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Bob Carr's Speech at Midwest Acquirers Convention

Editor's Note: On July 31, 2003 in Chicago, Bob Carr, Founder, CEO and Chairman of Heartland Payment Systems, was given the first Life Achievement Award presented by the Midwest Acquirers Association. This is the verbatim text of his speech.

I am humbled and honored to be recognized with this award. There are a lot of people to thank who have helped me to earn this prestigious award. First, I would like to thank the founders of the MWAA, Jim McCormick, Caroline Marino and Mark Dunn and others.

I would especially like to thank Mark Dunn, who was instrumental in creating this award and has been a respected friend for many years.

I would also like to thank Marty Uhle, who I suspect had something to do with my selection for this award. Marty is the Heartland Payment Systems representative to the ETA Advisory Board and is the President and Chief Operating Officer of HPS and a very effective and emerging industry leader.

Also, this award would have been impossible had it not been for all of the tremendous efforts of the 85 Heartlanders in this room plus the 750 Heartland employees who were not able to be here today.

Also, I want to especially thank Don Lassiter, my first business partner going back to 1987 and a leader within the Heartland community. Next, I want to recognize three people who are not here today.

First - Ted Hardison, who helped me figure out how to pay a sales professional and allow him to make a decent living while he built up his portfolio without extracting upfront cash from the merchant. Ted finally was able to convince me that this was an absolute requirement if we weren't allowing price gouging on equipment.

Second is Larry Schiffer. Larry believed it might be possible for us to grow from one-half to $5 billion in three years and he provided us the opportunity to "be all we could be." Third is Paul Green. There is no more brilliant mind in our industry than that of Paul Green.

I met Paul Green in 1986 in a meeting I will never forget. We were discussing a possible joint business venture, but it was obvious to me that I was not even close to being in his league at that point in my bankcard career.

In June 1997, Heartland placed its name in The Green Sheet under the Resource Guide section under "Banks Looking for ISOs." At that time we had a portfolio of less than one-half of a billion dollars.

When that ad hit, we were flooded with calls from seemingly desperate folks looking for a home. We thought that might happen and it did. We had identified a vacuum in the industry and a pent-up demand for sales professionals and ISOs looking for a better platform upon which to build their businesses.

At the Long Beach ETA meeting in 1997, I suggested to Paul that we do a joint national road show. We did it in 1998. Each of these The Green Sheet Seminars was followed by a two-day Heartland training and recruiting seminar. It was during these road shows that I was introduced to many of you in this room today. In December of 1997 Paul Green began to publish my series of articles, called Knowledge Is Power.

It was because of Paul Green and The Green Sheet that I was able to write controversial article after controversial article. My theory was that the more sales professionals understood the economics of card processing, the better it would be for the industry as well as for Heartland.

These Knowledge Is Power articles allowed us to plow new ground and bring important issues out of the inner sanctum and to expose them once and for all to the light of day. Paul received negative reactions from many of my articles, but he never once yielded to any pressure to shut me up. Many of the topics that are discussed openly today were not even on the radar of salespeople five or six years ago. These include:

  • Publishing of interchange for all to see for the first time.
  • Explaining the costs of authorizations, settlement and ACHs.
  • Explaining the benefits of revenue sharing.
  • Disclosing every source of margin available to processors.
  • Discussing the potential pitfalls of a buy-rate contract.
  • Defining portfolio equity.
  • Cajoling Discover to create an American Express-like model.
  • Educating sales professionals on how processors make their money.
  • Talking about how the revenue pie is sliced up.
  • Discussing how much portfolios are worth and who is buying them.
  • Ranting and raving about merchant rip-offs by ISOs with price gouging on equipment and obfuscated surcharging.
  • Talking about how the FDC-Concord merger could create a crippling monopoly.
For all of these reasons, I would have nominated Paul Green to receive this industry's first lifetime achievement award. I would like to thank Paul Green for being the pioneering publisher of the payments industry and for not wavering under the pressures that were brought to bear.

I would like to thank Paul Green for providing me with the forum to give my opinions and to assist in teaching many of you how to make money honestly in the payments industry.

For all of these reasons, I want to share this honor today with Paul Green and ask each of you to stand with me and give Paul, who is not with us today, the standing ovation he so richly deserves. (A long standing ovation followed.)

So this - this road to the industry's first lifetime achievement award - has been a long and unplanned trek. I want to take a few minutes to talk about this journey, which took me from being one of the youngest to becoming one of the oldest in just 31-plus short years.

My early days were sort of a whirlwind. After graduating from high school in 1963 from Lockport Township High School, just 25 miles southwest of this hotel, I went to the University of Illinois, another 120 miles down the road in Champaign-Urbana, with the ambition to become a high school math teacher.

Four years later I had received a bachelor's degree in mathematics and a master of science degree in the brand new department of computer science.

There were only six of us in 1967 with master's degrees in computer science, and I discussed job offers with IBM, the CIA and Bell Labs. But I couldn't take any of these jobs because I was only 21 and the selective service was taking every able-bodied man they could find who was under 26 years of age.

With one of those serendipitous events that happens to each of us, a brand new community college, Parkland College, was being formed in Champaign, Illinois, and a friend suggested that I could get a draft deferment if I could get a teaching position there. I wasn't against the Vietnam War. I just wanted to get on with my career.

Well, there weren't too many people with a computer science graduate degree looking to take a job at a community college back in 1967, so I was hired immediately and became the fifth employee of Parkland College at the age of 21. A year later I was elected President of the faculty association and was promoted to become the Director of the Computer Center.

Two years later I was offered a job with the Bank of Illinois to establish a computer department to automate the bank and provide services to customers. I was flattered but explained to the bank president that I would get drafted 15 minutes after I resigned my "critical occupation" with the college.

Back then, times were different, and the presidents of the bank and the college worked out a deal where I could stay at Parkland and still work at the bank - with the benefit of two full-time salaries! I couldn't believe how much money I was making! I never dreamt of making $30,000 a year and life was good. These were the days when I was the youngest.

During the next two years, I was able to do a lot of things. One of them was to turn down the newfangled BankAmericard (which now, of course, is Visa) team that wanted me to establish a Midwest processing center for their national roll-out of credit cards.

On my 26th birthday I was no longer eligible for the draft, and I resigned my two jobs and my $30,000-plus of salaries to go into business for myself - January 1, 1972. IT IS THE STUPIDEST THING I EVER DID.

Like almost every young entrepreneur I have ever met, I expected to be a millionaire before I was 30. I also expected to be independently wealthy before I was 40 and to be able to run for the U.S. Senate shortly thereafter, financing my own campaign.

Well, it didn't quite work out that way. From 1972 to 1989, I never earned the equivalent of that $30,000 again. It's not that I wasn't trying, but I was just spending my time writing articles for magazines, writing a couple of short specialty books and giving speeches at places like the Conference on World Affairs in Boulder, Colorado, and serving as a city councilman and mayor pro tem of my home town. It was during this part of my career that I learned many valuable lessons about leadership and responsibility.

I was also trying to figure out how to make real money and to build a business based on the ethics and the principals that were the foundation of my personal philosophy. Frankly, I had never understood the concept of recurring income. Sometimes I'm just a slow learner. I couldn't figure out how to make real money.

During this time I designed and coded some of the niftiest PC accounting programs - writing general ledger, payroll, accounts payable, accounts receivable and fixed-asset computer systems that were all integrated and ran on things like the Tandy Radio Shack Model 1.

Sort of by accident, an oil jobber hired me to write an invoicing system for his fuel-delivery business and then for his gas tanks and then for his gas pumps. I wrote software that interfaced unattended gaspumps of Gasboy and PetroVend to my accounts-receivable package.

After selling these accounting packages, which were $15,000 per copy back then, to numerous oil companies, one of my customers said, "If you can automate the private fleet card transactions, why can't you make these fuel pumps take Visa and MasterCards, too?" That's how I got into the bankcard world in 1986 and met Paul Green a few months later.

In 1987 I set up my bankcard business, selling to hotels and restaurants with PC software packages that captured American Express through TransNet as our value proposition. We did well - we thought. Ten years later we had built a portfolio of $465 million - four times larger than that of our original bank sponsor, Southern National Bank. And through another serendipitous event, I met a gentleman who would change my life and the lives of many hundreds of other people, many of whom are in this room today. He was the Chairman of Heartland Bank, Larry Schiffer. In a dinner on November 1, 1996, a day that I will never forget, Larry and I decided that we could do some great things together.

Within 10 days, we had agreed in principal to form a new 50-50 venture with Heartland Bank. We would contribute our business and Heartland Bank would contribute $1,000,000.

I had turned down offer after offer to sell the business and these offers were as high as $5 million, but I didn't want to sell because I thought that another great company could be built in this industry and I was on a mission to build it.

For 10 years we had struggled to get acceptable levels of service from different bank processors - Southern National Bank, BankSouth, First Tennessee Bank and First Bank Systems. My conclusion was that their service levels to ISOs were lacking a lot.

In my opinion, we needed, in effect, to have the level of control of a true bank to establish this great business. We needed access to the Visa and MasterCard systems as well as to the Federal Reserve. Our deal with Heartland Bank made that possible and allowed us to blossom to what we have become.

After writing our business plan and getting approvals from all of the banking regulators and card associations, we formed Heartland Card Services on March 27, 1997 and processed our first transaction on July 15.

Our business plan called for us to grow from a half-billion-dollar portfolio to a five-billion-dollar portfolio within three years.

I felt this was possible because I believed that ISOs would flock to Heartland because we would tell the truth, the whole truth and nothing but the truth all of the time, would not play games and would respond to our honest efforts to give the best possible service.

Above all, I believed that by educating industry sales professionals about the economic details of the industry that we would gain a unique and respected position.

While Larry Schiffer thought our growth plans "might be a little aggressive," he gave us a chance to prove what we could do and we met and even exceeded these aggressive plans. Three years later we bought out the $1 million investment of Heartland Bank for $15 million.

In 1999, we changed our name to Heartland Payment Systems and decided to cease being a platform for ISOs. Many, but not all, of our ISOs chose to become employee-owners of Heartland. We did this because with 1099 independent contractors and ISOs, we were not able to gain effective control over how our customers were treated despite our best efforts.

Today, Heartland has grown to become a company of 850 employees, 350 of whom own stock or options in the company. We have 60,000 merchants processing $19 billion of volume. We have a low-risk portfolio with more than half of our transactions from restaurants and losses of well under _ of 1 basis point.

Our largest customer represents less than _ of 1% of our margin and volume. This year we will generate almost $27 million of EDITDA, almost $10 million of pre-tax profit and millions of dollars of free cash flow with almost no debt. Life is good. We have come a long way.

I believe that most sales professionals, if given the option, would prefer to be honest in their dealings with their merchants. If Heartland Payment Systems is about anything and if Bob Carr is about anything, it is about crafting a business plan and business model that has allowed sales professionals, merchants and company owners to all win.

The driving force of our initial success was a sales compensation package designed to be equitable for all parties on a sustainable basis - from the early days of company formation through vigorous growth and on to maturity as one of the top five companies in the industry.

We have succeeded in creating a company that will pay more than $30 million of cash to sales professionals this year while adding $9 billion of quality business to our processing portfolio, and we will have done this while treating every single merchant fairly, honestly and with respect. This defines the Heartland story at its core.

I believe that if you show a person how to succeed with an honest approach that most people would prefer to take that road. But for the past 15 years our industry has been controlled by financial engineers, aka "geniuses," who think they are smarter and more deserving of rewards than salespeople. I think many of these financial engineers basically do not respect salespeople as fellow professionals.

These financial engineers play games with their most valuable asset, their sales organization. They seem to change the rules of the game whenever they experience a bad quarter.

They design compensation programs that lead salespeople to rip off their merchants in order to make a reasonable living. They debit merchants for fees to boost quarterly earnings - fees that have no reasonable justification.

A large number of merchants and sales professionals don't trust many of the companies that dominate our industry. Merchants get statements that are designed to obfuscate their fees. I have seen portfolios in which more than 75% of the margin comes from surcharge - aka hidden and incomprehensible fees. This is not acceptable, in my view.

One of our restaurant owners told me Tuesday that his credit card processing payment is his third-highest single expense each month - behind personnel and food. Yet even with such an important expense level for merchants, many "geniuses" have figured out such clever games as surcharging check card transactions by as much as 150 basis points above credit card rates even though the cost of processing them is 43 basis points less costly.

This just isn't right.

We have proven that it is possible to build a profitable and ethical top-10 company in this industry starting from almost nothing. I hope that all of us little guys will join with the large, quality companies in our industry like Paymentech and Bank of America and continue to take market share from the companies run by people with no respect for their customers and even less respect for the salespeople who built their portfolios merchant by merchant and block by block.

I can promise you that Heartland will join you in its mission to passionately take market share away from those kinds of companies.

In my remaining years as CEO of Heartland, I have some very specific goals:

  • To become a world-class public company with a market cap of more than $1 billion.
  • To increase the number of millionaires that Heartland has created from 17 to more than 100.
  • To become one of the five largest processors in America.
  • To continue to be a leader in the industry with our ethical business practices.
  • To continue to provide a platform for entrepreneurial sales professionals to fulfill their personal dreams.
  • To build out our sales and service organization to truly fulfill our mission to become the "Hometown Service Provider" to all of our merchants - a job that is only half finished.
  • To build the leading technology platforms in the industry for our servicing center, our sales organization and our transaction-processing and settlement functions.
I can tell you that 31 and one-half years after leaving my secure jobs in Champaign, Illinois, and becoming self-un-employed, it feels very good to stand before you and to be recognized as an industry leader with this award. This is the part about becoming the oldest.

I accept this award on behalf of all of those who have played a pivotal role in my bankcard career, but above all I accept this award on behalf of the 85 Heartland sales professionals here with us today who are going to receive 250,000 stock options at our second quarter 2003 sales celebration tonight on the top of the John Hancock Building.

I am humbled and honored and thank you.

May each of you be honored in this way after many years of fighting the good fight!

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