From the Heartland: Up Close and Personal With Visionary Robert O. Carr, Founder and CEO of Heartland Payment Systems
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“If you think about what you ought to do for other people, your character will take care of itself.” –President Woodrow Wilson
As financial institutions struggle to redefine themselves, I find myself wondering about the qualities of a truly gifted business leader, a person who inspires trust and possesses a strong sense of vision, a leader who won’t trade personal integrity for easy profit margins. Fairness and transparency will be crucial when rebuilding the links of accountability that create a genuine sense of security in business transactions at every level. Where do ethics come in? What does it mean to conduct business responsibly?
“I would rather “leave money on the table” than operate an unprincipled business,” says Robert Carr, founder of Heartland Payment Systems and creator of The Merchant Bill of Rights, a bill that promotes transparency and fairness in credit card transactions and effectively protects the small business owner. Carr admits his viewpoint hasn’t necessarily been the prevailing one.
“This kind of thinking is heresy in much of the financial services world,” he says.
In 1997, with an initial investment of one million dollars, Carr, a native of Lockport Illinois, founded Heartland Payment Systems. Now, the fifth largest payment processing company in the country, Heartland provides credit card and debit card processing, merchant gift card processing and payroll processing to small and mid-sized retailers, hotels, restaurants, pay-at-the-pump gas stations and airport parking terminals across the US and Canada, and is responsible for more than $80 billion in processing volume alone.
During peak hours, 500 transactions per second rush through Heartland Payment Systems and are safely accounted for. The company and its founder have won some of the most coveted awards in the business, including the bankcard industry’s first Lifetime Achievement Award, the highly coveted “Stevie Award” by American Business Awards, and Ernst and Young Entrepreneur of the Year Award, to name a few. In addition, Carr has appeared for two consecutive years on Inc Magazine’s “Inc 500” list.
I first met Robert Carr at his office on Nassau Street in Princeton to discuss his newly launched RFID campus card, which offers students (and other people affiliated with the University system) an easy way to consolidate their important numbers and IDs onto a single contactless, pre-loaded cash-card. The device fits neatly on the back of a cell phone and can be used for any number of transactions. Instead of dropping change into a soda machine, you simply swipe a tag. Instead of standing in a long lunch line, students can simply wave their card toward their chosen meal. Another perk is that students (or their parents) don’t have to deal with paying credit card bills every month or worry that they will accrue fees should the card run out of money.
But what especially interested me about the card was that Carr had figured out a way to remove a significant portion of the normal transaction fee ¬– 1.5%, half of the normal 3 % amount built into the card – and direct it back to the card carrier’s charity menu of choice. This is not an easy thing to do, and among other things, involves the complicated act of negotiating deals with banks who operate with razor thin margins. I was hoping that Carr would agree to put my non-profit on his menu of charities.
I arrived about 15 minutes early to Carr’s office. His door was wide open. All conversations could be easily heard. Hmm, I thought, corporate transparency…this is refreshing. It quickly became clear that there was a major event going on, so I checked my watch and waited, wondering if he’d have the time to meet today after all.
It wasn’t long though, before I was escorted into his office. Smiling, he rose from his seat to shake my hand, apologizing for the frenetic pace of the office, quickly explaining that Heartland was in the middle of a very large deal – a multi-billion dollar one.
What impressed me most was that despite the fact Carr had a room full of people waiting next door to seal the deal, he still wanted to take the time to keep our meeting and talk about the region’s non-profits and how they might best be served.
So a year later, I interviewed Carr in more detail about his work with non-profits, the story behind Heartland, his lifetime love of numbers and why he is fascinated with President Woodrow Wilson – not to mention how he sees the future of financial services.
WRR: You grew up in Lockport, IL, hold a B.S. and M.S. in mathematics and computer science from the University of Illinois, and have bought and published numerous articles in an effort to educate merchants on the ins and outs of the payment processing industry. How did the idea of founding a company such as Heartland come about?
ROC: As a PhD candidate in Mathematics at the University of Illinois, I began to read and consume the philosophy of Ayn Rand. She convinced me that it was possible after all to create a business consistent with my philosophy about how people should be treated at all levels, and that capitalism could be used to benefit all stakeholders – customers, employees, owners, society and my extended family. This liberated me from the teachings of my youth and the beliefs of many of the academics that surrounded me. I decided then to build a business so that I could become free once and for all to find out what was possible for my life. The formation of Heartland 25 years later was the merging of my existing business with a new division of a bank in St Louis, which was excited to invest $1,000,000 into a joint venture with me.
WRR: Illinois is known as part of the Heartland. Is there a more personal meaning behind
the name for you?
ROC: Actually, I merged my business with Heartland Bank in St Louis in 1997 and that is how we acquired the name. We bought out their ownership of our business in 2000, but kept the name. It is a great name for us, and even our employees and customers on both coasts seem to think it reflects a set of values and an approach to life, which is comfortable.
WRR: Did it ever occur to you when you were a child that you would be doing what you are doing? Did you have, for instance, a love or fascination with numbers, or a desire to help or protect the small business owner?
ROC: As a child, I was fascinated by numbers and followed all 25 players on each of the 16 major league baseball teams. But it never occurred to me that it had anything to do with business. My parents and neighbors were blue collar people who felt that business people were mostly greedy and unprincipled folks who could not be trusted. To the extent that I thought about a career, working in the military or another job with a government seemed to be what my parents had in mind for me. I didn’t know much better because the adults in my upbringing were products of the depression and very much despised the business world and people with a lot of money.
“The truth is not for all men, but only for those who seek it.” -Ayn Rand
WRR: At some point along the way you decided to create the Merchant Bill of Rights merchantbillofrights.com, a bill that promotes transparency and fairness in credit card transactions, and effectively protects the small business owner. What was the inspiration behind this?
ROC: Well, my parents were right about a lot of business people after all. Many of them are greedy and unprincipled and not to be trusted. It stuns me to this day to watch large banks and small entrepreneurs alike who apparently spend most of their waking hours trying to figure out new ways to “game the system” by inflating their profits without spending any money or adding any value. The Merchant Bill of Rights was nothing more than the codification of the way we developed our approach to the payment processing business. It points out to merchants many of the ways they must protect themselves from aggressive business people at all levels who only believe in fair play for themselves.
WRR: The Heartland team has also created a new, contact-less payment card that uses state-of-the-art RFID technology to bring greater convenience to the college or corporate campus setting. That a pre-loaded card can be attached to the back of a cell phone is highly innovative, not to mention easy for students or people in a large campus setting to use. I also really like the idea that you have engineered a way to give cash back to local charities, hence the name, “Give Something Back.” What are some of the unforeseen challenges you faced getting the card off the ground, and where do you see it all going in the next ten years?
ROC: I think we have winners on our hands with the Give Something Back Network and our cell tag. These are really two separate things and are independent of one another. The cell tag is an alternative to the plastic card. Cell phones will become the form factor of choice for making payments in my opinion. This is simply because of the convenience. We jumped ahead of the pack a few years ago by introducing the cell tag while the telephone companies and handset manufacturers had time to get their acts together on how to technically and financially serve the marketplace. When/if that happens, we will use the chips inside the phones for our infrastructure instead of producing the cell tag ourselves.
The Give Something Back Network faces a classic chicken and egg problem, as do all alternative payment systems. To make such a system viable, there have to be cardholders wanting to use the card (or cell tag) and merchants who want to accept it. I think we have an effective approach to solving this problem by working with one campus or community at a time with a self-sustaining financial model. It will take a lot of time, but eventually we will be able to weave these communities together and the network effect will take over and make us a viable alternative platform.
WRR: You and Heartland have won an impressive number of awards especially given that you have barely been in business more than a decade. To what do you attribute your success?
ROC: The biggest single factor in our success is creating a business model that works well for our customers and for our sales organization. From day one we promised merchants that we would grow our business by adding new services that they would want to purchase at a fair price, and we promised not to jack up the prices of our services just because we could get away with it. Believe it or not, this is not the way most of our competitors do business with small and mid-size merchants who don’t have full time CFOs to watch their backs.
This model, which is not exactly ingenious, did have an unplanned consequence when we also applied it to our commissioned sales organization. We created a sales commission plan in 1994 that we have not changed in any material way for all of these years. So why is this so important? Because the people running a business who will jack up prices for their customers will also change the rules for the commissioned sales person!
As a result we have customers who trust us because we have always walked the walk. But even more important, we have developed a national team of sales people who trust us as well. So they can sell to their friends, family and neighbors knowing that their promises will be honored without question. Unfortunately, with financial service companies today, this is indeed rare. We designed a business model which is sustainable and fair to all stakeholders. Our model is well known in the industry but the consequences of this are significant because it means that the CEO may not be the highest paid person in the company, and it also means that margins will not be 80% or even 50% because our model is designed to get us to 25% margins. I think that is just fine, thank you very much.
WRR: Given the current worldwide meltdown in the financial sector, you will have to find ways in which to adapt to the rapidly changing economic landscape, a landscape that may never resemble the old model and may always be in a state of flux. What are some of your thoughts on this?
ROC: I believe that these are the times in which more and more business people will be attracted to our model. Businesses need to better manage their expenses and payment processing is a significant expense for many business owners. The truth is that we are the best value in the marketplace today. I think we will continue to thrive in these economic times. Yes, people will cut back on their spending and we will not grow as fast. But we have kept our powder dry at Heartland, and I think we are in for a great few years of proving our model more and more throughout the country. A number of low-cost and high-quality acquisitions might be on our horizon.
WRR: I know that your life has been influenced by the philosophies and writings of Ayn Rand, particularly those ideas expressed in Atlas Shrugged. What connected you so deeply to her worldviews?
ROC: I was just so taken back that the heroes in her work did what they thought was right despite all opposition from the crowd. I think that was it more than anything. My mom fostered in me that maintaining one’s self-respect is job number one. Ayn Rand showed me that it is possible to fight the most incredible fights and win them while maintaining one’s self-respect. That changed everything for me. My path was not clear, but Rand gave me the philosophical tools that I needed to get out of the woods.
“The significant problems we have cannot be solved at the same level of thinking with which we created them.” –Albert Einstein
WRR: You and your wife have been very involved in helping under-privileged kids prepare and go to college. You have even gone through the effort of setting up a foundation called: The Give Something Back Foundation, to achieve that. This past summer you brought thirteen kids who had never left the United States to Paris, so they would be able to expand their worldview. I remember reading the itinerary you planned for them, which included a quick tour to all the main sites as well as to some personally significant sites for you such as the galerie des glaces, or Hall of Mirrors in the Palace of Versailles where the Peace Treaty of Versailles, formally ending World War I was signed. How did the kids respond?
ROC: The response of our student was, to be candid, one of the most gratifying experiences of my life. We have such wonderful kids in our program. They appreciate every little thing that we have done to help them. I was 50 years old before I ever went to Europe and it seemed that getting these kids on an airplane (some for the first time in their lives) and over to Paris would be an incredible experience. And it did not disappoint. These are the first two graduating classes from our scholarship programs and eleven of these thirteen alumni have now joined our mentoring team to work with our 6th – 12th graders who are enroute to college. Of the various things that my wife Jill and I have been privileged to do, watching these young people grow up and blossom before our eyes is one of the most gratifying of all.
WRR: How can children and young adults enter into the foundation?
ROC: We are in our seventh year of our programs and now have 165 children ranging from Junior Kindergarten to seniors in college. To qualify for the program, students must be Pell Grant eligible (usually under $50,000 in family income), be an A or B student, graduate from high school with an A or B average, and stay out of disciplinary trouble in school. So far 3 of the 165 students have had to drop out of the program – two for major grade problems in transitioning to high school, and one for bringing prohibited substances to school. That means we have 98% of our selected children continuing in the program. We just have great kids to work with.
WRR: What traits do you look for in a young person as determinate factors in future success?
ROC: We are looking for young people who have the ambition to work themselves up with the bootstraps we provide to them. It isn’t very hard to find these young people.
WRR: Not too long ago, you wrote that along with Rand, you consider Einstein to be one of the world’s greatest thinkers. Can you elaborate?
ROC: Albert Einstein changed the world with the power of his intellect. Single handedly, he advanced the world’s understanding by as much as a half-century in certain fields of physics. He charged ahead taking on the conventional wisdom of the intellectual giants that preceded him at all turns. He turned inward to derive the mathematical equations to prove those thoughts that made sense to him empirically. He was not in the least bit surprised to see his “theories” of relativity, the photo-electric effect, the existence of the atom, the equivalence of matter and energy all proven long after he derived the mathematical formulas. And to think that this work was published in the “miracle year” of 1905 – well it’s just breath-taking to think that one individual could do so much with nothing more than his intellect in a lifetime much less than in a single year.
WRR: You have a deep respect for former Princeton University and U.S. President, Woodrow Wilson as well.
ROC: We were fortunate enough to purchase the home in Princeton that was designed and built by Woodrow Wilson and his first wife, Ellen. Before buying his home, I respected Wilson for his prodigious work as President of Princeton University and his ascendency to the Presidency of the United States a little over two years after leaving that position. After buying his home, I have more time learning about him and now the picture is much more complicated. It is difficult for me to feel good about the manner in which he ended World War I by issuing his Fourteen Points, which over-promised the world a peace; something that could never have been crafted as we now know with 20-20 hindsight. Wilson was one of the most complex figures in world history and I look forward to learning much more about this man.
WRR: What drew you to have Heartland’s headquarters in Princeton?
ROC: During my brief stint as a Ph D candidate in mathematics at the University of Illinois, I became absolutely enamored with John von Neumann. He invented the field of combinatorial mathematics, the field of the life’s work of my advisor. And he also arguably invented the first stored-program, digital computer in the basement of the Institute for Advanced Study. In the 60s it was the Institute that beckoned new Ph D’s with post-doctoral fellowships. The home of Einstein and von Newmann beckoned all of us in these programs.
WRR: I have heard that you will be writing a book on Woodrow Wilson that promises to shed new light on a previously explored aspect of his life.
ROC: Actually Scott Sipprelle, the owner of Grover Cleveland’s former house, and I have teamed up to work on the idea of a book about the inter-relationships of Wilson and Cleveland, the only two term Democratic Presidents between Jackson and FDR. Cleveland moved to Princeton toward the end of his second term in office and became a member of Princeton’s Board of Trustees. Dean West, Wilson’ arch-enemy on the graduate school issue, was closely aligned with Cleveland and played a leading role in convincing him to move to Princeton and support his positions as a Board member. Before Wilson was named President of the University in 1902, Cleveland sought Wilson’s help in writing speeches and with political issues. Ruth (aka Baby Ruth) Cleveland played with the Wilson daughters until her untimely death. The Sipprelle and Carr families have spent enormous amounts of resources to restore these two fine homes and we want to include lots of pictures in this book as well. Right now we are still in the research phase of a book.
WRR: Lastly, if you were to address our nation’s young people and have the advantage of knowing that whatever you said would be internalized and carried out into the world, what advice would you give them?
ROC: I would ask them to look hard into themselves and to define what they think is important for them to do with their lives. And then I would counsel them to work hard to accomplish their goals in life while continually learning but keeping to those principles which define the character they are and want to become. If everyone developed a set of intellectually honest principles and devoted themselves to living by those principles, we would have much happier people and a world that would function much better.
For more on The Give Something Back Foundation, please go to: http://givesomethingbackfoundation.org
Katherine is the host of the Mystic Pen Series. She holds an undergraduate degree from Berklee College of Music and a graduate degree from Harvard University. Her research interests are focused on both the significance and the impact of the aural and visual in cultures and societies around the world (as told through art and music) along with the nature of artistic creation itself. Her area of specialty is the transmission of Near Eastern motifs in Italian art.
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