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Heartland Payment sees growth in market share, margins

By Brenton Cordeiro

(Reuters) - Payment processor Heartland Payment Systems Inc sees scope for growing its market share and margins at a time when the sluggish U.S. economy is expected to hurt its larger rivals.

The company, which competes with JPMorgan Chase's Chase Paymentech, KKR's First Data and Global Payments , caters mainly to small and mid-size merchants, who are doing better even as larger retail chains struggle with a cutback in consumer spending.

"Our business model allows us to make money at pricing levels that we think are challenging to some of our competitors," said Heartland's President Robert Baldwin in an interview with Reuters.

"We win some, they win some ... but we think we can take market share from them. Even modest moves in market share are very meaningful to us," added Baldwin, whose responsibilities cover Heartland's operations, administrative activities and internal controls.

While the weak U.S. market has forced payment processors to look abroad for growth opportunities and possible acquisitions, Baldwin said Heartland, which has operations in the United States and Canada, has no immediate plans of entering newer markets.

"There's a ton of opportunity in the United States, and we want to focus on establishing a better share here."

Heartland's stock has grown 36 percent over the past one year, outperforming the broader S&P 1500 Data Processing & Outsources Services Sub-Industry Index <.15GSPTKDP>, which has risen 18 percent in the same period.

Stanford alumnus Baldwin, who served as Heartland's chief financial officer for over a decade from 2000 to 2011, also said he sees the company's margins growing over the next few quarters.

"We know we'll achieve some more savings in the processing and servicing line because of the processing center consolidations that we still have under way, and the remainder is likely to come from our restraint in the G&A line item," he said.

On a post-earnings call in August, the company said it hoped to complete its transition from 12 centers to 3 centers by mid-2012.

Heartland, which is expected to pass on benefits from lower debit interchange rules to its merchants, should also see better merchant retention in 2011 compared with last year, Baldwin said.

"Merchant retention has been trending better modestly over the last year, basically driven by the fact that we have fewer businesses going out of business," he added.

On the proposed debit interchange rules, Baldwin said the company would see a lower cost from the reduced interchange, which it would pass on to its merchants, but it was too early to predict the exact outcome and benefits for the company.

Heartland Payment, which was the target of a massive cyber hacking attack in 2008, said issues from the data breach were largely behind them.

The data theft resulted in several lawsuits, including some from major card companies like Visa , MasterCard , American Express and Discover Financial .

"It's absolutely way (behind) in our rearview mirror and we feel very good about the future," Baldwin said.

"There are some things that could reemerge in the future but right now they're very very quiet."

(Reporting by Brenton Cordeiro in Bangalore; Editing by Saumyadeb Chakrabarty)

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