Verifone faces POS debit-terminal challenge.

With the long-awaited explosion of debit transactions at the point of sale now at hand, several POS terminal providers are gearing up to challenge Verifone Inc.'s nearly complete dominance of the business.

The Redwood City, Calif.-based company historically has been the 800-pound gorilla in the point of sale terminal market.

In 1993, Verifone accounted for about 60% of the roughly 1,061,000 point of sale terminals sold worldwide, according to figures from POS News. The remaining 40% was split between more than a dozen other competitors, none of which owned more than 14% of the market.

With the development of the debit market, however, this group of also-rans, which includes the likes of Hypercom Inc., International Verifact Inc., and Diebold Inc., is starting to believe that it can eat into Verifone's market share.

While no one expects Verifone to topple from its perch, many in the industry believe 20th playing field will become more level.

"In terms of credit authorization terminals, [Verifone] is going to continue to be huge," said Brad Green, director of advanced card systems at Diebold Inc., based in North Canton, Ohio.

"However, as debit gets itself into the marketplace and as the smart card comes along," Mr. Green said, "I think we are going to be able to grab a bigger and bigger share."

Few in the industry would argue with the contention that POS debit has arrived as a payment option. With most major supermarket and gas station chains offering POS acceptance, transaction traffic has skyrocketed at a rate of more than 35% each year for the last four years.

In some major markets, debit transaction growth has far exceeded these nationwide averages. For instance, New York's dominant electronic banking network, known as NYCE, reported that its POS volume of six million transactions for the first half of 1994 was nearly three times as much as the same period last year.

Traffic is expected to continue to climb at NYCE and other networks as more consumers grow comfortable with the payment option and more merchants accept the cards.

As transaction-numbers rise, so too will the demand for debitenabled point of sale terminals. Debit terminals differ from credit terminals in that the former have number pads on which customers enter a personal identification number that is used in debit transaction authorization.

Some in the industry believe debit's potential is so great that businesses like Hypercom and Diebold could tally significant growth in the coming years without eating into Verifone's market share.

But others - noting that if Verifone's product line has any weakness it is in the area of debit - believe that the smaller companies are ready to begin making up ground on Verifone.

"[Verifone] terminals, for the most part, are really not designed to have a [personal identification number] pad on them," said Liam Carmody, a principal at Carmody & Bloom in Woodcliff Lake, N.J. "It's a shortcoming that could cost them."

To be sure, Verifone is not taking the debit revolution sitting down. Executives at the company said it is taking steps to improve the line of debit-ready terminals.

And despite any perceived shortcomings of its debit-capable products, it owns a majority share of the debit market, observers said.

For the time being, little is certain except that there will be some shuffling of the ranks of point of sale terminal vendors in the coming years, observers said.

During 1993, the smaller vendors played leapfrog, with several companies trading places in the sales rankings.

Verifone, meanwhile, has maintained its distance from the pack. Its 1993 market share was virtually unchanged from its 60% share in 1992.

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