If American Bank Note Holographics is a leader in the manufacture of

holograms for bank cards, another company headquartered in Princeton,

Heartland Payment Systems, has a prominent place in a different

credit-card related industry – back-office work on transactions racked

up by restaurants and retail stores. Robert O. Carr opened the

corporate headquarters of Heartland Payment’s predecessor in 1997, and

now the company ranks eighth in its field.

With the tag line "your hometown payments provider," Heartland

Payments caters to the small and medium-sized businesses. In contrast

to American Express, which plays both sides of the fence by issuing

the cards and handling the merchant transactions, Heartland has

nothing to do with issuing the cards but makes most of its money from

setting up merchants to process Visa and MasterCard. (Its credit card

machines also take other cards, such as American Express and Discover.

The company hopes to go public soon; having filed with the Securities

and Exchange Commission, it is in a quiet period and cannot issue any

statements other than what has filed.

But in an earlier interview, Carr related why he opened the company

here (U.S. 1, November 19, 1997). Carr is in Princeton because, like

the CEOs of NRG Energy and Tyco, he wanted to live here. Having

decided to locate in a university town, Princeton was his choice.

After graduating from the University of Illinois in 1966, Carr earned

a master’s degree in one of the first graduate programs for computer

science. In the 1997 interview Carr said he had grown up in Chicago,

where his father was a security guard and his mother a waitress. He

worked in the software industry from 1982 to 1987, and then merged his

software company with another company in the transaction processing

business. At the time of the interview his wife, Jill, was working in

the business, and their three children attended Princeton Day School.

Heartland was formed in 1997 when Carr formed an alliance with St.

Louis-based Heartland Bank. In 1999 Carr changed the name to

Heartland Payment Systems, and the company bought out the bank’s

shares in 2000.

That year Carr hired a CFO, Robert H. B. Baldwin, a Princeton

University alumnus, Class of 1976. According to U.S. 1’s records, in

2002 the office moved from the second floor of the Charles Schwab

building on Nassau Street and expanded to 5,000 square feet on Hulfish

Street. According to the SEC filing, the company pays about $39 per

square foot or about $16,354 per month in rent.

About 15 people work in Princeton. Officers listed in the SEC filings

are Martin J. Uhler (president and COO), Michael C Hammer (chief

marketing officer), Brooks L. Terrell (chief technology officer), and

David L. Morris (chief services officer). Marc Ostro, a founder of the

Liposome Company, is a member of the board.

The main operations center, with 340 people, is in Jeffersonville,

Indiana, across the river from Louisville, Kentucky, and there is a

call center there. The area is known for concentration of call

centers. But most of the employees are the commissioned sales force

that constitutes more than 750 employees. The firm also has a

wholly-owned subsidiary that handles payroll for its merchant clients.

Heartland Payment had revenues of nearly $280 million in 2002, and

$377 million in 2003, according to the documents, and it showed a

profit of $562 million in the first quarter of last year, compared

with a net loss of $396 million from the same quarter in 2003. As of

last May it had 77,000 merchant clients.

In August Heartland filed to go public under the symbol "HPAY," but

the filing has not made its way through negotiations with the SEC. If

approved by the SEC, the initial stock offering could be worth as much

as $75 million. The underwriter list includes Citigroup, Credit Suisse

First Boston, Robert W. Baird & Co., William Blair & Company, and

KeyBanc Capital Markets.

Proceeds from the proposed IPO would be used to pay nearly $3 million

in debt from major shareholders, which include Greenhill Capital

Partners LP (which owns 28.2 percent of the company) and LLR Equity

Partners (which has a 16.9 percent stake).

Heartland introduced its own front-end processing system, HPS

Exchange, in 2001, but about two-thirds of the transactions are still

outsourced to third party processors. When a merchant swipes a card

through its terminal, the HPS Exchange or the third-party processor

authorizes the transaction. The merchant then "batches out" a group of

authorized transactions and transmits them to Heartland, which sends

them on to Visa and Mastercard for payment. Heartland’s merchant

clients can access their transaction data on the web to monitor sales

performance and track profitability.

Heartland’s clients include brick and mortar retailers, lodging

establishments, auto repair shops, convenience and liquor stores, and

professional service providers, but its particular strength is

restaurants; dining tabs represented more than 58 percent of the

company’s transactions in May 2004, according to the SEC filings. Also

according to the filings, Heartland hopes to sell to atypical markets

including governments, schools, and the business-to-business market.

Heartland was the eighth largest bank card "acquirer" in the United

States in 2003, says the California-based Nilson Report, and the top

eight companies processed $1.2 trillion. (The term "acquirer" refers

to processors that assume financial responsibility for the

transactions.) An "acquirer" takes over the accounts, so that if the

consumer has a problem with the merchandise or service, the acquirer,

Heartland, gets left holding the bill. In contrast, a "processor"

merely does the back office processing of the transaction.

But Heartland is still way behind its biggest competitor,

Colorado-based First Data. It processed 340 million in transactions in

2003, but that represents just 1.5 percent of the $1.2 trillion


Heartland depends on volume. According to the SEC filing, if a

c0nsumer pays $100, the merchant gets $97.62, the bank that issued the

card gets $1.76, and the dues and assessments to the parent

organizations (Visa and MasterCard) amount nine cents. Heartland gets

what is left over – just 53 cents on a C-note.

Heartland Payment Systems, 47 Hulfish Street, Suite 400,

Princeton 08542. 888-798-3131; fax, 609-683-3815. Home page:


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