Corrections or additions?
This article by Barbara Fox was prepared for the January 11, 2006
issue of U.S. 1 Newspaper. All rights reserved. Changes were made on
January 25, 2006.
For Credit Card Processing, the Heartland Is Princeton
A vividly brash mural dominates the Heartland Payment Systems suite in
the bank building at the corner of Nassau and Witherspoon streets in
downtown Princeton. On the left of the mural, the artist painted old,
tired buildings representing Heartland’s competition. On the right is
a skyscraper that is under construction and being built with new
technology – to show that Heartland takes an innovative approach to
the business of credit card processing.
Heartland Payment Systems is a national credit card processing company
for small to medium-sized merchants, especially hotels and
restaurants. Because it is relatively new, it can employ a newer
computer system (a client server network based on a Microsoft
platform) rather than the mainframes to which its older competitors
"The products we are offering are built on 21st century platforms,
whereas, for our competitors, most of the platforms were built in the
’80s or even in the ’70s," says CEO Robert Carr.
That’s why, in the sassy mural by Lambertville-based artist Eleanor
Voorhees, a crane sits atop Heartland’s unfinished building. "The
experience we offer now is not that different from our competitors
because we are so new, but as we look out two, three, or four years,
we hope to substantially expand what we will offer," says CFO Robert
H.B. Baldwin Jr.
Heartland’s corporate and accounting office moved in November from
5,000 square feet on Hulfish Street to just under 10,000 square feet
on the second and third floors in the Bank of America building,
overlooking Nassau Street and Princeton University.
Heartland makes most of its money from setting up merchants to take
credit card transactions; it does not issue credit cards. The
company’s credo: To provide a fair deal and offer superior information
so merchants can understand and manage their card processing costs.
About 22 people work here, and more will be hired in the finance area
and in some executive positions. The company has 1,600 total
employees, including its commissioned sales force. Its main operations
center, with 375 people, is in Jeffersonville, Indiana, and there is a
call center for troubleshooting in Jeffersonville, Indiana, plus 76
programmers working in Dallas.
Heartland has twice been on the Inc. 500 list of fastest growing
companies; in 2004 Carr won Ernst & Young’s New Jersey Entrepreneur of
the Year award. The company went public in August of last year, and of
the $122 million raised, about $40 million went to the firm, with
selling shareholders receiving the remainder of the proceeds. The
stock was pitched at $14 to $16, priced at $18, went up to more than
$27, and is now trading at about $22. The offering was oversubscribed
by a factor of 21.
Thirteen years ago Carr moved to Princeton with a five-year-old
predecessor company to Heartland, and he began putting down deep
roots. Now he and his wife, Jill, have bought, and are renovating, the
home at 82 Library Place that had been built by Woodrow Wilson (see
real estate story on page 54). The Carrs have three children, one in
high school, one in college, and the eldest working in Manhattan at
the Paris Review.
Carr grew up in a rural area south of Chicago, where his father was a
security guard and his mother worked for 35 years as a waitress. Carr
remembers the night his mother came home with her first $5 tip. "This
was in the `50s, and she was in tears for that generosity," he says.
He is the second of six children: His older and younger brother each
have small businesses. Two sisters are nurses, and one is a retail
Growing up in a blue collar family, Carr acknowledges that he lacked
the contacts enjoyed by those whose parents were comfortable in
executive board rooms and other halls of power: "My whole life is a
monument to not knowing the right things to do at the right point in
my life. I had no experience with what a business was, no contact with
business successes or business failures. My role models were teachers.
I had no mentor. I did everything all wrong."
For his own children, Carr made elaborate plans for them to have a
different experience. His move to Princeton, in fact, was the result
of a two-year national search for schools: Princeton Day School was
his choice. Says Carr: "It was the best decision I ever made. My
children know things that I never knew until I was 30 years old," he
says. "They got a different perspective on the world."
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. He worked in the software industry before going to a company
that did transaction processing.
In 1987 Carr turned his consulting firm into Credit Card Software
Systems, to sell merchant credit card processing systems for the
industry for third party providers. Meanwhile he was writing software
programs to use in the future. "We did have income coming in," he
says. "I had a couple of thousand merchants as customers." He moved
from Brandon, Florida, to Princeton in 1992, and though he had 15
employees nationally, he was working out of his basement.
But by his account, the family had a hand-to-mouth, meager existence:
"I was making a living . . . barely," says Carr in a telephone
interview. "I had moved to Princeton with the confidence that things
would get better. It’s a pretty unique story. Not too many guys are in
business for so many years before they are successful."
At that point his wife, Jill, was working in the business, and also at
Princeton University’s electrical engineering department. They lived
in Princeton Borough, on Lover’s Lane and Route 206, and they were
paying three tuitions to Princeton Day School.
Carr says that his familiarity with the restaurant business had
nothing to do with focusing on restaurants. "We wanted to start out
with hotel customers, but the technology for payments there is much
more complex, but we DID have the technology to be the premiere
restaurant processor." Restaurants need a way to handle tips, with
reports to the servers on how tips are allocated and reports to the
landlords and owners on revenue. "We knew we could be in front of that
In 1997 he formed an alliance with St. Louis-based Heartland Bank,
changing the name to Heartland Payment Systems (HPS) and buying a
processing firm, Omnicard. HPS bought out the bank’s shares in 2000,
and Carr hired Baldwin as CFO.
Baldwin, a Princeton native, has a privileged background. He is named
after his father, who was the chairman of Morgan Stanley in the late
`70s and early 1980s. A 1976 graduate of Princeton University with an
MBA from Stanford, Baldwin had worked at Goldman Sachs and CitiCorp,
and at Smith Barney he was a managing director in investment banking.
Most recently he was CFO of a staffing company based on Long Island.
His wife, Margaret Sieck, was an editor at Sports Illustrated and they
have two school-aged children plus a son who is working for an IT firm
in Research Park.
"Most of the existing platforms are mainframe driven platforms, which
makes it much more difficult to create new functionality," says
Baldwin. "For example, over the short term, we are looking to do
something as simple as providing a better statement to the merchant.
Now they get 10 to 20 pages of numbers and have no ability to
understand what the real costs are."
"Depending on what card you pull out, a merchant may pay as much as
three percent or more," says Baldwin. American Express charges the
processing fee, and Discover’s charge is lowest. A Visa reward card
costs the merchant less than a Visa business card. Another factor:
whether or not the mag stripe is worn out. That’s because it costs
more for the clerk to key in your credit card number. Such
non-automatic transactions are riskier. "For each card there are more
than 100 interchange rates, and it is easy to get confused."
Heartland prides itself on fully disclosing its fees, in contrast to
its competitors which Baldwin suggests sometimes use "aggressive
pricing approaches, and bait and switch" to get the merchant’s
business. The Heartland system works on the competitors’ machines, and
One giant competitor is First Data, which targets all size clients,
large, medium, and small. Other competitors are the banks, such as
PNC, Bank of America, and U.S. Bank. Fifth Third Bank and Global
Payments are also competitors. "But we are the only one that focuses
exclusively on small to mid-size clients," says Baldwin.
At its founding in 1997, the firm ranked 61st in the nation in the
number of contracts it had, and now it ranks sixth. It started with
$500 million in annual volume, and now it is processing more than $38
billion in annual volume. It had 25 sales
people and now has nearly 1,000. "And all of that was through organic
growth," says Baldwin. "All our merchants were sold by Heartland
salespersons and installed on Heartland’s platform. Other companies
grow through acquisitions, but we think it is better and cheaper to
grow one merchant at a time."
The top eight companies in the credit card transaction market
processed $1.2 trillion last year, and this year Heartland will
process about $33.5 billion in transactions, working with Key Bank to
accomplish this. Heartland has a 2 or 2.25 percent share of the
overall market (which amounts to $700 million) and
about 5 percent of the small to mid-size clients.
Dining tabs represented about 57 percent of the company’s
transactions, but it hopes to expand to quick service restaurants and
other atypical markets. "Our long term objective is to be number one,
and we would have 20 to 35 percent of the market," says Baldwin.
`Over the longer haul we will be able to deliver the name of the
consumer, which is especially valuable when the customer charges back
the transaction," says Baldwin. "We will also provide such
functionalities as allowing merchants to customize their own
statements, generate their own statements, and print them out at their
convenience." Merchants will also be able to download their general
ledger entries into an accounting system. "Typically they have to do
their entries manually. Right now, all they get is a paper statement
and a print out of the numbers."
Heartland facilitates both pin-based and signature-based debit cards,
an increasingly popular option for small purchases. Baldwin and Carr
like to tell about the lawsuit that helped to lower signature-based
debit "interchange" rates.
It seems that Wal-Mart filed a suit against Visa and MasterCard on
behalf of all merchants, everywhere. "The judge told the bank card
issuers to lower the debit rates by one-third for five months. We
chose to pass on the savings to our clients, but it worked out that
virtually all the other players in the small and mid-size market did
not pass it on," says Baldwin.
The settlement resulted in retroactive savings for the five-month
period, and although Wal-Mart and the largest merchants reaped the
biggest rate reduction, all the interchange fees decreased a little
Heartland’s competitors, Baldwin says, made a lot of excuses about why
they couldn’t be bothered to do the accounting and return the saved
fees to their clients. "Our clients could see the rebate, and our new
merchant signings went up by 25 percent immediately afterward."
"As we have gotten bigger, our goals have changed, and we have gotten
much better. I would never ever have thought we would be number one in
the business," says Carr.
And just how does he plan to get to be number one? "It is just the
power of the way we do the business and how ineffective and self
serving the other business models are," says Carr. "After labor and
food cost and possibly rent, but not always rent, credit card fees
become the third or fourth largest expense for our restaurant
Carr also has faith in his compensation plan for the relationship
managers. In an unusual policy for this industry, the salespeople are
employees on commission, not independent contractors. His biggest
failure, he says in commentary posted on the website, was starting out
with so many independent contractors that could not be effectively
controlled. "We solved this by going to a 100 percent employee model
in late 1999 and have been improving ever since in the key metrics of
He thinks this gives him a competitive advantage, saying it is "unique
in today’s marketplace and will remain so unless someone chooses to
make a substantial investment in unrecoverable expenses to duplicate
With a recruiting letter posted on the website, Carr says he is
looking for "impeccable personal integrity" and motivation to build
"significant wealth for themselves and their families over the next
four to five years." Successful sales people will meet margin goals
and should expect to work 50 to 55 hours per week. Those who sell nine
accounts per month, he suggests, will start earning six figures in
Those with previous industry experience, Carr warns, may have to
unlearn it. "Occasionally," writes Carr, "you will be required to
`leave money on the table’ because we do not permit price gouging. Our
merchants are in the habit of talking to one another, and we cannot
jeopardize our reputation and risk losing future referrals."
Another unusual policy is that Carr is content to let his employees
stay where they are – witness the far-flung operations centers.
Flexibility in family location is important to him.
His own choice was a university town, and it is no accident that from
his window he can see Nassau Street, the gates to Princeton
University, and Nassau Hall. He is, after all, a history buff and
enthusiastic fan of Woodrow Wilson, former president of Princeton
University and the 28th president of the United States.
Heartland’s 11 1/2 feet by 5 1/2 feet mural, acrylic on canvas, faces
the Nassau Street windows. Though the artist, Eleanor Hoyt Voorhees,
declines to say what this one cost, her prices range from $125 to $200
per square foot.
Voorhees worked with the decorator of the Carrs’ Library Place home to
paint a monochromatic landscape mural for the dining room there. If
the Wilson dining room needed to have little color, the Heartland
decor needed lots of color – vivid shades, a la Matisse, plus black
"Bob Carr wanted the mural to represent the company’s potential to be
Number One, even though it is not yet," says Voorhees, "and he wanted
it to show the company is growing from the ground up, not through
acquisitions. He showed me how he grew from number 61 to number six,
and that his goal is to be number one in the industry."
A larger building to the left represents one of the biggest
competitors but has no logo. "In the painting, the only building with
a logo is his," says Voorhees. "I showed it under construction, not
yet the largest, but with the potential to be the largest and
strongest. And some of the other large buildings don’t grow straight
up; they have additions. The only road in the painting leads to
Heartland Payment Systems (HPY), 90 Nassau Street, Second Floor,
Princeton 08542; 609-683-3831; fax, 609-683-3815. Robert Carr, CEO.
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