner: North of $50 million.
StockHouse: What brokers are you working with?
Doug Steiner: Goldman Sachs, RBC Dominion, Nesbitt Burns, Merrill Lynch, TD, Yorkton. There are
fifteen in total. They use and rely on our technology to various degrees.
StockHouse: Will you look at a private placement down the road?
Doug Steiner: We don't anticipate we are going to need more capital for quite a period of time.
StockHouse: How many shares are outstanding right now?
Doug Steiner: Around twelve million.
StockHouse: Who are your major shareholders?
Doug Steiner: RBC Dominion Securities, Altamira and myself.
StockHouse: What is your percentage?
Doug Steiner: 8.3% of the company.
StockHouse: You must have US based shareholders?
Doug Steiner: We do - maybe 10%.
StockHouse: Fiscal projections for 1999?
Doug Steiner: I wish I could tell you. This is not an Internet story in search of cash. This is quite the
other way around and I want to make sure people understand, because there have been a lot of
comparisons between us and some of the other Internet plays in Canada.
We have a long history in this business. On the institutional side, I expected it to be embraced much
faster than retail, and all of a sudden over two years the retail has completely blown by the institutional
business in how fast people are using this. The standard [to] which we are being held for customer
service is something that will be a competitive advantage in the future.
StockHouse: Thank you, Mr. Steiner.
Disclaimer: The opinions expressed herein do not necessarily represent the views of StockHouse Media Corporation or any
subsidiaries or affiliates thereof.
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Daily Bulletin - Canadian Markets Quiet, IWM, ECG
May 31, 1999
The Market
American markets were closed today for the Memorial Day long
weekend. As a result, Canadian traders and indices had a quieter
day than usual. The TSE 300 Composite index rose 39.10 points to
close at 6,841.80 on a day when eleven of its fourteen major
subindices gained ground. The VSE Composite index also inched
higher, up 2.67 points to end the day at 455.92, and the Alberta
Stock Exchange index added 10.22 points to finish up at 2439.11.
Infowave Software [IWM:VSE]--Continues Upward Move
Shares of IWM continued to climb today, likely in anticipation of the news release we have noted is on the way.
Obviously, we are not certain of exactly what will be announced, but the more optimistic IWM followers are
looking for a new distribution or marketing agreement from the wireless division, but we could also see
confirmation of the completion of the private placement.
Infowave shares gained another $0.23 to close at $4.23 on lighter-than-normal (U.S. holiday) trading volume of
76,000 shares.
Envoy Communications Group [ECG:TSE]--Narrowing Trading Range
Envoy traded between $7.70 and $7.95 today, closing at $7.85, down a dime from last week's close. Judging by the
low trading volume on Friday and today, it appears much of the trading in ECG shares is already coming out of
the U.S. With that said, investors appear content with the current share price (hence, the narrow trading range),
and they are waiting for an official announcement related in some way to a southern listing. Our sources say
news on the subject is expected in the near future, and experiences such as Bid.com [BII:TSE/BIDS:NASDAQ]
suggest there might be a pleasant surprise in store for shareholders if/when that news comes.
Insider's Quote Screen
Insider's Choice
Name
Symbol
First
Mentioned
Today's Close
Comment
Microforum Inc.
T.MCF
11/25/98
$6.650 (-0.050)
E-commerce
software and
marketing
LaserMedia Communications Corp.
LZMCF
11/12/98
$0.715 (EVEN)
Virtual Health
Club,
www.actfit.com
Infowave Software, Inc.
V.IWM
12/24/98
$4.230 (+0.230)
Successful printer
technology
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Name
Symbol
First
Mentioned
Today's Close
Comment
Gold Reserve Corporation
T.GLR.A
11/23/98
$1.650 (-0.100)
Attractive gold
hedge
Lions Gate Entertainment Corp.
T.LGF
12/14/98
$3.200 (+0.190)
Entertainment
production and
distribution
Envoy Communications Group Inc.
T.ECG
1/27/99
$7.850 (-0.100)
Integrated
marketing and
communications
company
CECO Environmental Corp
CECE
2/18/99
$3.625 (EVEN)
Environmental
controls company
Not To Be Forgotten
Name
Symbol
First
Mentioned
Today's Close
Comment
Cantex Mine Development Corp.
C.CD
12/8/97
$0.110 (EVEN)
Gold, base-metal
and diamond
explorer
Dynamic Ventures Ltd.
C.DVL
5/13/98
$0.100 (EVEN)
Exploring and
developing
Mexican properties
Net Nanny Software International
Inc.
V.NNS
6/1/97
$0.950 (-0.020)
Internet filtering
and security
software
Pallaum Minerals Ltd.
C.PLM
8/6/97
$0.150 (EVEN)
Nevada and SVB
explorer
Tiger International Resources Inc.
V.TGR
2/16/98
$0.650 (EVEN)
Australian
diamond explorer
Mighty Beaut Minerals Inc.
V.NI
10/22/98
$0.420 (+0.040)
Developing
Philippine nickel
resource
Anvil Resources Ltd.
C.ANV
4/7/98
$0.320 (-0.020)
Texas gas
producer and
explorer
Erin Ventures Inc.
C.EV
7/28/97
$0.480 (+0.030)
Developing a huge
boron property
Insider Report By The Insider Group
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©1999 Insider Report. ALL RIGHTS RESERVED.
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