VeriFone Holdings Inc. says that selling its mobile phone payment terminals through Apple Inc. retail stores will deliver payment-card acceptance to an important new market: very small merchants.
For most merchants that want to take cards, choosing a processor is the main concern, and payments hardware is a secondary issue.
But with VeriFone's PayWare Mobile, the San Jose company is betting that the device itself will be a selling point and that small merchants will be willing to pick up the gadget at an Apple store and set up a payment account later.
This is a major departure from VeriFone's normal strategy of supplying payment terminals through the independent sales organizations that pair up merchants with acquirers and processors.
"We feel like this solution opens up the possibility to a market segment that didn't really envision themselves as being able to take cards," Paul Rasori, the senior vice president of global marketing at VeriFone, said in an interview last week. "They're not being inundated by ISO sales reps knocking on their doors."
PayWare Mobile is a portable card reader that clips on to Apple's iPhone handsets and lets merchants send transaction data to processors wirelessly. The device is aimed at people who are often on the go, such as flea market merchants or food-cart operators.
Rasori estimated that roughly 18 million small and microbusinesses in the United States could benefit from taking card payments but that only 6.5 million have the hardware to do so today. The remaining 11.5 million pose "a very significant opportunity" for VeriFone and its partners, he said.
The PayWare hardware piggybacks on the iPhone's wireless connection, which Rasori said makes it easier to sell to this untapped market. Merchants with dedicated terminals typically must pay an additional fee for wireless access, but merchants using PayWare can send transactions through the iPhone's data plan to VeriFone, which forwards them to the processor.
Adil Moussa, an analyst at Aite Group LLC, said that VeriFone is trying to reach a market that is poorly served by the standard merchant-acquiring process.
"It's not that it's not being served, it's that it's not being served in an efficient manner," he said. Most portable payment hardware "happens to be very expensive, and they don't have any other functionality," he said. So the PayWare/iPhone combination should be very appealing to merchants.
Though brick-and-mortar merchants may not consider the hardware a primary selling point for a merchant processing account, "ambulant merchants really care about the type of hardware" they use, he said, so VeriFone is right to adopt a strategy that puts more emphasis on the device.
Though VeriFone aspires to reach merchants that are off the radar of most ISOs, Moussa emphasized that merchants do not treat card acceptance as an impulse purchase.
A person "is definitely not going to go and buy an app and then go and decide to become a merchant," he said.
Of course, merchants do not need fancy wireless gadgets to take card payments on the go. Several software companies offer iPhone apps that let people accept cards through the phones, though they lack the hardware that lets people swipe cards. This often forces the merchants to pay more expensive card-not-present transaction fees and can make paying more time-consuming.
The PayWare product line is currently limited to the iPhone, but Rasori said VeriFone is considering developing versions for other smart-phone operating systems, such as Research In Motion Ltd.'s BlackBerry, Google Inc.'s Android, and Microsoft Corp.'s Windows Mobile.
