Now is a good time to be selling point of sale terminals.
Driven by technological shifts, fear of fraud, and government mandates, demand for terminals is booming all over the world, and industry executives and observers say the good times could continue for several years.
Some countries, such as China and Mexico, which are trying to shift away from cash-based economies, are inducing merchants to accept payment cards. Other countries, where cards are already common, are adopting the Europay, MasterCard, Visa smart card security standard. In the United States, security concerns and telecommunication costs are prompting merchants to upgrade terminals.
"In the U.S., there's a large infrastructure already out there," said Paul Rasori, the vice president of marketing and product management for the San Jose terminal maker Verifone Holdings Inc. "The good news is those devices are starting to get old."
Old terminals generally use dedicated telephone lines, but new terminals can send transaction data quicker and cheaper across the Internet, using digital subscriber lines and the Internet protocol format, he said.
Michelle Graff, a spokeswoman for U.S. Bancorp's Nova Information Systems, said security issues are also spurring U.S. merchants to upgrade.
For example, by 2010, Visa will require merchants to use terminals that adhere to the Triple DES encryption standard, which Visa U.S.A. and MasterCard International already require for automated teller machines.
In addition, Ms. Graff said, some states are changing their laws regarding the card information that can be displayed on card receipts.
Machines across the country must now show only the last four digits of the account number on a customer's receipt; she said that merchants in Tennessee must now use terminals that do the same for their own copies of the receipts, and other states are likely to follow suit.
The security requirements are prompting terminal upgrades, and Ms. Graff said that by yearend an acquirer will not be allowed to install a point of sale terminal from a manufacturer that does not support the Triple DES standards.
Manufacturers generally sell their terminals to merchant processors such as Nova, which offers them to merchants.
Paul Walters, the vice president of emerging technology products for the Phoenix terminal company Hypercom Corp., said self-service checkout terminals are already popular in Europe and are catching on in this country.
Merchants like the machines, because they let customers check out by themselves, he said. "Companies can add more kiosks faster than employees. There's no training involved. They plug it in, and it's available to use," and a kiosk "doesn't ask for a raise."
Wireless terminals are also popular in many developing countries, which "don't have the communications infrastructure that Europe and North America have," he said.
Matt Marcus, an analyst with AM Investment Partners LLC, said that Canada, Europe, and some Asian countries are moving toward the EMV security standard, which uses smart cards instead of magnetic stripe ones.
The United Kingdom is ahead of its neighbors in installing terminals that can read EMV-compliant cards, he said.
Toni Merschen, the group head for chip cards at MasterCard, said it implemented a new liability rule in Europe in January of last year, and in Asia a year later, to motivate merchants to use EMV terminals.
The old rule required issuing banks to cover all fraud-related costs, but the new rule holds merchants responsible if their terminals are not EMV-compliant.
Tien-Tsin Huang, an analyst for JPMorgan Securities, said demand for new terminals is strongest in developing countries.
Those countries "are increasingly embracing card-based payments, and are going to require the infrastructure to do this," Mr. Huang said. "Point of sale terminals are critical to this infrastructure."
For example, Mexico's economy has long been cash-based, and the government is trying to create a stronger paper trail for purchases to make it easier to calculate taxes, he said.
In the past year the Mexican government has offered a variety of tax incentives to induce merchants and banking companies to use cards, and demand for terminals in that country is growing, Mr. Huang said.
Verifone said it sold more than 100,000 terminals to Mexican banks last year, and last month the industry group Fimpe, which was formed by the Banks Association of Mexico to help the country modernize its payment system, ordered 31,000 machines, which will be delivered in the next six months.
One of Fimpe's stated goals, according to Mr. Marcus, is to triple the number of point of sale terminals in Mexico, to 450,000, in about five years.
Mr. Walters said China is also trying to persuade merchants to install the terminals throughout the country - also for tax purposes.
According to Mr. Huang, these trends could continue for at least three more years, and the replacement cycle, which had been as long as seven years, "seems to be compressing" to about five years. That compression could extend the industry's strong sales, he said.
Orders and revenue for terminals will increase in the high single digits domestically, and in the mid-teens internationally, for the next three years, he predicted.
Mr. Marcus agreed that all the trends are likely to continue for several years, and he predicted that the terminal industry could grow in the mid or high teens annually.
"We're in the third inning of the upgrade cycle," he said. "The industry is certainly growing fast enough, and these companies are all small enough that everybody should benefit."
