VeriFone Systems Inc. is planning major investments in new terminal technology as wireless carriers, card networks and banks move ahead with mobile payments initiatives.
"This next generation of smartphone payment isn't just going to be waving a phone at a contact-less reader," Doug Bergeron, the San Jose company's chief executive, said in an interview Thursday. "It's going to be a rich, two-way, application-centric experience between your phone and that computer sitting on the point of sale."
In October, VeriFone agreed with eBay Inc.'s payments unit PayPal Inc. to give users of the terminal maker's PayWare Mobile card reader for Apple Inc.'s iPhone the ability to accept funds by bumping two devices together.
VeriFone announced a separate deal in September with Bling Nation Ltd. under which the terminal maker plans to use its reseller network and payments gateway to extend point of sale acceptance to PayPal and to Bling's rewards-based contactless tags.
Such deals have been made against a backdrop of recent mobile payments technology development. AT&T Inc., T-Mobile USA and Verizon Wireless in November said they are building a mobile payments system, Isis, that will rely on devices with near field communication chips embedded and will route transactions over Discover Financial Services' network.
Visa Inc. and MasterCard Inc. also have been working with banks on mobile payments trials.
"This all points to kind of a 'wild west' environment, we think, for the next couple of years, but in an environment that's very much leveraging the VeriFone installed footprint and the richer capabilities that now exist at the point of sale," Bergeron said during an earnings conference call Thursday.
Analysts said VeriFone could leverage the technology.
"I think the mobile story with contactless is the answer for how they continue to grow for the next three to five years," said Gil Luria, an analyst at Wedbush Securities in Los Angeles. "How fast they are growing right now is not only based on market growth but clearly based on share gains."
Last month, VeriFone announced an all-stock purchase of its Scottsdale, Ariz., rival Hypercom Corp. that was valued at $485 million, including net debt VeriFone would assume. The deal — along with the company's plan to buy the terminal business of the Dutch card maker Gemalto NV — could soon make VeriFone the largest terminal maker in the world.
Wedbush estimates VeriFone's and Hypercom's combined 2010 revenue at $1.44 billion.
Advertising in the back of cabs and at terminals could also become a larger part of VeriFone's cash flow, said Darrin Peller, an analyst at Barclays Capital. He estimated that such advertising already contributes about 5% of VeriFone's revenue.
"There is a lot going on in the underlying services-recurring revenue story of this company. They are moving very quickly," Peller said.
VeriFone's fiscal fourth-quarter revenue rose 27% from a year earlier, to $276 million.
It said its net income for the quarter ended Oct. 31 was $49.4 million, compared with a net loss of $2.2 million a year earlier. Earnings per diluted share reached 55 cents, up from a net loss of 3 cents per diluted share a year earlier.
For the fiscal year, VeriFone's revenue grew 19% from a year earlier, to $1 billion. VeriFone's shares closed up 8% at $39.87 on Friday.