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: