An Acquirer with Heart

"We wanted to have all the resources of being a member of VISA and Master Card and the ability to negotiate with vendors." That vision was the starting point for what is known today as one of the most reputable merchant acquirers in the industry - Heartland Payment Systems.

That starting point was in New Jersey at an operation center in Heartland Bank. Launched in early 1997 as a merchant card processor under the name Heartland Card Service, Heartland Payment Systems has evolved into a multiple-product transaction processor handling card- and payroll-processing services for more than 50,000 merchants of all types and sizes.

Changing its name in 1998 to reflect the fact that it was a full-service payment company, Heartland Payment Systems quickly grew to become the 15th-largest merchant acquirer in the United States as well as the largest privately held merchant acquirer in 2001.

With a core competency in superior technology and a superior distribution system, Heartland offers traditional and Internet credit card processing, payroll processing, check guarantee, equipment purchase, e-commerce solutions and fraud protection.

Its latest offering is the recently introduced HPS Exchange, the first client-based server transaction-processing platform. "We felt that the offerings available in the industry were antiquated and continued to be antiquated, using old technology and old software," says Bob Carr, President and CEO of Heartland Payment Systems. "We wanted merchants to have the ability to take advantage of modern technology."

With a client-based authorization and capture center, HPS Exchange offers merchants real-time access and maintenance of downloads and transaction data. Providing a platform that takes advantage of new applications - electronic receipt capture and check imaging as well as real-time downloads, Heartland is banking on impressing merchants with not just its capabilities but the incredible speed of its technology.

Heartland also is focusing on community bank programs. On June 1, 2001, Heartland acquired Welsh Financial Merchant Services, which has become Heartland Bank Center and services Heartland's 200 bank customers and affiliations exclusively.

"The idea is that when banks call with any issues, they now get specialized support and service," says Carr. "Our merchants continue to call our service center regarding leads, questions about compensation, new products, etc. We are differentiating our service organization within our bank channel."

What else differentiates Heartland from the rest of the pack? According to Carr, it's Heartland's sales culture as well as the technology it delivers to its sales agents and merchants.

"Our concept is to pay salespeople for selling merchant processing out of our pocket as opposed to having merchants pay an outrageous price for a piece of equipment they may or may not need," says Carr. "We are the only company that has maximum markup that our sales reps can change."

Additionally, Heartland does not allow leasing. Instead, it offers a rental program and a rent-to-own program. Heartland does not allow sales of equipment over reasonable profit margins.

"Our merchants all know each other, and they compare notes," Carr says. "We are in it for the long term. We have 1 1/2% of the market in the U.S. and are three times bigger than the next privately owned company. We treat our merchants right - and insist that our salespeople do the same."

Does this culture have competition in the marketplace? Carr says it definitely does: "Our competitors are the processors in the country who are larger than we are and the 2,000 that are smaller." In response to that competition, Heartland is constantly changing its business model. "We are always trying to bring more and more control into the process and trying to make more and more people extremely successful financially and with their career," says Carr.

That business model certainly must hold appeal for the ISO community, and Carr believes Heartland's appeal is almost irresistible.

"We are better than everyone else," says Carr. "We changed the industry in '97 when we went to fully disclosed pricing. A lot of people were angry because we published interchange. We tell our salespeople what it costs to process and settle transactions. The whole industry had to go to that approach because they couldn't compete."

But not every ISO may be Heartland material. Heartland is looking for people who want a career and to be part of a team. Mavericks and lone rangers won't be successful with Heartland. Heartland requires full-time people only, all paid on W-2 forms.

Heartland provides insurance benefits as well as a 401K program, company stock and stock options. And with the company planning to go public within the next two years, the benefits could be even more lucrative.

Merchants serviced by independent sales agents who opt to ally with Heartland can reap the benefits of Heartland's services within hours. Heartland offers a rush program with merchant setup within four hours. The standard process takes three to four days, but Heartland is confident they'll wait.

"We are not worried about merchants leaving us before they get set up because they haven't been sold a bill of goods," says Carr.

Once on board, agents and merchants alike enjoy exceptional customer support. Heartland Service Center is 170 people strong, live 24/7.

"We strive to do great service and a one-call resolution of merchant problems," says Carr. "We constantly monitor and survey."

Heartland even implements a separate and special technical-support group to complement its merchant and community bank support groups.

Adjacent to Heartland's Technical Support Center is Heartland's deployment department. More than $1million in equipment inventory is under that roof, so Heartland can deploy equipment on the fly for merchants and new customers. "We buy our equipment from Tasq and Horizon and all the usual suspects," says Carr.

Heartland is constantly looking to enter into strong relationships with specific vendors who will provide equipment with the functionality Heartland demands for its merchants.

"We will target one or two vendors within the next two years," Carr says. "We try to sell whatever our salespeople want to offer. It is better for us to become more focused on specific equipment."

Just where is Heartland getting the money to hit those targets? On Oct. 11, 2001, Heartland announced it had received a $40 million funding from New York-based Greenhill Capital Partners, Philadelphia-based LLR Partners and their affiliated investment funds. That infusion of new capital, representing a substantial minority stake, will help execute Heartland's strategic business plan to build out its national sales and service organization, develop in-house product technology and acquisitional technology, strengthen various vertical market partnerships and retire Heartland's debt.

"We hired the Bank of New York to raise private capital," says Carr. "They brought in Greenhill and LLR partners. We had six different people who were willing to write us a check. We were fortunate to select two."

According to Carr, Heartland's growth is centered on expanding its sales organization so that every county in America is covered by a full-time sales professional dedicated to treating merchants right, in the Heartland way.

Heartland also plans to go public within the next two years (based on 2003 earnings) and, as Carr predicts, become the next billion-dollar payment company.

"I think the industry is at its most exciting time ever," says Carr. "There are new apps out there today that are of value to merchants, and merchants are looking for professional relationships with service providers. We believe we will grow our market share from 1 1/2 to 5% in the next three years." Headquartered in Princeton, N.J., Heartland employs 650 at its home office. That may be a lot of mouths to feed, but as Carr says, "The good news is we can feed them and have a lot of money in the bank to feed them for a long time. This continues to be a fabulous industry with great opportunities for smart card people, and we love being a part of it."