Two rival terminal makers are stepping up their encryption efforts.

Hypercom Corp. announced a new unit Tuesday to promote the use of encryption technology within the payments industry. Its rival, VeriFone Holdings Inc., announced a partnership the same day with the processor Chase Paymentech LLC to offer its own encryption product to Paymentech's merchant clients.

Hypercom, a Scottsdale, Ariz., technology company, said its new global data protection division will distribute its EFTSec Server encryption software in the Americas and Europe.

EFTSec Server was developed in Asia to thwart fraudsters who were tapping phone lines to capture payment data in transit, Stuart Taylor, Hypercom's vice president of global marketing, said in an interview.

Taylor said the new unit will also develop ways to protect data during operational procedures, routing and terminal maintenance and through a collaboration with Voltage Security Inc. in Palo Alto, Calif., to devise new encryption formats.

"We're trying to take a more holistic approach to protecting card data, wherever it is," he said.

T.K. Cheung, Hypercom's vice president of global quality and security, is heading the unit.

Hypercom is not the only terminal maker pushing forward on encryption.

VeriFone announced a partnership Tuesday with the payment security company Semtek Corp. and Chase Paymentech to offer VeriFone's VeriShield Protect encryption product to Paymentech's merchant clients.

Analysts said that encryption is becoming a must-have feature in the terminal market.

"The last thing a POS vendor wants to do is look like they're behind the curve against a competitor," said Robert Dodd, an analyst at Regions Financial Corp.'s Morgan Keegan & Co. Inc. POS vendors that do not offer some sort of advanced encryption technology, often called "end-to-end" encryption, will be at a competitive disadvantage, he said.

Hypercom's and VeriFone's security-related efforts signal an evolution, said Gil Luria, a vice president of research at Wedbush Securities Inc., a Los Angeles equity research firm.

"By making this move Hypercom is recognizing that much of the future evolution of the payment terminal market has to do with the ability to increase the security of transactions at the terminal," he said. The vendors "are also placing much emphasis on security technology and how different technologies can be implemented."