Heartland Payment Systems Inc. of Princeton, N.J., has agreed to provide processing services for 1,500 merchant clients of Bremer Financial Corp. of St. Paul.
The deal, announced Thursday, is Heartland's second-largest with a banking company but covers only a small fraction of Bremer's 26,000 business clients.
Heartland said the clients are being converted from another processor, which it would not name. It did say that the clients started converting to Heartland's system last month, when the deal was signed, and that the conversion will be finished this year.
Bob Carr, Heartland's chairman and chief executive, said its biggest banking deal is with Commerce Bancorp Inc. of Cherry Hill, N.J.
The Bremer agreement is "very similar to the Commerce Bank relationship," he said. "It's a mutual business development relationship," so if Heartland signs up Bremer clients other than the 1,500 that were part of the deal, "we're not paying them, and they're not paying us."
Bremer will refer new merchant customers to Heartland, and in return Heartland will refer its new customers within Bremer's territory to the company when they need to open bank accounts.
Unlike Commerce, Bremer has agreed to be a sponsoring bank for Heartland with Visa U.S.A. Inc. and MasterCard Inc. (As a nonbank, Heartland needs a bank sponsor to gain access to the Visa and MasterCard networks.)
"We are empowered by them to solicit, process for, and manage the relationships pursuant to their rules," Mr. Carr said.
Heartland has only two other sponsor banks: Heartland Bank of St. Louis and KeyCorp of Cleveland. He said his goal is to have six, in different regions, by the end of next year. He said doing so would let his company spread out its workload if any of its sponsor agreements are terminated.
Each of Bremer's business clients is a potential Heartland client, Mr. Carr said. In addition to processing, they may need payroll or remote deposit services, he said.
Heartland said in its first-quarter earnings call in May that it has been moving more aggressively to get large merchant clients. Mr. Carr said then that all but the nation's the top 1,000 merchants were within its reach. In addition to signing marketing deals, it has been expanding its sales and account management staff.
Last month Heartland bought the assets of eSecure Peripherals Inc., a provider of card readers for vending machines. At that time it also created a micropayments division to expand the market for processing by focusing on areas where cash is the dominant payment form.
Alenka Grealish, who manages the banking group at the Boston market research firm Celent LLC, said the deal with Bremer could prove very beneficial to Heartland.
"Bremer has a nice footprint in the upper Midwest, so I think that bodes well," she said. "Also, I think it indicates, at a higher level, the growing interest and assertiveness by banks in partnering with others."
Mr. Carr's interest in doubling Heartland's sponsor bank total also is smart, Ms. Grealish said. "It's always good to have a good number of banks and, if you're picking regional banks, to get a player that understands the regional market."
Jennifer Roth, a senior analyst with the global payments practice at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard, said Bremer was a smart choice for a marketing partner.
"For Heartland, it just gives them access to 26,000 customers," she said. "Now they have a larger distribution network and more direct interaction with the clients" that Bremer has.
Also, the deal with Heartland gives Bremer more to offer its own clients, she said. "It's good for both companies."
