Q: Investorideas.com
As an industry leader in payment processing, where do you see the biggest growth opportunities?
A: Mr. Bob Baldwin, Vice Chairman of Heartland Payment Systems
In card acquiring/processing, we see our biggest opportunities in further broadening our capabilities so that we can address additional merchant segments and/or bring new solutions to market. As examples of the former, we have launched significant initiatives in grocery and ecommerce, areas where we have previously had a limited or nonexistent presence. For the latter, we are highly focused on the implications of the development of cloud-enabled tablet processing. As these solutions develop, driven by the extensive interest in using tablet/smart phone interactions to change the merchant/consumer relationship through offers, discounts, etc., we see significant opportunities in the disruption of existing processing approaches and in particular the existing solutions offered by higher-end POS systems. We are also confident that the merchant will need a much more robust network-management capacity, given the reliance on the cloud, and are rolling out a hosted network solution that will address this specific issue.
We are also deeply focused on a broader range of processing solutions that we think can drive faster growth for Heartland Payment Systems in the years ahead. Pro forma for two acquisitions that closed in December, approximately 30% of the company's Net Revenue in 2013 will be generated in non-card activities. In particular we would focus on two drivers of growth: payroll, and our school-related offerings (differing solutions for K-12 and University). In payroll, we view the acquisition of Ovation Payroll at year-end as being truly transformative, bringing on board a new leadership for the combined businesses, combining the processing onto one common platform for scale economies, and driving innovation in our sales approaches. In the school-related field, we now provide processing for the lunch program of 30% of the public schools in the US, and see substantial growth in replacing checks and cash with electronic loads of the student's prepaid account. At the college and university level, with the acquisition of ECSI, we now offer a host of processing solutions to more than 2,000 schools, and believe we have significant cross-sell opportunities with our broad set of processing solutions. Both of these businesses have the potential to grow much more quickly than the card business, and so they will be critical to helping drive faster overall growth in the coming years.
A: Mr. Harold Montgomery, Chairman and CEO of Calpian, Inc.
We believe the small to mid-sized merchant space is a vibrant and dynamic market segment. Every merchant is interested in cost-competitive payment processing and that's where we specialize. Offering customized solutions at an affordable cost to the small business owner is crucial to his ability to maintain and grow his business. Payment processing is as critical a business function to a merchant as is the goods he sells -- it must work seamlessly every time. Calpian works with merchants, who these days are burdened with more and more costs and government regulations, to ensure that each of our merchant customers receives the most cost-effective and regulatory compliant solution for their specific type of business.
Calpian's acquisitive strategy in the small to mid-sized merchant space presents what we believe to be the greatest opportunity for growth under current market conditions. The payments industry has long been one of entrepreneurs and as such, there are numerous very well run small Independent Sales Organizations (ISOs) serving this merchant space who are looking for larger partners with capital strength. By partnering with Calpian, these ISOs receive both the working capital they need to grow their businesses and access to Calpian's superior pricing and payment processing product options.
Q: Investorideas.com
How do new EMV transaction requirements impact the industry?
A: Mr. Bob Baldwin, Vice Chairman of Heartland Payment Systems
At this point, the impact of EMV is difficult to predict. The card brands have not been very effective at articulating the value proposition to either merchants or issuers, so progress has been slow. It also appears that any reterminalization (exchanging one terminal for another), which the successful roll-out of EMV would force, will be greatly impacted by the success in the marketplace of both contactless solutions (NFC or bar code) and new tablet-based processing alternatives. We will be learning a lot about these solutions over the next two years, and Heartland's intention is to remain engaged with all of the new solutions so that we can bring the most effective ones to our merchants when the timing is right.
A: Mr. Harold Montgomery, Chairman and CEO of Calpian, Inc.
EMV presents an opportunity for merchants to achieve a level of transaction security they have never before enjoyed by requiring a chip and PIN card to be used at the point-of-sale (POS). It's also an opportunity for companies like ours who support merchants to educate them about the benefits and requirements of EMV and assist in their POS equipment upgrade needs. Despite the benefits that EMV presents, the U.S. rollout, scheduled to begin April 1, will most likely be delayed because the card associations have not provided a clear implementation road map to the various players in the payment chain -- system and program updates to support EMV processing must be made at the card issuer, card processor and hardware manufacturing levels -- to name a few. Card-holding consumers must be issued new plastic cards with an embedded chip. Merchants must be educated on the new procedure at the point-of-sale and must upgrade their processing equipment to accept EMV cards. There is a lot to do and a lot of questions throughout the payments industry that must be answered before we will effectively make the transition to EMV in the U.S. Calpian is committed to monitoring the latest EMV developments so that our merchants are educated, equipped and ready when the time is right.
Q: Investorideas.com
What is your company's mobile growth plan?
A: Mr. Bob Baldwin, Vice Chairman of Heartland Payment Systems
We introduced our MoBuyle fob solution, which works with iOS and Android tablets and phones, in 2012 and since then, have enabled many thousands of our merchants with this capability. Unlike many competitors, we have been focused on providing an already-active merchant with added flexibility with this solution, for example by using a tablet outdoors in the summer, or line-busting, or as back-up processing when the merchant's primary system is not operating. At the same time, we are considering how we want to address the micro-merchant category where mobile solutions have been highly popular; Heartland has never wanted its sales force to sell to such small merchants, as the economics just don't make sense. At the same time, we believe that we have numerous partners including banks and professional associations that may well prove to be highly effective in providing a conduit to their customers and members in a cost-effective way.
A: Mr. Harold Montgomery, Chairman and CEO of Calpian, Inc.
Calpian has both a domestic and a global strategy with regard to mobile wallets.
In the U.S., we are monitoring the developing mobile market carefully with the intent of identifying services we can provide which make sense when it makes sense to offer them. There are a number of mobile payment solutions available in the U.S. market now, but none has really taken hold yet -- largely because the convergence of consumer demand and handset functionality (the most widely used smartphone in the U.S. -- iPhone -- did not equip their latest release, iPhone 5, to process mobile transactions) has not yet come together. Only when consumers require mobile wallet functionality and phone manufacturers equip phones with the ability to process them en masse, will a mobile payment merchant solution begin to emerge and will it make sense to offer it to our merchant customers.
Calpian's global mobile payments strategy centers around our ownership of Mumbai, India-based "Money-on-Mobile," the largest mobile payments processor in India. Our experience in India has been instructive to us about the ways consumers integrate mobile wallet functionality into their lives on a daily basis. It's enabled us to identify new offerings and merchant markets for mobile payments and to be a large player in the global mobile payments initiative. The growth of Money-on-Mobile to over 35 million unique users in less than two years is a dramatic demonstration of the power of mobile payments and the importance of providing a solution that fits both the specific market conditions and the specific consumer's needs in that market. We've done that in India with Money-on-Mobile
Q: Investorideas.com
Do you see the biggest challenge as government regulation moving forward, or are there other factors that will impact the industry even more?
A: Mr. Bob Baldwin, Vice Chairman of Heartland Payment Systems
Historically, government regulation has not had a meaningful impact on our business, except indirectly through bank regulators. Of course, the Durbin Amendment to the Dodd-Frank legislation had a substantial impact on the pricing of the majority of debit card transactions, which resulted in a number of unintended consequences that the industry is still grappling with. Looking forward, while there could be further legislative action, and certainly will be impacts from judicial actions -- the Visa/MasterCard class action settlement that now allows merchant surcharging is a good example -- we expect the card processing environment to be tremendously dynamic in the next few years, driven by technology advances that are just starting to play out. To succeed in the coming years we believe an acquirer will have to make thoughtful investments, implement successful sales and marketing strategies, and move aggressively to engage merchants in the opportunities to improve both their processing environment, and customer interactions. We believe that Heartland, having achieved significant scale on our modern processing platforms, and having the industry's best and largest sales organization, is ideally suited to benefit from the substantial disruption we see in the coming years in this market.
A: Mr. Harold Montgomery, Chairman and CEO of Calpian, Inc.
Government regulation is definitely a concern, particularly after the Durbin Amendment wreaked havoc with debit card processing and affected the entire payments chain, including the consumer, in mostly unfavorable ways. With recent court rulings regarding surcharging and allowing spending limits on credit card transactions, it seems there are always changes to the rules governing electronic payments. Calpian monitors all such events so that our merchants are informed about both their rights and the requirements they must meet based on such rulings. Although we don't see any major legislation being currently considered, when new products and processes -- such as EMV and mobile payments -- are introduced with what will invariably be the normal kinks any new product or service, we may see some legislative activity in response.
Among the near term trends that Calpian sees as industry game changers are innovative product and pricing packages and EMV are the top two that we are watching today.
About Calpian ( OTCQB : CLPI )
Calpian, Inc. (CLPI) is a publicly traded company with corporate offices in Dallas, Texas and mobile payments emerging-market operations through its subsidiary in India. Calpian's U.S. business focuses on the 10,000 Independent Sales Organizations (ISOs) that serve approximately two million small merchants across all industries in the U.S. who pay an estimated $1 billion in annual residuals. Calpian's Indian subsidiary offers Money-on-Mobile, a pre-paid mobile payment solution, to more than 122,340 Indian retail locations. Calpian's management team has over 70 years in combined experience in the payments business. Calpian's CEO, Harold Montgomery, is a recognized industry leader who has provided expert testimony to the U.S. Congress and Federal Reserve Bank on payments-related issues and regularly appears in numerous industry publications, such as Transaction World Magazine.
www.calpian.com and http://www.money-on-mobile.net/.
About Heartland Payment Systems ( NYSE : HPY )
Heartland Payment Systems, Inc., the sixth largest payments processor in the United States, delivers credit/debit/prepaid card processing, school solutions, marketing solutions, end-to-end encryption technology, campus solutions, payroll solutions, and related business solutions and services to more than 250,000 business and education locations nationwide. A FORTUNE 1000 company, Heartland is the founding supporter of The Merchant Bill of Rights, a public advocacy initiative that educates merchants about fair credit and debit card processing practices. Heartland also established The Sales Professional Bill of Rights to advocate for the rights of sales professionals everywhere. More detailed information can be found by visiting www.HeartlandPaymentSystems.com
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