Introducer:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership, and vision in global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years.
Introducer:
Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's Exchanges and Clearing houses around the world. Now welcome, inside the ICE house. Here's your host, Josh King, of Intercontinental Exchange.
Josh King:
The checks are in the mail, a whole lot of them. Beginning a couple of weeks ago, the federal government began dispersing stimulus payments from Uncle Sam that will continue for the rest of the year, under the Biden administration's 1.9 trillion dollar American rescue plan, which he signed into law on March 14th.
Josh King:
The use of the word check has increased four fold in the United States over the last year, compared to 20 years ago, which is ironic considering that the use of actual paper checks, the kind my mom and dad wrote to settle their hardware store charge account, and I used to pay off my credit card bills until I gave up and turned on auto pay for the lot of them, has decreased by that same multiple since the year 2000.
Josh King:
In fact, the first set of stimulus payments from last week was composed of 90 million direct deposit orders, compared to cutting just 150,000 paper checks. Is sending a check heading to the same anachronistic speech phraseology as when you say you're going to dial the phone on your Samsung [Gallery 00:01:53], or roll up the car window on your Tesla, and CC, that means carbon copy, me on that email? Come to think of it, I may still have a leftover box of carbon paper in my dad's attic.
Josh King:
Our guest today, Deluxe's president and CEO, Barry McCarthy, is quite familiar with this old line of questioning, as well as the advanced technology underpinning modern payment processing, both digital and analog. Three years ago, Barry took over the company founded in 1915 and by W.R. Hotchkiss, who invented personalized pocket check books, and from there, developed many more innovations to become a global leader in personal and business products and services.
Josh King:
Still widely known for personalized checks that can be ordered with everything from the Boston Red Sox logo on them to your own face, today Deluxe brings in less than 40% of its revenue from that legacy part of the business, a percentage sure to drop in the years ahead. That's why you've got to have payments innovators, like my old friend Barry, at the helm to chart a Deluxe path to the future. Our conversation with Barry McCarthy on forging One Deluxe, the future of technology solutions for businesses, and how the payments sector has evolved over the past quarter century, and is continuing to evolve before our very eyes. That's all, right after this.
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Josh King:
Our guest today, Barry McCarthy, has been the President and CEO of Deluxe, that's NYSE ticker symbol DLX, since 2018. He joined the firm after 14 years at First Data Corporation, where he rose to run a substantial part of that business, where I also worked, which returned to public ownership here at the NYSE in 2015, and subsequently merged with fiserv.
Josh King:
Prior to his time at F2C, Barry was with Verisign and co-founded MagnaCash, a Silicon Valley based micropayments company. Barry started his career, as a pantheon of crackerjack marketers do, at Proctor & Gamble, that's NYSE ticker symbol PG, and first entered the payments sector with Wells Fargo, NYSE ticker symbol WFC. As we're all transitioning rapidly to doing our banking, balancing our checkbooks, and buying our wares on that electronic gadget in the palm of our hands, we have a genuine payments pro inside the ICE house with us today.
Josh King:
Barry, welcome, virtually, to the New York Stock Exchange.
Barry McCarthy:
Josh, it's great to be with you, and with that kind of a lead up, I hope that the listeners aren't going to all be disappointed.
Josh King:
Well, it's great to talk to you for this long awaited conversation. We originally discussed recording this last year when we saw each other at 11 Wall Street for Deluxe's 40th anniversary of its listing, and the official announcement of the One Deluxe rebrand, that was one of the first things that got shelved, that conversation between you and me, when we all started masking up last March. How have things been going for you?
Barry McCarthy:
You know what, our company's transformation has continued unabated all the way through the Covid situation and beyond. So what's really remarkable about the Deluxe story, as you said it right, this company was founded in 1915 by a guy needing a job, he borrowed 300 dollars to create the next generation of payments product, which was the checkbook, and that's why we still call the company the Original Payments Company. Our company has moved well beyond that, and we fundamentally re-segmented the company at the beginning of 2020 to recognize that we really have four business segments here.
Barry McCarthy:
Payments, which is the one where we have a ton of optimism about our future. The second is our cloud delivered services business, the third is promotional products, and of course, our fourth is our legacy check business. You said it right, it's less, checks are less than 40% of our company's revenue, but they are often misunderstood and still an important part of the overall ecosystem.
Barry McCarthy:
We're working very hard to transform the company to being a digital payments company for the future, and I think most of your listeners would be very surprised to understand that Deluxe, a company that maybe is not well understood, is processing almost three trillion dollars a year in payment volume, using our software that helps businesses manage their receivables, either on an outsourced basis, on a hosted basis, or on a total turnkey outsourced basis. So the company already has very significant scale in digitizing payments, it just may not be well understood yet.
Josh King:
When you and I were scheduled to talk a year ago, thought we'd be sitting across the table from each other at the NYSE on one of your many visits to New York, you had to take a large company and basically send it online. How have you and your colleagues been able to deal with that over the last year?
Barry McCarthy:
We had the good fortune in 2019 to think about our technology infrastructure, our core operating platforms, we've made significant investments to upgrade them. So we were able to, literally in a matter of days, almost overnight, send thousands of our workers to work from home. We'd adopted mobile technologies all the way through the entire organization that made it possible for all of our office workers to transition to working from home, almost overnight. We were able to maintain our operation in our production facilities through great leadership of our operations team. We produced, because we were systemically important, we didn't miss a day of production throughout the Covid crisis.
Barry McCarthy:
We were able to accomplish many things that I think people might have otherwise been afraid to tackle, but in the midst of Covid, you had no choice. So you have to go forward, you have to plow ahead, and I'll just give you some examples, Josh. For example, when I came to the company at the end of 2018, so I've been here just a little over two years now, the company had three million square feet of office space, that's probably twice as much as we needed. We were able, over the course of the pandemic and the time that I've been here, we've reduced that footprint by 60%. We're rolling that savings back in to product development to drive innovation and revenue growth, build a sales organization.
Barry McCarthy:
When I got here, the company didn't have a, sort of, enterprise class sales organization. We started doing that at the end of 2019, and since then, we've closed 6 of the company's 10 largest deals in the last decade, and 2 of the largest deals in the company's 105 year history. So it just goes to show that if you have a clear vision and a purpose and a plan, even Covid can't fully derail you. It can make it more complicated for sure, but it can't stop that engine and that transformation engine. We're very, very proud of what we've been able to get done in the two years I've been here, especially with Covid as a backdrop.
Josh King:
Did you see the growth of Deluxe's tech solutions business rooted in recasting your millions of check purchasing accounts, or was it a process of expanding the customer base beyond those people that always order their checks from you?
Barry McCarthy:
That's a great question, Josh, and I would say it's a yes and a yes. So let me tell you what's [here 00:10:21] before the transformation began, the company had grown exclusively by acquisitions for the previous decade, and the company had bought more than 50 different companies that had not been integrated. So, quite literally, we had dozens of different sales organizations walking in to see the same customer. One of the earliest days in my tenure here, going to see one of the major New York banks, virtually all of those banks are our customers by the way, and they asked me, "am I the CEO of which part of Deluxe?" I had to explain that I'm the CEO of, actually I think the board said, all of it.
Barry McCarthy:
So it was one of those a-ha moments of, oh, my gosh, our customers don't know who we are. Our customers universally, almost universally, like us, that's why we've been in business for 105 years, they just don't know what we do, and how could they know if we're sending dozens of sale people selling different pieces. So we came together under this notion of One Deluxe, which is where we can bring the very best of what Deluxe can offer a customer to help them grow their business, and we don't have to send 12 or 15 different sales people, and we lead with one who can understand the customer's needs well. Then if the customer needs to go deeper on specific thing, we can bring a sales specialist, or a product specialist, in to help that customer with that specific area. Josh, that's how we've had this incredible, truly remarkable renaissance in our ability to sell.
Barry McCarthy:
6 of the top 10 deals of the last decade, in the middle of a crisis, 2 of the biggest deals in the company's history ever, that doesn't happen just because you start smiling. I mean, it happens because you changed the fundamental premise of how you go to market, and that is that you go to existing customers, understand their needs deeply, show them how you can help them advance their business, and then take that same story to customers that are not part of your business or on your platform today, and we've had great success in both. We feel like we're just scratching the surface, that we've had this kind of performance in the middle of Covid, we're really quite excited for everyone to have the vaccine and the world to reopen.
Josh King:
Let's scratch the surface then on your career a little bit, Barry. It's taken you to several companies that have shown the ability to adapt and evolve to changing times, really starting with Proctor & Gamble, which has traded under the ticker symbol PG since 1929. What drew you to the consumer staples giant, which you joined that same year the company introduced a 2in1 Shampoo and Conditioner to cut half the time out of caring for your hair?
Barry McCarthy:
One of the great ironies in life is that I was a guy that spent a bunch of my career selling shampoo, because I am not a big consumer of shampoo. I was actually part of that launch, of that product called Pert Plus, and I was part of the launch of several dozen additional products in my time that I was there, always in the healthcare business or the beauty product business. What really attracted me to it was, I didn't know that I would be there for 12 years. P&G is pretty well known that in the first few years it's up or out, so I had no idea that I would have a 12 year career there, so I had made it through all of those hurdles. What it attracted to me was the opportunity to learn really how to understand a market, understand a consumer's needs, build a product, get that product to market, and win. That has been something that has been central to every role I've had in my career.
Barry McCarthy:
I learned those skills well at a place that's probably best in the world at it, and was able to apply that later to banking, then to a start up, then to a mid scale technology company, then at First Data, then of course, now, here at Deluxe as well. Hugely important foundation, to understand a market, understand a market's needs, fill a gap, and then drive like crazy to deliver.
Josh King:
That foundation, brands like Pampers, Tide, Bounty, Charmin, now Gillette, Old Spice, Mr Clean, Ivory Crest, I could rattle off a few score more. Were the P&G brands a fixture in the McCarthy household growing up? You and your dad and your mom, and the rest of your family?
Barry McCarthy:
Absolutely, and I am still a brand loyalist today. So our household, we are Crest toothpaste, we're Tide, we're Bounty, all the time. I spent a bunch of time helping revitalize and relaunch the Old Spice brand, expanding the Secret brand, the Oil of Olay brand, Pantene, Pert Plus, and so I really got a front row seat to see that whole cycle, from product development, idea creation, concept development, all the way through advertising and selling it into major retailers.
Josh King:
Were your parents marketing mavens growing up?
Barry McCarthy:
You know, they weren't. My dad was a store manager and my mom was a schoolteacher. So I think, like everyone else in Middle America, very cautious about how they spent their money, and I do remember that the P&G company was something that was held in high regard in my household, and my parents always believed were high quality products.
Josh King:
When you left P&G, I think we're around the late 90s, while with Wells Fargo, you experimented with using ATMs as advertising space for a small internet bookseller called Amazon. Did you have any sense to where technology and the internet of things would be taking financial transactions just a few years later?
Barry McCarthy:
You know what, that's such an insightful question. So, I was attracted to leave P&G, I had a very solid career there, was very happy, but I got this call about Wells Fargo bank that had done this great job of moving consumers out of the teller line to the self service channel and ATM, and today that seems very obvious, right? It's part of how people do banking today, but at the time, it really wasn't.
Barry McCarthy:
Those machines had green screens with white letters on them, there was one thing that you could do which was make a withdrawal. It was all intended as an efficiency play, and the CEO at Wells Fargo becomes very forward thinking about that becoming a self service channel. They were pioneers, and I helped them bring the first internet connected ATMs to market, the first in the world, change the customer experience, the user experience today at a Wells Fargo ATM is essentially what we created back then. Of course, it's been updated, but that same interactive experience was there, and the whole goal was to offer additional products and services to consumers through that channel, and the company was very successful in doing that.
Barry McCarthy:
So clearly, selling Amazon, back at that point, no one, certainly Amazon isn't what it is today, along with discounted ski-lift tickets, and at one point, they were the largest reseller of US postage stamps. All about understanding the value of delivering self service to a customer at the right time and the right place. Again, a lesson that I've learned and applied throughout my career.
Josh King:
So you left Wells Fargo to co-found MagnaCash, what problem did you set out to solve with a startup, and did that experience as an entrepreneur shape how you would understand the needs of Deluxe's clients today?
Barry McCarthy:
When I started MagnaCash, recall, this was the peak of the dotcom craze, the end of the late 90, late '99 going into 2000, and there was a huge problem that had not yet been solved, which was how do you monetize digital content, how do you make small dollar payments online? So today, we don't really think anything of it, if you go and you are an Apple customer and you use the Apple store, or the App Store, you aggregate many small $1 transactions or $2 transactions and they hit your credit card one time for $10, to avoid all those extra fees for using a credit card for a $1 transaction, and we actually created a technology similar to that, way before Apple did, maybe too early, Josh, but it was the same idea.
Barry McCarthy:
They were able to aggregate small dollar transactions, called micro payments, aggregate them together, put them onto a card in a very, very cost effective way. We were successful in getting a number of content companies, including [Ginnet 00:18:30], as an example, that were using the platform to monetize content. So, that was, we were early, but that company ultimately got bought by a company that got bought by Digital River. Again, learned the importance of usability, especially online, for self service. That has also been a big role, has had a big overhang or a big impact on my career, as I've gone forward.
Josh King:
Your next stop, I think, Barry, was VeriSign, where much of your work was raising the security, and arguably, more importantly, the confidence of online commerce. We haven't talked much about security yet. Today, most consumer behavior accepts that online activity is relativity safe, is that a recent transition?
Barry McCarthy:
When I went to VeriSign, they had bought a number of different assets that are called payment gateways, where you put your card in to a web page, and that's how you can process a transaction. They were successful, those multiple gateways needed to be consolidated together, but ultimately, you're exactly right. The core issue there was how do you inspire consumer confidence to put a card into the system, and equally importantly, how do you inspire merchant confidence that they're not going to be taken advantage of?
Barry McCarthy:
One of the unique things that VeriSign had, of course, is their legacy as an internet security company, were able to offer that from a series of fraud protection tools, security protocols, et cetera, to attach to that business, that was ultimately sold to PayPal. It still operates, the business that I built inside of VeriSign operates today inside of PayPal as their pay flow pro product, or their gateway, for credit card acceptance. It's all about driving confidence, for both the consumer and the merchant, and that's how we've gotten from something that was nascent in 2000, to something that is trillions of dollars of transaction [inaudible 00:20:23] today.
Josh King:
So we're now moving, Barry, into the beginning of the century, 2004, you joined First Data, which is, I think, is what brought you to Atlanta, where you are today. When the great recession hit in 2007, you're responsible for making First Data's products accessible as the global economy made this shift, from the PC to the device in the palm of our hands. Over the last year, we've seen a similar technology revolution as contactless and fully digital transactions have grown in leaps and bounds. Are there lessons to be learned in how B2B or B2C responded 15 years ago, that are relevant today as we just sort of wave this thing in front of a scanner?
Barry McCarthy:
You know what, I think there's a more foundational lesson here. If I think back to what I learned early at the start of my career at P&G, which is it really doesn't matter what you want something to be, the only thing that matters is what does the consumer or the buyer. In this case, what consumers and buyers want is the ability to do low friction or frictionless commerce, and to do it in a way that they feel safe, in every sense of the word safe. Safe that they're not going to be harmed financially, but also in the case of contactless, that they're not, they're limiting their personal exposure, where they're not having to touch anything and potentially expose themselves to Covid.
Barry McCarthy:
So, had we, I think, collectively, as an industry, been listening more carefully to customers, we probably would've gotten to this place sooner, but Covid was sort of the great, I think, accelerant, for us to really listen to what consumers were demanding and actually deliver for them.
Josh King:
As I go around now, Barry, from merchant to merchant these days, tap my credit card or wave my Apple Pay in front of a Clover point of sale device, I'm reminded every day about what a near death experience to an industry success story First Data, now fiserv, became. You had a front row seat from the darkest days, to the company's IPO here at the NYSE in 2015. How did that journey look from your vantage point?
Barry McCarthy:
You know, I did have a front row seat, and that's another one of those experiences I'm so incredibly grateful for. I was the only senior executive to survive and thrive from the IPO, through the LBO, and then a handful of years later. I worked for seven different CEOs in that time. I got to see many different management playbooks in action, I saw many different CEOs' approach to similar problems and different problems. What was, I think, so incredibly compelling is sort of the, when Frank Bisignano came and he really put a hard, charging, focused set of actions into the company, to really help right the ship, the company was really able to start stabilizing, and take advantage of an expanding market that was very friendly to First Data.
Barry McCarthy:
I think there's a number of things there where I look back at with great pride. First Data was the first organization to support Apple Pay, so we were there at the beginning of that. We certainly didn't create it, but we helped bring it to market. We were the first to do meaningful, before that, meaningful mobile commerce testing in San Francisco, when we did an arrangement with the Bay Area Rapid Transit, followed by Apple Pay, Google Pay, Google Wallet. All of that comes back to that same central notion, Josh, that I learnt early in my career, which is if you follow and do what the customer needs you to do, you win. I think we were able to do that.
Barry McCarthy:
At First Data, lots of great people that came together to make that happen, was a very close near death experience, I often describe it as standing on the edge of a skyscraper in bare feet, with your toes over the edge, because you're 11 times levered. It gets you very focused. It gets you very focused, gets your center of gravity lowered, and get ready. Honestly, if you survive and thrive in that kind of an environment, pretty much nothing else scares you.
Josh King:
Yeah, nothing else scares you, Barry, so 2018, you're ready for your next chapter. How did you know that it was time for your next chapter? What did this chapter offer when the recruiter or the board came to you, and how did your time at First Data and those earlier stops prepare you to take on the President and CEO duties at Deluxe?
Barry McCarthy:
Honestly, when they called me originally, Josh, I laughed. It was a Korn Ferry recruiter called me, and I said, "you're calling me about a check company when I've spend the last 14 years of my life trying to get rid of checks? I think you're calling the wrong guy, I'm not the check guy. I'm a digital electronic payments guy, maybe a tech guy, but I'm not a check guy." They said, "just go learn."
Barry McCarthy:
Here's what was here, what I found, was this hidden gem, a jewel that people didn't understand, and needed some polishing for sure. Needed some fix up. The company had, has, over 400 million small business customers, over 4000 bank partners, hundreds of the leading banks in the world. We support four and a half million small business websites that we host, host on their behalf, and we're doing trillions of dollars of payments volume. Somehow that was all lost in the sauce of how the company was organized, and structured, and operating in the past, and I really believed that bringing a different approach, common sales plan and organization, ability to build product, that we could leverage these incredible assets in a very new and different way.
Barry McCarthy:
That's exactly what we've been about for the last two years, and while Covid clouds the results, we were very proud that, and we told investors that for the full year in 2020, even in the middle of Covid, if you factor out the impact of Covid, which was quantifiable, the company actually grew organically, we call it sales driven growth, for the first time in more than a decade. That's a pretty good accomplishment for a company that had a new management team only in place 75 days when the crisis hit, so it gives us a lot of confidence, obviously in our future.
Josh King:
From day one, you got to work right away at Deluxe. You announced at a board meeting during your first quarter that Deluxe would need to make a number of large investments to transform its technologies, and even closed a major deal with Salesforce, that's NYSE ticker symbol CRM, in an overnight marathon work session between that same two day meeting. What was your plan from day one, and in hindsight, was ripping the bandaid off the right way to go?
Barry McCarthy:
So, Josh, you were obviously an investigative reporter at some point in your life, because you've got lots of good detail here, and absolutely. It happened to be my very first board meeting with the company, right after I started, or six weeks after I started, the company identified that we had a gap in our technology platform that was, was definitely a hindrance, and in our way to grow the company. Salesforce was a huge part of that, not of the identification of it, but a huge part of the solve. We were running 14 different CRMs, 50 different ERPs, 6 different HR systems, and you go through the list. I identified for the board that was a hindrance in our way of really unlocking the potential of the company.
Barry McCarthy:
The board agreed with me, and at my very first board dinner, I had to excuse myself, from my first board dinner, so that I could go in a conference room at the hotel where we were meeting, and negotiate and work with the Salesforce team to get a deal closed, which we closed at 1:59 central time, which was 11:59 California time.
Barry McCarthy:
We got the job done, and it's been a great and successful partnership since then. Marc has invited me in multiple times to come and talk with his group. Their folks are very helpful for us, expanding our offerings. They're part of a television program that we produced call the Small Business Revolution, so we're so glad that we leaned into that, and that was in early 2019. That's when we made the decision to lean forward, fix the infrastructure, and that enabled us, a year later, to move home seamlessly. We didn't miss a day of production, and we just kept plowing right on through, as if people were still working in the office.
Barry McCarthy:
So, I felt like that was a, that was very fortuitous, but you can imagine, as a new CEO at my first board meeting, asking the board for a very large capital investment from the new guy that had been in the chair, I don't know, six or eight weeks at that point. It also tells the story, I think, about how aligned the Deluxe board is about the future potential of our company, and of our management team.
Josh King:
Have you refreshed the board much in your two years yet?
Barry McCarthy:
We've had two new directors come and join us, Bill Cobb, who had most recently been the CEO of H&R Block, but even perhaps more important than that, he ran eBay marketplaces for Meg Whitman, and he basically created that business. We also added Paul Garcia, our first [inaudible 00:29:33] board member, but also, he was the CEO of Global Payments, which of course is another one of the three monster fintech companies. They've both been great additions, really helpful for us thinking about our transformation, digital transformation, eCommerce play, Bill's been a terrific help there, and of course, Paul's been really terrific on helping us think through our payment strategy and payments play as well.
Josh King:
Well, just like Barry McCarthy plowing on through in his first six weeks in the job as President and CEO of Deluxe, after the break, Barry and I are going to discuss where Deluxe is now and where it's headed in the future. That's all right after this.
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Josh King:
Welcome back. Before the break, Barry McCarthy, President and CEO of Deluxe, and I were discussing his career and the One Deluxe business model that's taken shape under his two years of leadership. In a parallel to how the world has changed, Barry, you rang the bell in person, and just a few weeks later, you virtually rang the bell in celebration of your customer conference, Deluxe Exchange '21. What are some of the take aways you got from that conference?
Barry McCarthy:
So that was the second time we rang the bell, in the time that I've been here. You're right, it was tied to our Deluxe Exchange, and Deluxe Exchange, we bring together customers, all of our customers are from, all our different categories of customers, to learn what's coming next in the marketplace, talk about common issues, and also bring engaging speakers to talk about relevant topics.
Barry McCarthy:
This year, of course, was entirely virtual. We also had our best attendance ever, so we had been more than doubling attendance. So when I arrived, the first DX was in early '19, we doubled attendance in the early 2020, and we doubled it again, virtually, for our conference in 2021. I think there were some big themes, of course, that emerged from that, and it is, it's all about what comes next and how do we recover from Covid, and what is the eventual strong rebound, that I think all of us are anticipating.
Barry McCarthy:
I think that banks are very interested in how do they specifically attract small business customers, how do they make consumers more loyal to their franchise? I think small businesses, and those companies that sell to small businesses, are very curious about what the new business opening and restart programs are going to look like for these businesses, and how those business models are going to change. Some of the global brands that we support are very interested in how, if they've had momentum, and some of them have clearly had momentum through Covid, how to maintain that, so that becomes what they hope for as a permanent adjustment in their favor, rather than it being picked off, little by little, as perhaps small businesses reopen.
Barry McCarthy:
So, it really is all about, I think, what comes next, and reopening after Covid.
Josh King:
In those early months, you also announced, Barry, the launch of season six of Deluxe's Small Business Revolution television series, with former NBA star Baron Davis. Did you realize that the job of being CEO and President of Deluxe included becoming a producer of a television show when you started? Tell me about the premise, and what your thought is, I mean, because even going back to P&G, I mean, the production quality and the embedded marketing of this show is really amazing.
Barry McCarthy:
You know what, Josh, I cannot take any credit for the creation of the program. A woman, very talented woman named Amanda Brinkman, had the idea to help the company celebrate its 100th anniversary, but I have helped expand it and really change the focus more to be even more broad.
Barry McCarthy:
So the premise of the show is that it really supports our brands and our company's mission, and we're very straightforward about it, that we are champions for business so communities thrive, because we fundamentally believe when business succeeds, they hire someone, that person has demand for other goods and services, which creates another job at another business, and it becomes a self fulfilling cycle, and then there's money for roads, parks, schools, hospitals, et cetera, and that business is the fundamental engine. Our customers are almost exclusively businesses, and if we can help businesses succeed, not only do we help our shareholders succeed, of course, that's an incredibly important point, but we also help communities succeed.
Barry McCarthy:
The program really came out and has expanded and evolved to really talk about how businesses can succeed, and of course, we show how our products can be part of that success, but it is certainly not an infomercial in any way, but we do demonstrate how businesses can grow their business. Each year, historically, the program has gone to a main street in a small town, identified seven or eight businesses, helped those businesses revitalize themselves and also help the small town. What we announced this year was we were going to bring the program to our home town, the Twin Cities, Minneapolis and St Paul. So the same focus of helping businesses succeed, but instead of small businesses in a small town, we're talking about small businesses in a big town, in a neighborhood of a big town, with a special focus on Black owned businesses.
Barry McCarthy:
We've always had Black owned business, Asian owned business in our program, but we thought especially given all that's happening in our world, a special focus on Black owned business this year could be particularly relevant. So we're very pleased to be bringing that program to Minneapolis and St Paul, and Baron Davis is the co-host with Amanda Brinkman, and we have been very, very pleased by the reception and the support of the broader community.
Josh King:
You talk about how the show can create more parks, and roads, and a bigger tax base, more employment, obviously, but what was clear watching the first episode of season five in Fredonia, New York, was how it can also bring families closer together and allow them to really fulfill their own small dreams. The small businessman you focused on Fredonia in episode one, Mike Nyce of Nyce & Clean, saw his business go to the next level, which culminates in the final scene, of this $5000 check from Deluxe to the boys' and girls' clubs in honor of Mike's father. I had tears streaming down my cheeks. What's it feel like for folks like you and Amanda Brinkman to shine the spotlight on the passion behind people who might be running their own car detailing business in a small town like Fredonia?
Barry McCarthy:
You know what, it's all part of... So, first of all, of course it feels terrific, and I think it's great for our company and our shareholders too, because we're able to tell compelling stories about small business success. So it's not just about helping those eight small businesses we're able to help in each season, but we're able to broadcast those, they're video case studies that we know millions of other small business owners watch every year. It's the number one lifestyle program on Hulu, Amazon Prime, unscripted lifestyle program, which means millions of people are watching it, which means that we're able to tell that story and share those lessons in a way we couldn't possibly in any other way reach.
Josh King:
Speaking of community investment, Barry, in late 2020, Deluxe announced plans for an office in Sandy Springs, Georgia, that will employ, I think, more than 700 employees. Most of the CEOs we talk to on this program since 2020 have been talking, even you talked about it, reducing footprints even while growing headcounts. Why was a physical space in Georgia the right move for the company?
Barry McCarthy:
So, you know, I said earlier, Josh, that in the time that I've been here, we've reduced the number of our locations by 60%. Most people might think about doing that over a five or seven year horizon, and we did it in less than 18 months. We just went at it and did it. So, we're going to consolidate our real estate footprints, we'll certainly have other locations, but really consolidate at three locations. The Twin Cities, we're moving downtown Minneapolis, on the Skywalk. We sold our 54 acre campus in suburban St Paul, moving into downtown Minneapolis to be part of that recovery. We took office space in suburban Atlanta, and we have a big operations center in Kansas City. Those are going to be our three hub locations.
Barry McCarthy:
So why did we choose those three? First of all, Minneapolis has a great Fortune 500 major company headquarter reputation, and great talent that we can draw from. Kansas City has got a great footprint for us in our operations functions, and Atlanta has maybe an unmatched footprint in fintech and payments. I think that the numbers are something like 70 or 80% of all payment transactions process with a company, either with a headquarters in Atlanta, or major presence in Atlanta, which gives us access to a great talent pool, which is where we're growing the company. We're very straightforward about the fact that our strategy is to invest some of the profits from our check and our promotional business in our payments business, and our cloud business, specifically data, and that means you want to have your footprint available to the best possible talent to help you accelerate that growth.
Josh King:
Speaking of physical world versus the digital world, Barry, in the introduction I mentioned how overwhelmingly the federal stimulus checks weren't really checks at all, but according to the federal reserve bank in Atlanta, their report in 2020, Americans still write three checks a month to businesses. Why are businesses behind the curve in the digital economy, in terms of acceptance?
Barry McCarthy:
You know what, this I think is one of the most misunderstood stories in the payments industry. Everyone likes to say that the check is a demon and backwards, and I'm not here to defend that isn't a technology that was put together in 1915, because it was. The significant majority of business to business payments are still done with checks, and the consumer need to pay a business with a check still exists because it is the only truly universally accepted payment mechanism, besides cash.
Barry McCarthy:
So imagine the use case on a business to business payment, and you're a restaurateur, and the truck with provisions pulls up to your back door. There's no way they're going to offload a couple thousand dollars worth of checks and cases of beautiful red wine to your steak restaurant if you haven't been paid. There's no way they're going to take a credit card and pay all those credit card fees, so the only way that truck gets unloaded of the provisions, is if the restaurateur writes a check, hands it to the driver, the driver opens the back door, and then fills the restaurant with their provisions.
Barry McCarthy:
The same is true in construction, and many different places where check is still, there is no viable substitute. That's why there's still billions of checks being written every year, and as a matter of fact, Josh, to give you a sense of scale, we ship 150,000 packages, books of checks, every day. 150,000 packages go in the mail from us every day, because checks are still important. So there just aren't good, viable substitutes. So clearly, we're not talking about a credit card or a debit card at point of sale to buy groceries, that ship has sailed, those checks are largely gone, but the use case for the remaining checks, there just aren't good substitutes.
Barry McCarthy:
To give some perspective on that, the single largest source of new check customers for us during the Covid crisis was from new business starts. Think about that a second. If you have a new business that's starting, if they didn't believe they needed to have checks, they wouldn't buy checks, but they know they have to have checks because there's no alternative.
Barry McCarthy:
That's not to say that checks are growth business, we never have said that, but they're an important part of what makes the economy work today, and it's an important profit making enterprise for us still at Deluxe. We've clearly better future on payments and cloud delivered services. We're very upfront about that, we're very upfront that we are investing profits from payments in our promotional products business directly to make our payments business grow. In 2020, the middle of a crisis, it worked pretty well. The business didn't exist in its current format until January 2020, and we've delivered double digit revenue growth with margins in the 20s, from something that, in its current form, didn't even exist before January 2020. It's pretty good. I think it tells the story, sort of, about the new Deluxe and where we're trying to go.
Josh King:
We've been talking mostly about Deluxe's four million small business customers, but the company has this well established financial sector business. How is the company currently segmented, and are there particular areas that you're looking for growth in the short term?
Barry McCarthy:
It's a great question. We re-segmented the company very deliberately in January 2020, just before Covid happened. There are four operating businesses. A payments business, cloud delivered services business, promotional products, and checks, and we're very, very upfront that we are, for our future, is all about payments. Three pieces there, receivables as a service, second payables as a service, and third, cash management for small to medium sized enterprises.
Barry McCarthy:
We have a gigantic footprint in receivables, nearly three trillion dollars a year of volume. Our payables as a service business is exploding, with great growth, way, way, way into double digit growth, because we're digitizing those last use cases for checks. Like in healthcare, where we're able to send a digital check along with the explanation of benefits and allow the hospital to decide how to accept that payment, whether it's a paper check, whether it's a prepaid card, whether it's an ACH, so we don't mess up any of the existing systems and we can grow. The same is true, we've got great things happening in cash management, of course, and our cloud business, very excited about our data business.
Barry McCarthy:
We sell those products to everybody, we sell them to the smallest mom and pop, all the way up to the largest enterprise. Of course, different flavors, different versions of products, based on your specific market need, but successful, really, at all of those levels.
Josh King:
Just to hone in a little bit on what you mentioned about healthcare, I think it's the healthcare exchange, I've heard you describe it in terms that would make anyone at ICE have a case of deja vu. Have you taken the convoluted paper intensive, slow manual process of these healthcare payments and replaced it with a digitized end to end process?
Barry McCarthy:
We have. It's really simple and straightforward. The problem is that today, a hospital sends to the insurer a bill because you broke your leg skiing, and the insurer says, "I'm not going to pay you $10,000 for Josh's broken leg, I'm only going to pay you $8,000", and that $8,000 has to somehow get to the receivables clerk at the hospital, and today the only way that can happen is by printing a paper check, a paper explanation of benefits, putting it in an envelope, putting a stamp on it, putting it in the mail, and then either somebody running a lockbox has to open it or their clerk has to open it. The hospital then apply the payment, and it's very cumbersome and slow.
Barry McCarthy:
The reason it hasn't been reinvented so far is the legacy systems that are deeply embedded in the entire operating infrastructure, both at the hospital, and the insurance company, really prevent them from reinventing that. Besides, if they were going to reinvent, which of the many different options would they choose? It has to be universally acceptable, that's why checks are still here. So what our solution does is it allows that explanation of benefits to travel as an email, secure email, with a secure electronic check attached to it. As an old electronic payments guy, you're like, why would you do a check at all? Why wouldn't you just do ACH? It's because the receiving side may have a paper process still. So if they have a paper process, they don't want to change anything about that process, they can print that check and deposit it like a regular check. If they have an electronic process, we will convert it realtime, put ACH in an account. If you want it put on to a pre-paid card, or any other, a number of other things, we can manage that payout as well.
Josh King:
So many things happening at the company, Barry. You mentioned at the beginning of our conversation what you walked into in 2018, this company that was built on so many of these acquisitions. You've now sorted so much of that out, but a company needs to continue to grow, needs to continue to have an open mind, needs to look at potential deals, what do you see as potential strategic moves you might make in the future?
Barry McCarthy:
We were very upfront and candid at our last earnings call... All the things that I said that would be required for us as prerequisites to consider being back in the acquisition game, we have completed. We have a sound technology infrastructure running the whole company. We have a robust, I've just shared some of those numbers with you, robust sales culture. We have the ability to build product. So with those things as a backdrop, it makes sense now for us to contemplate bolting on acquisitions that could take advantage of that scaled infrastructure. Previously, the company didn't have that opportunity, so it became what we called a company of companies, rather than a company of products, and we're now clearly a company of products, which makes sense for us to have more products to sell through those distribution channels, that are now well oiled.
Barry McCarthy:
So we'll be looking at payments, or cloud type acquisitions, things that can add to our capabilities, and that we can bring to our existing customers and help us attract new customers.
Josh King:
Attracting new customers always the forefront of a CEO and President's mind, Barry, it's been a great tour through your career and a conversation about what's happening at Deluxe today, and really what might we be looking at in the future. Thank you so much for joining us inside the ICE House.
Barry McCarthy:
Thanks, Josh, great to be with you.
Josh King:
That's our conversation for this week. Our guest was Barry McCarthy, President and CEO of Deluxe, that's NYSE ticker symbol DLX. If you like what you heard, please rate us on iTunes so other folks know where to find us, and if you've got a comment or question you'd like one of our experts to tackle on a future show, email us at [email protected], or tweet at us, @ICEHousePodcast.
Josh King:
Our show is produced by Pete Ash, with production assistance from Brian Hopkins and Ian Wolfe. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening, talk to you next week.
Introducer:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information, and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.
