Heartland Payment Systems reported favorable third-quarter earnings Oct. 27, but it is still too early to tell if its “Durbin Dollars” promotion is paying off, an analyst says.
“Merchants won’t receive their first post-Durbin statement until next week,” Chris Shutler, an equity research analyst for William Blair & Co. in Chicago, tells PaymentsSource. “A lot of merchants have heard about it, but we have not seen the impact yet.”
The Princeton, N.J.-based card processor has pledged its merchants will receive 100% of the savings from a cap on debit card interchange fees that resulted from the Durbin amendment to the Dodd-Frank Act. Heartland has touted the policy as Durbin Dollars, named after Sen. Richard Durbin, D-Ill., who sponsored the amendment (
“Both our sales organization and our strategic partners have been energized by the tremendous growth prospects created by the implementation of the Durbin amendment,” Robert Carr, Heartland chairman and CEO, said in a press release issued in connection with the earnings report. The company hopes to gain competitive advantage by passing along the savings.
However, critics have dismissed the Durbin Dollars campaign as hype because Heartland simply adds the interchange fee to its processing fee. That means the amount of the interchange fee does not affect Heartland.
Other processors and independent sales organizations also will pass along all or much of the reduction in interchange fees that is resulting from the Durbin amendment, says Shutler.
The amendment had directed the Federal Reserve Board to limit interchange fees. The Fed instituted a cap of roughly 21 cents plus a few more pennies to cover fraud protection and other costs. The fees averaged 44 cents per transaction before the cap.
While awaiting a boost in business from the policy of passing along all of the savings of the debit fee reduction, Heartland reported third-quarter revenue of $122.2 million, up 5.9% from the same period last year, the press release said. That increase was slightly less than analysts’ consensus expectation, says Shutler.
Adjusted net earnings for the quarter rose to $12.7 million, up 59% from $8 million in the same period last year.
The company posted quarterly transaction volume by small and midsize merchants of $17.8 billion, up 6.9% from a year ago, according to the release. Same-store sales rose 2.3% in the quarter, marking six consecutive quarters of growth in the category, a gain Shutler characterized as “modest.”
Heartland reported third-quarter operating margin on net revenue of 17.7%, up from 12% last year. Shutler attributed much of the improvement to reduced expenses.
The company enlarged its sales staff with a “muted” increase of 12 salespeople after losing sales staff for some time, Shutler says. The staff had been dwindling because Heartland had been raising productivity standards, and the lower-achievers could not meet the requirements, he says.
What do you think about this? Send us your feedback.
