VeriFone Holdings Inc.'s efforts to drive payment card acceptance in taxis and at the gas pump are boosting its earnings.
The terminal company reported Monday that it swung to a profit of $3.7 million in its fourth fiscal quarter, from a $366.6 million loss a year earlier. It narrowed its loss for the full year, which ended Oct. 31, by 67.6%, to $137.8 million.
Douglas G. Bergeron, VeriFone's chief executive, said during a conference call with analysts that the San Jose company's terminals are now in 13,700 taxis in the United States, twice the 2008 total.
Bergeron said revenue from taxi products accounted for 5% of VeriFone's revenue in the fourth quarter. Overall revenue for the three months fell 11% to $217.8 million, and full-year revenue fell 8.4%, to $844.7 million.
Bergeron said that he expects VeriFone to ship 10%-15% more taxi terminals in North America this year, and that the sales will help generate a projected 20% to 25% growth in annual transactions. To accomplish that, VeriFone is expanding its sales staff and increasing its focus on domestic sales.
Bergeron said 30% to 35% of taxi fares are paid electronically. "The consumer studies we've seen suggest that once a rider uses a credit card twice, he's very unlikely ever to go back to cash," he said.
VeriFone also hopes to capitalize on the video monitor systems used by many of the taxis by selling advertising for them. "There are 300,000 taxis fares a day in New York City averaging 14 minutes," Bergeron said, making VeriFone's POS taxi systems "precious media venues."
VeriFone's efforts to update payment card readers at U.S. gasoline pumps also appear to gaining ground. Bergeron said sales to petroleum customers grew 10% from the third quarter, and last quarter's sales were up 12% from the second-quarter sales.
One driver for that growth is Visa Inc.'s July 1, 2010, deadline, requiring that all payment software connected to its network be compliant with the Payment Card Industry data security standards.
VeriFone's overall security push, and its VeriShield Protect system for encrypting transaction data, also are expected to attract more customers, Bergeron said.
Chase Paymentech LLC and the RBS WorldPay unit of Royal Bank of Scotland Group PLC both support VeriShield, and two unnamed processors have also agreed to accept VeriShield-encrypted transactions, Bergeron said.
Additionally, VeriFone is encrypting more than 5 million transactions a week at two national retailer chains, with "at least five other national chains in final testing and positioned to go live within a couple of months following a busy holiday shopping season," he said.
VeriFone's legal dispute with Heartland Payment Systems Inc. of Princeton, N.J., is having little effect on VeriFone's earnings, Bergeron said.
The two companies are suing each other over patent rights and allegations of unfair competition.
In response to an analyst's question, Bergeron said sales to Heartland accounted for 0.4% to 0.6% of VeriFone's annual revenue. Bergeron said there have been some costs associated with providing direct support to Heartland merchants using VeriFone equipment, but they have been "small."
VeriFone alleges that Heartland is infringing on one of its patents. That case has moved to mediation.
Heartland is suing VeriFone separately over allegations of unfair trade practices.
The interest in the Heartland-VeriFone dispute is telling, said George Peabody, the director of emerging technologies advisory services at Mercator Advisory Group Inc. "The industry has woken up," Peabody said.
"Between encryption and PCI, we have 1970s-era technology, and what did we get? We get some security holes," Peabody said.
The Heartland-VeriFone matter underscores the need for an industry standard, said Cliff Gray, an associate with Strawhecker Group, a consulting firm in Omaha.
"If players continue to push for their own, proprietary protocols, it will only slow down industrywide acceptance and integration of encryption standards," Gray said. "It could easily take a year or more for an industry standard to emerge, but it is very important that such a standard be developed — without one, the proliferation of end-to-end encryption will be a far more difficult."
