We put out an unflattering – but by all accounts accurate – article discussing the meltdown that is Global Payments / Heartland POS. In a nut shell all the data we gathered led us to the conclusion that Global has no idea how to build and ship software and is a payments company at its core. Absent massive cultural (and by logical extension executive) overhauls we don’t see this changing.
Before we published the article we sent Global Payments a draft of the article in full. For three weeks they had access to the article for comment. Nobody replied. We even reached out on three separate occasions to solicit feedback. Find any other journalist that would be so acquiescing.
Which is why we find it humorous that Global / Heartland then issues an internal memo to its POS community as if our article didn’t even exist. Below is the text which came from Vince Lombardo, who in-effect runs Heartland’s POS business lines.
Our Point of Sale Business It is important we acknowledge when our strategy is a success, and pause, even for a brief moment, to celebrate wins as a business. In that light, I want to recognize the success our point of sale business has experienced the last couple of years.
Global Payments has grown to become a worldwide leader in payments technology and software solutions. During the past year, our parent company’s stock has risen aggressively, outperforming countless other legacy payment providers. This growth is exciting and has been significantly driven by Heartland’s own growth and success. Perhaps most importantly though, it demonstrates the market’s enthusiasm for Heartland’s products and solutions.
Xenial/SICOM, Active Network, AdvancedMD and other strategic acquisitions under the Global Payments umbrella have of course led to the development of a number of our robust and versatile solutions, including Heartland Point of Sale, which has been a truly integral part of our recent success. In one year alone, Heartland Point of Sale improved revenue from $38 million to $63 million. This incredible growth was made possible by a strong sales channel, driven by our unique distribution partnership of more than 1,200 outside sales reps and 300 point of sale dealers. The impact of our distribution strategy on Heartland Restaurant Point of Sale is remarkable. In six short months, Heartland Restaurant Point of Sale was able to double the number of rooftops accumulated through MobileBytes during the last five year period. The solution is currently in nearly 3,500 restaurants nationwide. In addition to its U.S. distribution footprint, Heartland Restaurant Point of Sale will be launching to 25 dealers in Canada in a few months.
I’m also proud to announce Heartland Point of Sale will soon add a cloud retail solution to its suite of products. We fully expect our Retail Point of Sale will serve the retail space in a fashion similar to what Heartland Restaurant Point of Sale has done in our restaurant vertical. As a result, we anticipate Heartland’s Retail Point of Sale to have a tremendous impact on our business and revenue. Early projections estimate it will earn $82 million in 2020, a substantial increase from the $18 million earned in its first year in 2016.
From taco truck to Taco Bell, our point of sale strategy continues to succeed, not only in vertical plays such as retail and restaurant, but additionally as we grow our point of sale continuum. New offerings, including Mobile, Terminal+ and Register, will be distributed through our outside sales channel and directly to small businesses throughout the U.S. I look forward to giving more details about this exciting addition during our Diamond Conference in March.I’m confident our point of sale strategy has never been stronger and, that together, we will make 2020 the best year yet for our point of sale business.
Vince Lombardo President, U.S. Payments and Payroll
There are a few things we wished Mr. Lombardo would address in his missive.
First, what are the costs of these revenues? A blind cat can increase revenues if given enough money. Hell, a two-line software program could make revenue – take whatever money you put in a bank account, throw it in the stock market, then immediately sell it. Even if you end up with less than you initial investment you still produced “revenue” when you liquidated your position. Without any frame of reference for how much was invested to earn this “revenue” it’s a useless point of conversation.
Second, we’d wager that 90% + of the quoted “revenue” is payments processing revenue. That has nothing to do with product, software, or earning a SaaS revenue multiple on Wall Street. That has to do with attaching payments to more POS customers, and then making up fees wherever possible. Global’s M&A thesis appears nearly exclusively driven by, using their CEO’s own words, “revenue synergies.” In plain-speak the payments community has interpreted this to mean finding merchant accounts that aren’t being charged to the gills, buying the portfolio, and then adding all sorts of fees to ratchet up the payments margin. Ask any analyst covering Global – we’re not alone in our opinion.
Third, we don’t think Heartland understands its own business model. Not one Heartland POS dealer we’ve spoken with is earning more money under the Heartland dealer model than they would be earning if they resold POS as their own ISO. The Heartland thesis is that Heartland’s direct sales reps will refer so much business to their POS dealers that, while POS dealers will earn less payments revenue on each sale, they’ll earn more total revenue through increased deal volume. Not one dealer has said this to be the case. Also, this is a payments – not product – focused approach.
Further to this third point, Heartland is neglecting the trivial investment to keep their legacy POS systems relevant. How do you think a Heartland dealer with a large contingent of legacy installs feels about this? You may as well pull down your pants and defecate all over your “partners” because this is about the most unsupportive thing you could do. And even if Global doesn’t give a shit about their dealers (keep in mind Global has not been a channel-friendly company for years), their strategy is trash. Dealers are not sales people. They will sell 3-4 deals per month. And those are the good ones. Sure, you’ve got your quotas, but those are artificial. At the rate the market is going, we’d bet Heartland is attriting more merchants on their legacy POS systems than they’re adding on Mobilebytes / HRPOS. If attaching payments is Global’s singular goal (which it clearly seems to be), this is still a horrible strategy: you won’t attach payments to a merchant who left for another POS.
What the hell are you thinking? Do you even understand how software metrics like net retention works? You are only going to increase net retention on your legacy installs if you have data and APIs to cross-sell products into those accounts. Even if you get a merchant on HRPOS, how do you plan to keep them there? Again, net retention is the most critical SaaS metric to measure. Dealers have no idea why this metric matters, but it should be an important piece of education Heartland puts out there whenever talking about its revenue numbers. Without discussing this metric the rest is pointless, and Global sounds like an ignorant payments bro.
To become a software company Global will need to create value, which is how we would have handled our response. Here’s what we hoped to see from Mr. Lombardo:
Last week you undoubtedly saw an article from ReformingRetail detailing our POS business lines. They made some valid points, but they might not have had access to our latest strategies. That’s why I’m taking this opportunity to be open and honest with you so that we might move forward together as partners aligned on complete transparency.
Xenial has not performed as expected. Heartland has historically been a payments company, so it’s not surprising that we stumbled while learning to build software. Nobody is perfect, and I’m sure we’ll trip again. But we maintain high conviction that Xenial is on the right path and will be a live product for our limited enterprise customers by Q2 of this year. If not, we’ll need to make a game-time decision.
We recognize our SMB POS model needs work too. We’ve not done a good job keeping pace with the market as it relates to feature development and product improvement. For those of you reading these words, over 90% of your accounts are comprised of the “legacy” systems we acquired: Digital Dining, Dinerware, and PCAmerica. While we’d like to upgrade them to HRPOS eventually, we can’t abandon them today.
That’s why we’re announcing two initiatives.
First, we’re building a universal API so you can integrate modern solutions with customers using the “legacy” systems. Our hope is that the API will keep customers in the Heartland family until they’re ready to move forward with HRPOS. We don’t want to drive existing customers to competitors through inaction, and we believe we can create differentiated value, even for customers using older systems, with this API.
Second, we’re actively building a partnerships program to provide tangible, quantifiable ROI to your customers. We’ve hired a new partnerships lead to source innovative companies with which to build deeper relations. We can’t do everything, and it’s important that we recognize our limitations for the betterment of our customers.
You’ll notice that I’ve not said one thing about payments. That’s because payments may have been instrumental in our past, but it’s not the answer for our future. If we’re going to succeed we need to provide value to the customer. And that looks a lot more like software, even if it comes with lumps.
We have no axe to grind here. All we ask is that Global / Heartland do right by their customers, partners, employees, and shareholders. We don’t think raising payments fees and sticking their heads in the sand is a viable long-term solution. Until that changes it’s open season on Heartland merchants. Sorry Heartland channel.
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