Introduction
In today’s Creating Wealth Show, Jason Hartman takes the chance to go over one of the main themes of this year’s Meet the Masters event: Alignment and Empowerment. He brings up the issue of property managers and how getting the right agreement with your property manager can bring you the sort of empowerment you should be enjoying as an investor.
Later he discusses changing technology and how that’s affecting the way we now pay for things with CEO and Founder of Heartland Payment 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
01.22 – Mortgage rates are currently historically low. Take advantage and make a new asset for yourself.
04.30 – The new Creating Wealth Show format will give you a chance to look back over Jason Hartman’s back catalog and get access to some interesting content.
08.40 – You need to find a way of empowering yourself, and alignment is the perfect way to do it.
14.20 – Income property doesn’t have an end-date. It sits there, producing wealth, for as long as you need it.
18.52 – You need to find a way of making your property manager agreement work for all parties involved.
28.06 – With the world being digitalized and modernized, it was only a matter of time before it changed the way we pay for things too.
33.05 – A truly cashless world seems a long way off, but we’re definitely on the road to it.
36.55 – Robert Carr describes the ups and downs experienced by Heartland Payment Systems.
41.36 – It’s amazing when you think how far we’ve come with technological advances, and how far we can still go.
43.00 – PayPal has always been the leading company in this market, but where does it stand now?
45.35 – It’s not just the business side; Robert Carr has made a huge difference to 250 kids’ lives through his Give Something Back Foundation.
50.57 – Find out more about Robert and his book on the blog site: www.RobertOCarr.com
51.42 – Fundamentally, if you don’t have repeat customers or recommendations, you don’t have a business.
Tweetables
If you tell a big enough lie for long enough, people will start to believe it.
What sort of consequences can we expect from a cashless society?
The tough times will come in business, but if you work smart and hard, you can get through it.
We spend so much money on degrees, but how many of us actually use what we studied?
Mentioned in this episode
Through The Fires: An American Business Story of Turbulence, Triumph and Giving Back by Robert Carr.
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
Jason Hartman:
Hey, this is Jason Hartman. Welcome to everybody from 164 countries worldwide, and to so many of you listeners on Stitcher Radio. Thank you so much for joining us, we’ve got a great episode today so let’s dive in.
Announcer:
Welcome to Creating Wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing. Fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years, and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it, and now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
Jason:
Hey, welcome to the Creating Wealth Show. This is your host, Jason Hartman, and we are here for episode number 466. Thank you so much for joining me, it’s great to have everybody here. Gosh! Okay, so I’m fabulously wrong again. Can you believe this? Yeah, I know. My crystal ball only works about 85%, I guess – maybe 80-85% effectiveness on my crystal ball. That is because mortgage rates hit a 20-month low. Of course, when I talk about mortgage rates, we’re not talking about the investor rate. Investors face discrimination from the lending industry, they have to pay a little bit more, which has always been silly to me. I guess the banks have the stats showing that investors are more likely to walk away from their properties than home-owners or owner-occupants.
Everybody’s an investor; when they buy a home, they always consider it an investment, as wrong as some people may be! You know, from the last episode when I was in San Diego, and on so many episodes prior to this where I talk about rent to value ratios. A home is an expense, but some people get lucky and it appreciates and then they can call it an investment. I really say they’re speculators but hey, I’d rather be lucky than good any day of the week!
So mortgage rates are at 3.66%. Are you kidding me? We are basically in a zero interest rate environment. Do you think inflation is higher than 3.66%? It’s unbelievable the wealth effect this kind of thing has because even homeowners who are spending money to live in their home, they can get paid to borrow. You know that example that I show frequently at the Creating Wealth Seminar? I did not show it at the last Meet the Masters event, but Randy, who’s been on the show before, did show his own version of that, of inflation-induced debt-destruction. By the way, my trademark for that was recently registered, so now I’m going to put a little ‘R’ with a circle behind that phrase: Inflation-induced debt-destruction®.
Truly new thinking when it comes to investing, that’s what we try to bring you with the risk evaluator that took my 19 years to discover, and all of that other stuff we talk about. Anyway, mortgage rates are very low – capitalize on that. Remember that that mortgage is a very, very significant asset. When you look at a balance sheet, most people not knowing any better look at the assets on one column and they look at the liabilities on another column. They always seem to consider the mortgage to be a liability, but if that mortgage is 3 decades long at a historically low fixed rate, that’s a huge asset. It’s a huge asset! Count that as your assets.
The other thing you should count as your asset, especially when that mortgage debt is outsourced to somebody else called a tenant (see, we don’t pay our own debts as investors; we outsource our debts to other people) – I don’t know, what was I going to say? Hm, I can’t remember. Senior moment, there it goes again. I’ll probably think of it in a moment.
I announced on Monday the new format for our week of shows. We will still, by popular demand and a little bit of hate-mail (I’m kind of joking about that, obviously, but sort of – I guess like my ex-girlfriend used to say: There’s a little bit of truth in every joke, right?). Anyway, we’re going to produce three episodes per week, every Monday, Wednesday and Friday like before, but Friday will be Flashback Friday, so that’ll be a review. You know what good old Tony Robbins says? What does he say? He says “Repetition is the Mother of Skill”. And I would agree with that, especially spaced repetition. When you repeat something without spaces between it, the mind doesn’t learn it as well. But when you repeat it with some space, where the mind has a little time to think about it and process it and then it’s repeated, that’s great.
We might be playing something from years ago on Flashback Friday, and you probably haven’t heard it. I know some of you have said you’ve gone back and you’ve listened to all 465 episodes – some of you have said you’ve listened to them more than once, so thank you for joining my cult! I never thought I’d actually have a cult, but I guess the Creating Wealth Show is a little bit of a cult. But it’s a good cult, right? Just like with addictions; there are good addictions. Exercise would be a reasonably good addiction, but it can be an addiction nonetheless. As addictions go, I’d say that’s probably a pretty good one, right?
We’re going to have this Flashback Friday and I’m really kind of excited about it, to tell you the truth. I want to dust off some of my old content, my – as the podcasters call it – my ‘back catalog’ and share that with you. You know what you’re going to be able to do with this? I hope this doesn’t come back to really bite me because you’re going to be able to see whether I was right or wrong about some things. You know, it’s not exactly like I’m going to take the time to listen to all these old episodes – some of them I will – before I decide which ones to replay for you on Flashback Friday. Gosh! I might say some things that just turned out to be fabulously wrong and you’re going to nail me on that! Transparency, it is what it is. Live by the microphone, die by the microphone. You can be the judge, jury and executioner of my content there, and you can rub it in my face when I get it wrong.
But you know, most thing I’ve been pretty right about. Interest rates I’ve been wrong about for sure; I thought we’d have higher inflation this year, by the way, but right up until the last year or so we’ve had fairly significant inflation in real terms. Of course, don’t listen to the official stats that the Government gives you because that is a big lie. What was it? Who was the guy that was one of Hitler’s main men? How do you like that for a scientific technical military term? One of Hitler’s main men said – and a lot of people attribute this to him, but it wasn’t him who said it, it was one of his top Generals or something. He said “If you tell a big enough lie long enough, people will begin to believe it”, and that is so true.
That’s true of the Consumer Price Index, it’s true of the national debt topic and the deficit topic, the GDP numbers, the unemployment numbers. They’re all maligned. It’s all just a big lie, but it’s better than nothing. It gives us some indication, but I’d say whatever stats they give us, we’ve just got to adjust them by probably about double. If they say inflation is 2%, it’s probably 4%. If they say it’s 4%, it’s probably 8%. I don’t know, I think there have been times when inflation’s been underestimated by a factor of 4 where really, I’d say inflation was quadruple what they told us. Always take everything with a grain of salt and be the thinking person that you are so that you don’t just believe what they tell you. You know, politicians, you can’t believe them! Or Government budget offices!
Okay, so alignment. Alignment, alignment, alignment. No, not getting your tires aligned on your car, or your wheels we should say, really; it’s not the tires that get aligned, it’s the wheels. Alignment is so critical in our business – in any business, in everything! There’s a Biblical concept, which most people wouldn’t think is about alignment, but I would say it speaks to the alignment concept. That’s the concept of in a marriage, for example, and this applies in a business relationship too, and it’s right in the Bible about being equally yoked.
One of the themes of our Meet the Masters event was that alignment equals empowerment. Alignment equals empowerment. If any of you saw pictures from the event (we’ve got a whole bunch of pictures that we haven’t gotten around to publishing yet), but if any of you saw those, you saw that we had that big backdrop on the stage that said “Empowerment”. Empowerment comes from many things; it comes from following my Ten Commandments and it comes from knowledge and education. I think it really does come from my Ten Commandments of Successful Investing, and you know what those are, we’ve talked about them ad nauseum and you know what? We might have a Flashback Friday from a really old live presentation of the Ten Commandments where I wasn’t very good. Well, maybe I’m still not very good! Anyway, you be the judge of that one too!
The Ten Commandments, that’s where the alignment and the empowerment comes from. The newest alignment concept that I wanted to share at our Meet the Masters event was the idea of getting your property management agreements aligned. Many of you know that I’ve talked extensively about self-management, and I think self-management can be a great option. We had Fernando who was on the show recently, speak at Meet the Masters. I don’t know how much this bothered the property managers in the room, but he has 70 units, as you know – he started buying 3 years ago through us. I remember the first time I met him and we talked all about that; this was covered on a recent podcast, and now he’s up to 70 units. He’s got 50 properties, but 70 units because he has some plexes in there – some duplexes and fourplexes.
With this, he said at the event that some of his self-managed properties are actually easier and require less effort and less expense than the professionally-managed properties. The way I would look at it is like this, and I’ve said this before. If you have a great property manager, that’s worth its weight in bitcoin. Oh wait, maybe not bitcoin because bitcoin has plummeted, as I predicted it would – I was right about that one! But it’s worth its weight in gold. Well, gold isn’t worth what it used to be and if you adjust gold for inflation, it’s not really that valuable so the goldbugs are kind of out the window. But anyway, it’s a good thing to have a good property manager, so if you have a great property manager, just keep them. They’re awesome, everything’s a good, stabilized relationship.
If you have a marginal or a bad property manager, which we occasionally get – we’ve fired a few over the years, to be sure, then self-management is definitely something to consider. In the Members section at www.JasonHartman.com, I did, I believe, two of our monthly Member conference calls on self-management. It’s been several years now – the members always get everything first, but I might actually play part of one of those conference calls on the podcast for the general audience, but that’s something. When it comes to alignment, you might want to propose a new idea to your property manager.
I just want to quickly go over this; we’ll cover this in more detail in future episodes, but in the traditional property manager agreement, and they didn’t used to do this, by the way, it’s sort of a new thing. In the traditional property management agreement, management fees would typically be 10%, give or take, and there wouldn’t be really any or many other fees involved. It seems as though in the past few years, property managers must have gone to the seminar that the bankers go to, and the bankers are kind of famous for nickle and diming us, right? They charge you to use an ATM or they charge you to come inside and use a teller. What are you supposed to do? You can’t use anything, right? Or they charge you for a monthly statement, or if you want to have your statements mailed on paper versus email, or maybe they charge you for the emailed ones and not the paper ones. It’s just crazy and psychotic.
And then they’ve got all these different things – if your balance is this, if your balance is that, if you do more checks than this, or less than that, or you use online bill pay or you don’t, or whatever the heck it is, bankers that used to, years ago, give you a toaster when you opened up a new account. I remember when I was a kid, my Mom took me to open a Savings Account many, many years ago. How old was I then? I must have been, I don’t know, seven, maybe? That was kind of a good lesson for me; I had my own Savings Account at a very young age. I don’t know, maybe all kids do that nowadays? Nowadays you probably give them $10,000 to start their Savings Account with, but I remember I saved up. I don’t remember what the balance was. Boy, wouldn’t that be cool if I could find those old passbooks? They were passbooks, by the way. Remember passbooks? Do we even have those anymore?
Anyway, so I had this bank account and this was when we lived in Culver City in an apartment in Fox Hills in Culver City, California, on Green Valley Circle. That apartment complex is still there, by the way. You know, that’s one of the amazing things about real estate too, or really, income property I should say. It just sits there, year after year, decade after decade, in many cases, century after century and it just keeps producing wealth. It has got to be the most amazing thing, it really does.
You know the hotel that we had our Meet the Masters event in, and we have so many events in, it used to be called the Hyatt Regency Irvine. As I was there a week and a half ago to do the event, I remembered – although I didn’t mention this to the audience, but for those of you listening who were there, you might find this funny – I attended a workshop put on by an attorney in not the same room where we were this time, but a room that we’ve been in before. Actually, we had one of our meals in that room, and I think it’s called the Tribuco room. I remember I attended a free seminar he did on Doing Business as a Closely Held Corporation. You know what? That was over three decades ago. I just almost hate to think about how long ago it was, it was over 30 years ago. I thought ‘Wow, that’s just crazy. That property is still there, the rooms are still there, the whole thing’s still there just producing income for the owner of that property.’ The owner happens to be the Irvine Company, the largest land-owner in California last check, and one of the largest in the nations.
It’s just amazing how durable this investment is that we love, that we own and we buy as much as we can. Hopefully we become addicted and we become little collectors of these income properties and we diversify and we follow all the Ten Commandments of Successful Investing. But it’s amazing how durable it is. It just keeps producing income for its owner. I know you have that experience, maybe you go back to the childhood home or apartment in which you lived, or you go back to a restaurant that you had a meal in three or four decades ago. Isn’t that incredible? Just think about that. What other asset class is that durable? That doesn’t have these whims of fate and it’s not fiat, it doesn’t go up and down with the whims of Wall Street crooks. It’s just a durable thing. It’s consistent.
One of the things that amazes me about consistency is – how many of you have been on a cruise-ship? You go on vacation, or maybe you go to a seminar at sea and you’ve been on a cruise-ship, right? I’ve been on maybe 8 cruises in my life. You get on that ship, they have a little party when they cast off and you’ve got your free drink that they give you, and you go and it leaves the port. Maybe you go to dinner that night and you go party in the nightclub and then you go to sleep and you wake up and you’re in a whole different port. It’s amazing how slow that ship goes. It’s not fast at all – it’s not a jet, it’s not a race-car, it just goes very slowly and consistently. It just chugs away at, what, I don’t know, 20 knots? I don’t have the conversion in front of me, but what is that, 25 miles an hour or something like that? I don’t know offhand. One of you listeners, I’m sure, will email me with the answer to that. But the cruise-ship does not go very fast. Because it is so consistent, just like income property investments, and of course, the cruise-ship along the way to its next port of call needs to be maintained, it needs fuel, it needs attention – and so the properties need a little bit of attention and maintenance from time to time and a little bit of fuel, if you will. But boy, those cruise-ships travel all over the world, and it is amazing how they do that, just chugging along at a very slow but very consistent pace, and that’s what I love about income property.
OKay, there we go on another tangent. So alignment. Let me give you a couple of examples. The traditional property management agreement is one that… the property managers went to bankers’ school, I think. I think at the property managers’ national conference that they undoubtedly have every year, some banker probably got up there and did a speech and got into the property management business and said ‘Hey, guess what I can teach you from the banking industry? You can start nickle and diming people and you can charge them for this, that and everything else!’
You may like it the way it is – it depends on your property which option will be better, but the traditional agreement might be something like 10%. With ours, we usually negotiate down to 8% or so, and then what happens is if that rent is, say, $1000 per month (I’ll use that as an example), we always assume a one month per year vacancy rate, that means you would receive $11,000 per year from that property. At 8%, the management fees would be $888 for the year. Say, for example, the tenant was late on the rent twice, and the manager – although as the owner, you don’t pay this, the tenant pays it – keeps the late fee. Say it’s $75 – they vary from manager to manager and area to area, but say it’s $75, so that’s $150 in late fees. Then say it goes vacant and you have a 75% of first-month’s rent lease-up fee. Sometimes that’ll be lower, it varies, but I’m just giving you an example.
That means that the property manager received $1780 for managing that property for one year. The owner received $11,000 in income. Now, the $1780 was not all paid by the owner – I just want to remind you that the tenant paid for $150 of that because they paid the late fee, but the manager keeps the late fee. I say that I want to change this deal, and I want to encourage you to consider this deal, and if you like it, propose it to your property manager. Believe me, at Meet the Masters, all of our property managers that were there – I proposed it to them at the Friday night dinner and then we talked about it throughout the weekend a little bit too – they’re thinking about it. Some liked this idea, some I think had a kneejerk reaction that they don’t like it because they feel like they’re going to lose money. I don’t know if they’re going to lose money. I think, ultimately, it’s going to be better for them.
Now let’s take this same property that rents for $1,000 per month and let’s say it stays occupied for 23 months, and this is very common. I’ve had tenants stay in my properties for as long as 9 years! I’ve raised the rent and they still wouldn’t move; I couldn’t get them to move! They’d stay there for 9 years. And my Mother who you know, she’s been on the show, still has in one of her properties a tenant who’s been there since 1989. I know, crazy, huh? 1989. We look at this deal, this is 23 months at $1,000 per month so $23,000. At 8%, the manager for $1840 – by the way, feel free to check my math in case I miss something here – and say they’ve got to lease it up to another tenant, so 75% of 1 month’s rent, so $750. In there, between month 12 and 13, they did a renewal fee, and say they charged $150 for that renewal fee. The manager got a total there of $2740 over the course of that 23 months, plus a new lease-up. They effectively got 12% total. There’s no late fees in that one.
In the first example, they got 16% total. Now, what if the property is leased for 36 months at $1,000, then the owner gets $36,000, the manager gets $2880, or a flat 8% because there’s no lease-up fee, there’s no late fee. I was going back and forth with Sarah about this just yesterday, and she says in her Houston property, I think she said she’s had it for 7 years now, and I think she’s only re-leased it one time. So she would not like my aligned deal, and here’s my aligned deal, by the way. Let me get to the point.
I’m saying that you might want to consider going to your property manager and saying ‘Let’s take out all the fees for this and that, and then let’s just have a flat fee on every dollar received. That flat fee might be 12%, rather than 8% but there’s no lease-up fees, and if you collect a late fee, you get 12% of it and I get the rest as the owner.” This is what I called the ‘flat property management agreement’. I call it the aligned agreement because I think it aligns the owner or the investor’s interest with the property manager’s interest, and that leads to happier owners, happier property managers and happier tenants. So I call this not a win-win deal, I call it a win-win-win deal. Again, we’re going to be talking a lot more about this on future episodes: how to make it work, whether it’s a good idea or a bad idea.
I think the simplicity of it is beautiful, and I think ultimately, every party will win. Why will the tenant win? Let me just mention something on that before we get to our guest today, which by the way, is Robert Carr, who is going to be talking about payment systems and some great stuff he’s doing with a foundation that he’s started. Why are payment systems important? Well, because as money changes form, No.1: these payment systems give the Government and the Central Banks and the powers that be a lot more control over our lives and a lot more information about our spending patterns. That’s actually quite important, so it’s something to think about from a privacy perspective. Because cash is private, remember that. But also, I think ultimately, these new payment methods like Apple Pay will increase the velocity of money, and when the velocity of money increases, that tends to put some upward pressure on inflation, it creates inflationary pressures. This is all part of that bigger picture, so we’ll get to him in just a moment.
The thing I want to say before we get to our guest is that the late fees, even though they’re not paid by the owner, they are important to understand. Why are they important to understand? Because it keeps the tenant happier if the property manager or the owner/investor is not predatory with them. Remember: at the end of the day, our tenant is our customer. Remember the old thing? “The customer is always right”. And “Rule No. 2: If the customer is wrong, see Rule No. 1”. Well, that doesn’t really work in the real world because sometimes the customer is actually wrong! Let’s just be honest about it. But we need to be firm with our tenants and make them live up to their deal, but we should not be predatory with our tenants. We want to ultimately keep them happy – they’re the ones who pay us, and they pay the property managers too.
So more on this to follow. Once again, I’ve gone very long and let’s get to our guest, Robert Carr. Before I go, be sure to check out www.JasonHartman.com. Also, oh, one more thing – the Meet the Masters Home Study Course. I counted those darn things, I have exactly 26 of them left, and then they will be gone forever. They’re on sale; this is the physical product, not the digital product. It’s the beautiful physical product that includes hours and hours of experts combined over 2 Masters weekends from the past two Meet the Masters events. Check that out at www.JasonHartman.com in the Store, and buy those because they are almost gone. We will ship them right out to you.
Anyway, let’s get to our guest, Robert Carr.
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 A:
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Outro B:
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Outro A:
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Outro A:
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Outro:
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