YW 86 – Robert Carr: Why we keep paying for things without using money

YW 86 – Robert Carr: Why we keep paying for things without using money

In today’s Young Wealth Show, Jason Hartman discusses changing technology and how that’s affecting the way we now pay for things with CEO and Founder of Heartland Payments Systems, Robert Carr. Every aspect of our world seems to be at the hands of scientists and inventors striving to change how we do things, and money and payments are just the latest point of interest.

Key Takeaways

01.38 – With the world being digitalized and modernized, it was only a matter of time before it changed the way we pay for things too.
06.22 – A truly cashless world seems a long way off, but we’re definitely on the road to it.
10.03 – Robert Carr describes the ups and downs experienced by Heartland Payment Systems.
14.30 – It’s amazing when you think how far we’ve come with technological advances, and how far we can still go.
15.50 – PayPal has always been the leading company in this market, but where does it stand now?
18.18 – It’s not just the business side; Robert Carr has made a huge difference to 250 kids’ lives through his Give Something Back Foundation.
23.26 – Find out more about Robert and his book on the blog site: www.RobertOCarr.com
24.08 – Fundamentally, if you don’t have repeat customers or recommendations, you don’t have a business.

Mentioned in this episode

Through The Fires: An American Business Story of Turbulence, Triumph and Giving Back by Robert Carr.

Tweetables
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 Transcript

Introduction:
This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit www.HartmanMedia.com
Welcome to the Young Wealth Show, where you’ll truly learn how to make, spend and invest money for an awesome life. Get the real life stuff that wasn’t part of your school curriculum. Young wealth gives you innovative new ways of dealing with your finances, as well as the skills and tools you’re going to need to survive and be successful out on your own. Let the Young Wealth Show be your GPS to take you from clueless to clued in. Here’s your host, Jason Hartman, with Young Wealth.

Jason Hartman:
It’s my pleasure to welcome Robert Carr to the show. He is founder and CEO of Heartland Payment Systems and founder of Give Something Back Foundation and the Heartland Cares Foundation. He’s author of Through The Fires: An American Business Story of Turbulence, Triumph and Giving Back. Heartland Payment Systems is a Fortune 1000 company, and so Robert has a lot of success in his background and we’re going to talk to him about the payments industry; we’re going to talk about Apple Pay, Google Wallet and kind of the modernization of the payments industry, but also his fantastic work with his foundation in putting a lot of children through college. Robert, welcome, how are you?

Robert Carr:
I’m terrific, Jason, it’s very nice to be on your show.

Jason:
Well it’s good to have you. So first, let’s talk about the capitalist side of your life maybe! And let’s talk about the payment system. I just used for the first time, about 2 weeks ago, Apple Pay and that was kind of exciting, I’ve got to tell you – my phone vibrated and it was kind of neat. But where are we on payments? I mean, the bitcoin people are out there saying ‘Zero transaction costs’. I frankly don’t know if bitcoin has that great of a future, I’m not real bullish on it. Just the idea on the payment side, on the more traditional side, I guess, of not having to carry a wallet around and having the convenience of doing everything from the device we all carry all the time nowadays, is pretty spectacular.

Robert:
It is spectacular and it’s going to get even more interesting as time goes by. The magnetic stripe card will be around for quite some time, but we’re definitely moving rapidly towards using cell phones for payment, and Apple Pay in particular, I think is a big move forward for our electronic payment industry because it’s much more secure than magnetic stripe cards because you’re using your thumbprint to make the payment, and that really is good authentication that the user is the valid user of the account. We were pleased to be asked by MasterCard to set them up on the technology that accepts Apple Pay, and we were able to bring it live in their two cafeterias in Missouri and New York in September and we were pleased about that. We were also able to bring it live at the World Series. We processed for the giant stadium in San Francisco and we were able to do Apple Pay transactions there so it’s a breakthrough, I think, and I think we’re going to see a lot more of those kinds of applications as the time goes by.

Jason:
What is the difference between Apple Pay and Google Wallet? I mean, does Google Wallet not use the nearfield communications technology, it’s just simply scanning, not a barcode, but the other thing..

Robert:
A QR code.

Jason:
Yeah, thank you. Is that the main difference? I don’t know anybody who actually uses Google Wallet.

Robert:
Right. We’re the back office for the Google Wallet transactions. This is a new technology, there are many different models that are being tried and tested and Google is certainly a big and successful player. I think Apple Play just sort of hit the right spot at the right time. All these breaches that we’ve been hearing about for these major companies – people are more concerned than ever about security, rightfully so, and Apple Pay introduced their technology at the right time. I think that’s what’s driving the current behaviors around Apple Pay, versus Google Wallet.

Jason:
OKay, just so I understand. I loaded the Google Wallet app onto my Apple phone, oddly, and I never used it. What is the distinct difference? I mean, if you’re using the Apple phone, you’ll have the thumbprint part, and on an Android phone, you probably won’t have that – I really don’t know – but is that the distinctive thing? Is it the same otherwise, or is it a whole different concept in payments?

Robert:
There’s a lot of similarities, but the difference is I think you hit the nail on the head for one of the two major differences – that the Apple Pay does have that thumbprint capability and I’m suspecting that Android phones will have that in the future, but today, Apple Pay has it. The other thing now is which merchants accept this technology, and that’s really the driver. I’m not sure where you used your Apple Pay transaction, but it obviously was at a merchant that was accepting it, and there’s only several hundred thousand, less than 10% of the merchants accept Apple Pay today. That’s changing rapidly, but I think that’s a big driver of your experience.

Jason:
Okay, so Google really hasn’t had the merchants buy on then, and they need them to do that, just the same way that Apple did, right? Is that the thing?

Robert:
That’s correct, yes.

Jason:
Okay. I can’t wait until we can use this with vending machines and so forth, it’ll just be so much easier. Who wants to carry change, or even dollars anymore?

Robert:
Well our company just happens to be doing vending with electronic transactions with cell phones. We do a lot of university campuses and of course, most of the dormitories have the washers and dryers and we’re able to do those now with cell phones. It’s not real common yet, but it’s coming rapidly.

Jason:
But in the Scandinavian countries, they’ve had that for several years, from what I understand. I was recently reading about Switzerland, or maybe it was Sweden. I could be mistaken, I think it was Sweden, sorry. I’ve been to both of those countries, I’m not ignorant, I just mixed them up for some reason! I know they’re distinctly different places. But I was reading about, I think it was Sweden, and it said Sweden may become the first cashless country because virtually every transaction is a credit card transaction.

This has pretty big implications for the economy, it has pretty big implications for privacy, for illicit activities. There’s kind of a lot to this when you really drill down on it. What are your thoughts about those things?

Robert:
Well I think you say credit cards and generically, I think people say credit cards when they really mean credit cards and debit card and pre-paid cards.

Jason:
Right, I do mean that generically.

Robert:
Right, I think there’s one part of this that is under the surface, and that’s the underground economy. The underground economy does not want to have electronic transactions because, of course, there’s a record of those transactions. I think there’s going to always be, even many many years down the road, there is going to be cash that’s being used. For the rest of the economy, though, I think we are moving to less cash than ever. That’s the trend and it’s going to continue on, I think, for quite some time. Checks are virtually – well, they’ve really decreased a lot, especially personal checks, so we’re in the middle of the revolution already.

Jason:
Yeah, we sure are. So what do you see as the future of systems like Apple Pay? How will that change things? I don’t know if I can do this yet, but if I owe my friend $100, can I just send it to their phone? Like bump my phone against theirs or something and pay them?

Robert:
There are multiple different companies that are offering that kind of technology – banks, I think Square has that application, I think some of the money transfer companies have those applications. That’s here today, moving money for personal payments – they’re called P to P, Person to Person Payments. So they’re here, and I think they’re viable and it’s going to continue to grow.

You mentioned bitcoin and some of these other things; I believe that the Federal Government has declared bitcoin to be a medium, like gold, bullion or silver, but it’s not deemed to be a currency by our government and so I think it can be used without transaction fees, but it’s not really deemed to be a currency such as Visa and MasterCard right now.

Jason:
Yeah, no question. And the reason I’m not bullish on bitcoin or any alternative currency like that is because I think it represents competition to the government and the Central Bank and their fiat currencies, and they’re not going to want to see that succeed. They may tolerate it, but I don’t know. I just personally wouldn’t put a lot of stock in it.

Robert:
Well, it’s anonymous and there’s not a record of the transaction that’s deliberate and on purpose, and obviously it’s a big candidate for money laundering and that’s the concern of the government as much as anything. I believe.

Jason:
Very interesting. Talk to us about your tremendous success in business. Your book, Through the Fires, and I’m certain that you’ve had a lot of fires on your way to becoming a Fortune 1000 company.

What would you like to share with us from the book, or just any stories from there?

Robert:
Just a couple of points. It took about 25 years before we became an overnight success!

Jason:
[Laughs]. Like everybody!

Robert:
Right! And we had some really bad things happen to us; we had a very big breach in 2008 that we discovered in 2009.

Jason:
A cyber breach, a data breach, is that what you’re talking about?

Robert:
Yes, and our stock had hit a high of $33 a share. After our IPO in 2005, it dropped all the way down to $3.48 and our company was in peril. We didn’t know whether we were going to make it through or not, but we’re still here to talk about it, so five years later, our stock is now trading at $53. The point being that if you work at it smart and hard, you can get through these really tough times and I know a lot of business people go through these times and I just want to provide encouragement to keep on the good fight because you can get through it with the right amount of work.

Jason:
How many employees do you have?

Robert:
We have 3,700 employees and at the last survey, 87% of our employees anonymously declared that our company was a “great place to work” and I’m very proud of that.

Jason:
That’s awesome, congratulations. Tell us about the start of it. I mean, you are the founder, so was this a start 25 years ago in your garage or bedroom? How did you get into it?

Robert:
Well I got into business at the age of 25, and was basically a software developer for many years and then got into this payments business, and in 1997 merged my company with a bank in St Louis, called Heartland Bank, and that’s where we got our name. By being the bank in this business, we were in the right place at the right time and we grew the company from about one half a billion dollars of processing volume to now $100 billion in that time frame, so it’s been quite a ride. We had good solutions and we had a good model for our customers, very transparent models and that’s a lot of the reasons for our success.

Jason:
Good, good. Was it you and a couple of employees at the start, or just you? How did you end up merging with a bank? That was probably a pretty big lever point, I assume, right?

Robert:
It was a big lever point. In 1997 it was me, my daughter, my wife, my son-in-law and five or six other salespeople out in the field, creating what is now Heartland Payment Systems. It was very typical in many respects – we started off with a shoestring and we were able to build a really great company over time.

Jason:
What year did you merge with the bank? When you say merge – did you buy a bank? Is that what you did?

Robert:
No, what happened was I had a company, it was called Credit Card Software Systems, and the bank bought half of my company and we renamed it the Heartland Payment Systems. They paid $1 million for half of my company and I was real eager to be a bank because then we were members of the Visa and MasterCard network. You have to be a bank to be a member and that made us a member, and that’s why we were able to take off so much, and today we’re a $2 billion valued company in the New York Stock Exchange, so from a $2 million valuation in ’97 to $2 billion now, it’s quite an amazing journey.

Jason:
That is incredible, congratulations. That’s phenomenal. So what happened after that? You went from just a few salespeople and your family, and then the bank bought half the company, and then 3700 employees now. I mean, wow, what happened in there?

Robert:
Well, as I mentioned, we were in the right place at the right time. My background is in IT, I have a computer science graduate degree, one of the first recipients in the country back in the very late ’60s, and I was just in a unique position to know what technology to build at the right time, and America was moving from paper receipts, you might remember those? With a machine that you went back and forth to get the embossed characters off of the card, and transitioning from that paper-based model to electronic payments, electronic authorizations that was just sweeping the country, and we were right at the front of that.

Jason:
That was before ’97, though, right? That was happening.. I don’t know, it’s hard for me to remember now.

Robert:
It was in the late ’80s and the ’90s.

Jason:
Yeah. I managed a couple small businesses my Mom owned in High School and I remember when someone would present a credit card, I would literally dial on the phone and get an authorization, and many times we wouldn’t even get an authorization, we’d just do the imprint! Very interesting how it’s advanced, and now we’re talking about virtual wallets like Apple Pay and Google Wallets so it’s an exciting time.

Where does PayPal play into the whole thing? You broke a record with PayPal, right?

Robert:
Well, PayPal went public before we did, and when we went public, we were more oversubscribed than PayPal, which had been the most oversubscribed IPO in the financial services sector. We did break that. Of course, PayPal is a huge company and is now part of eBay, which is being spun off as an independent company, and PayPal is one of the main payment systems in the country. Visa, MasterCard, American Express, Discover and PayPal has come in as an alternative to those four general purpose cards.

Jason:
How’s Square doing compared to PayPal? I remember seeing a mini-rant by Elon Musk, who used to be involved in PayPal, of course, saying ‘Paypal hasn’t innovated in 8-10 years’. I use PayPal, but I’m not that impressed with it, to be honest with you.

Robert:
Well, PayPal’s being spun off because I do think innovation is probably something.. I mean, it was terrific in the beginning but it has slowed down a little bit. I expect it to become very vibrant in the payments community. I think they have a good foundation to build upon.

Jason:
And how about comparing PayPal with Square? Square seems like the real innovator, lately.

Robert:
Yeah. Square’s done a lot of things well.They’ve run through an awful lot of money, however, and the viability of their business model is to be proven. They have been innovative and they service some markets at a loss, which is a little confusing to a lot of us why they didn’t continue to do that..

Jason:
Well, you know, if you do enough volume, you just make it up there. That’s a joke, by the way.

Robert:
[Laughs]. Yes.

Jason:
But go ahead, just finish your thought there, if you would.

Robert:
Yeah, some of the technology they’ve brought to the market is good, and has become sort of common in the industry now with the readers that are plugged into the cell phones and that type of thing, and they also have some nice looking equipment that is on the counter in small businesses around the country.

Jason:
Good stuff. Well hey, you are doing some just incredibly heartwarming work with your foundation and tell us a little bit about that. I think you’re responsible for more kids than any other parent I know, that’s for sure!

Robert:
[Laughs]. Well, we have 250 kids in our program today. About 60 of them have graduated from universities and many of them are in High School right now, and many are in College right now. We’ve got 250 in the program; our goal is to put 1,000 kids through college over the next 5-10 years, and we do that by bringing in kids in 9th grade. They have to be Pell Grant eligible, which means the family income needs to be below $40-50,000, depending on the number of children in the family, and we assign mentors to these kids in 9th grade. Many of them come from single-parent homes and we track them through High School. They have to keep a B average throughout school and stay out of trouble, and if they are able to do that, and the vast majority are, then we pay the room, board and tuition for going through College for 4 years. They must stay in College full time and they can work part-time if they want to or need to, and so far, we’ve been remarkably successful.
We have a very high graduation rate, we work with specific universities who want to be a part of this program, and right now, the program is limited to Will County, Illinois, which is the collar county south of Chicago (it’s my home county), but we want to expand it throughout the country. We just need to have people help us with donations because we put our kid through College for $20,000 as $5,000 a year for 4 years, and it’s caught on very very nicely and we’re really pleased with it. We think it can go a long way to help a lot of underprivileged kids.

Jason:
So how do you do it for $5,000 a year? I mean, that’s amazing. I think the College system needs to be redesigned in light of some of the technology and things like the Khan Academy and so forth. It’s just so overpriced! I’m not against College, I just think it’s become a bit of a rip-off, honestly, at $200,000.

Robert:
It’s definitely expensive, and the way we do it is the Pell Grant pays some of the money, the State of Illinois, at least, where our program is, has an imap program. And then we put up our cash and then the University has agreed upfront that they’ll fund the rest of the money for room, board and tuition.

Jason:
Good stuff. And do you do that for certain majors? I would kind of hate to see you doing English Lit and Feminist Studies. I just don’t think there’s any jobs for those things. I’m not saying they’re unimportant, I just don’t think anybody’s hiring for them.

Robert:
[Laughs]. Well these students are such great kids, they are very tuned in to those kinds of things. We don’t have requirements about what courses they take. They need to be in good academic standing after every single semester – either eight semesters, or however many trimesters that is –  through school, but we don’t go so far as to tell them what courses to take. So far, so good. We have lawyers who are our graduates, we have a medical doctor with a PhD. These are very responsible young people. There’s a chapter in my book about millennials and about how I think they’re so mistreated with judgments about them. Our kids are all millennials and they’re just great kids.

Jason:
Yeah, I agree. I think in many ways, they get a bad rep. I’m very familiar with the Generation Y, and I don’t know, every generation kind of has these same things about the next one coming up, right?

Robert:
It goes all the way back to Cicero. I think Cicero wrote an essay about how the young kids just don’t behave like they used to.

Jason:
Yeah! If he was only around to see it today!

Robert:
Exactly.

Jason:
Yeah, that’s for sure. But just with the topic on degrees, I just wish more kids would get degrees in engineering and things like that – things that really really matter. The reason I say that is if I had a nickle for every person I have hired, or at least interviewed in my career, and you’re certainly a much bigger employer than I have ever been and probably ever will be! – that had a psychology degree they weren’t using, or any degree that they just don’t use. It’s kind of a shame, I think. I just think we need a lot more science in this country.

Robert:
Well, we need a lot more engineers, and we have a lot of software developers, and it’s hard to find qualified software developers in this market.

Jason:
It sure is. Well, that is very good. Robert, give out whatever websites you like – you’ve got the Foundation, and then your business as well, and a personal website. What would you like listeners to look at to find more about you?

Robert:
The book is available on Amazon, of course, it’s Through the Fires. Then I have a blog site called www.RobertOCarr.com, and the book can be ordered there, and there’s also a number of blog postings where we talk about the book and have Q&A back and forth. I welcome anybody interested to join us on the blog.

Jason:
Good stuff. Excellent point. Well Robert, just a closing thought on what it takes to be successful. If someone is listening who is either in a corporate job and they want to go out and start their own thing, or maybe they’re young and they’re just starting out in their career as a Generation Y person, what advice would you give them?

Robert:
The number one advice I would give a person going into business, and I would say this is as good a time as ever to go into business – there are so many opportunities out there, I think. The number one thing I would say is you have to have a service or a product that people are happy with and there’ll be repeat buyers and they will recommend it to their friends. If you don’t ever get there, you don’t have a real business. And a lot of companies never get there, so focusing on the quality of the service and the product and doing it in such a way that it’s competitive price-wise, and people are happy with it, that’s the secret, I think, to the number one thing I would recommend.

Jason:
I think that is very good, sound advice – quality never goes out of style. Robert Carr, thank you so much for joining us today.

Robert:
Thank you, Jason, my pleasure.

Outro:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.HartmanMedia.com, or email [email protected]
Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own, and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.