VeriFone Holdings Inc. has developed a mobile payment card reader that works with Apple Inc.'s iPhone.

The terminal maker said Tuesday that it expects to begin shipping its Payware Mobile device in January, at no charge to merchants that use its gateway payment service.

VeriFone said the mobile reader is aimed at small merchants that want to begin accepting payment cards.

The company will require merchants to use its Payware Mobile payment gateway, which processes transactions through First Data Corp., though the service can be configured to work with other processors.

Merchants with existing merchant accounts will pay a $15 monthly gateway fee and a one-time $49 sign-up fee to use Payware Mobile. Merchants also pay VeriFone 17 cents per Payware Mobile transaction.

VeriFone will sell the product directly and through acquirers and independent sales organizations, which will offer their own pricing.

The card reader, which slips around the phone, encrypts sensitive data when the cards are swiped.

The software, which will be available through Apple's iTunes App store, also meets the Payment Card Industry Security Council's Payment Application Data Security Standard.

Besides the slip-on card reader, the product includes a stylus cardholders can use to write their signatures on the phone's touchscreen; customers also can use a finger to sign.

The signature-capture capability will enable merchants to process transactions at card-present interchange rates, which are lower than card-not-present rates, VeriFone said.

Tasq Technology, a point of sale equipment distributor owned by First Data, will be the first company to distribute Payware Mobile. First Data is a unit of the private-equity firm Kohlberg Kravis Roberts & Co.

VeriFone said it is developing other versions of the software for use with other smart phones, including Research In Motion Ltd.'s BlackBerry models and handsets that use Google Inc.'s Android or Microsoft Corp.'s Windows Mobile operating systems. These are expected to be available by early spring, VeriFone said.

However, the terminal maker has not yet decided whether it will also produce the accompanying hardware for other handsets. "The iPhone presents one standard platform. That's not the situation with the other operating systems," a VeriFone representative said.