Heartland Payment Systems Inc. is building a point-of-sale system reseller network in hopes it will increase the number of multiple products sold to a single merchant.
Announced Friday, the program is part of Heartland Commerce, and signals a shift in Heartland’s selling strategy. The company will no longer use a single channel of distribution, and now sells through POS system dealers in addition to its W-2 sales staff.
“We’re excited because we believe these independent business owners can be a valuable contributor to our success and we to theirs,” Robert O. Carr, chairman and chief executive, told analysts during a conference call to discuss Heartland’s most recent quarterly earnings. “We can offer these dealers not only the most competitive POS solutions in the market, but also a set of financial incentives that only Heartland dealers will be able to enjoy. For the first time, Heartland is no longer a single-channel distribution company. We are positioned to be more effective in the competitive arena than ever before.”
Carr says Heartland signed more than 175 dealers as resellers in 2014, and its current total is approximately 250. “From a product standpoint, dealers will be able to offer merchants an open-architecture, highly secure integrated POS solution with a number of additional applications readily available, including payroll, and for the hospitality industry reservations and table management among others,” he said. “This wealth of additional applications will not only strengthen their customer relationships, but will enable dealers to take a bigger bite out of the margin stack, building their residual income with sticky multiproduct services.”
Analyst Christopher Shutler at William Blair & Co. LLC, however, questions how well the new model will play with Heartland’s established base of employee salespeople.
“Heartland has always operated through its W-2 direct salesforce, but it now is also adding POS dealers through its ‘trusted dealer program,’” Shutler said in a research note on Heartland’s earnings. “Heartland’s strategy is for dealers to be able to sell not only payment processing with the POS system, but also sell payroll, SmartLink [a Heartland network-management service], reservation and table management software, and other applications. In essence, Heartland is expanding the size of its salesforce. We have mixed feelings on this initiative.”
While other acquirers have successfully managed this sales strategy, Heartland took its time adopting the model, Shutler said. “While other acquirers are multichannel, they also are not employee-based models, which makes Heartland different and potentially introduces channel conflict. We also wonder how successful the cross-selling strategy will be. Heartland has struggled with this with its own employee salesforce, so we are not sure why we should be more confident third-party dealers will be more successful.”
Carr, though, in response to Shutler’s question during the conference call, said he would not call this move a strategy shift, “but having these dealers and working with the dealers is taking a lot of time from our managers. It’s not like we’re trying to do a strategy shift so much as we have limited capability to talk to potential distributors for us and salespeople as well.”
Carr said Heartland has developed a compensation model that pays the dealers for their work as well as providing a “finder’s fee” if the merchant signs up for a service that generates recurring revenue.
“Dealers are a little different in terms of cross sale than your general-relationship manager,” Robert H.B. Baldwin Jr., vice chairman, told analysts. “The dealer has an ongoing interaction as they support the system that's been installed at the merchant and so it's a little bit different than our relationship manager who is really on to the next sale primarily.”