VeriFone Holdings Inc. says that selling its mobile phone payment terminals through Apple Inc. retail stores will deliver payment-card acceptance to an important new market: very small merchants.

For most merchants that want to take cards, choosing a processor is the main concern, and payments hardware is a secondary issue.

But with VeriFone's PayWare Mobile, the San Jose company is betting that the device itself will be a selling point and that small merchants will be willing to pick up the gadget at an Apple store and set up a payment account later.

This is a major departure from VeriFone's normal strategy of supplying payment terminals through the independent sales organizations that pair up merchants with acquirers and processors.

"We feel like this solution opens up the possibility to a market segment that didn't really envision themselves as being able to take cards," Paul Rasori, the senior vice president of global marketing at VeriFone, said in an interview last week. "They're not being inundated by ISO sales reps knocking on their doors."

PayWare Mobile is a portable card reader that clips on to Apple's iPhone handsets and lets merchants send transaction data to processors wirelessly. The device is aimed at people who are often on the go, such as flea market merchants or food-cart operators.

Rasori estimated that roughly 18 million small and microbusinesses in the United States could benefit from taking card payments but that only 6.5 million have the hardware to do so today. The remaining 11.5 million pose "a very significant opportunity" for VeriFone and its partners, he said.

The PayWare hardware piggybacks on the iPhone's wireless connection, which Rasori said makes it easier to sell to this untapped market. Merchants with dedicated terminals typically must pay an additional fee for wireless access, but merchants using PayWare can send transactions through the iPhone's data plan to VeriFone, which forwards them to the processor.

Adil Moussa, an analyst at Aite Group LLC, said that VeriFone is trying to reach a market that is poorly served by the standard merchant-acquiring process.

"It's not that it's not being served, it's that it's not being served in an efficient manner," he said. Most portable payment hardware "happens to be very expensive, and they don't have any other functionality," he said. So the PayWare/iPhone combination should be very appealing to merchants.

Though brick-and-mortar merchants may not consider the hardware a primary selling point for a merchant processing account, "ambulant merchants really care about the type of hardware" they use, he said, so VeriFone is right to adopt a strategy that puts more emphasis on the device.

Though VeriFone aspires to reach merchants that are off the radar of most ISOs, Moussa emphasized that merchants do not treat card acceptance as an impulse purchase.

A person "is definitely not going to go and buy an app and then go and decide to become a merchant," he said.

Of course, merchants do not need fancy wireless gadgets to take card payments on the go. Several software companies offer iPhone apps that let people accept cards through the phones, though they lack the hardware that lets people swipe cards. This often forces the merchants to pay more expensive card-not-present transaction fees and can make paying more time-consuming.

The PayWare product line is currently limited to the iPhone, but Rasori said VeriFone is considering developing versions for other smart-phone operating systems, such as Research In Motion Ltd.'s BlackBerry, Google Inc.'s Android, and Microsoft Corp.'s Windows Mobile.

It may also sell the hardware in other retail stores, but Rasori said Apple is the perfect first step.

"People with iPhones often frequent the Apple store because they're very loyal customers," he said. "In terms of awareness, it's a very good venue."

PayWare is also distinctive for being the only VeriFone product with mandatory encryption. Because VeriFone cannot control — and thus cannot trust — what programs users put on their iPhones, the PayWare device encrypts card data as it is swiped. To make this possible, VeriFone also acts as the gateway.

Though Rasori said the PayWare sales strategy is a shift for VeriFone, the company has not changed its marketing plan for other products. "We have no intention of putting our core products into any type of retail outlet," he said.

Merchants that use PayWare Mobile still must establish a merchant account, and VeriFone refers customers to an ISO that can help pair the merchant with a processor.

VeriFone's Web site offers PayWare for $150, but it is free for merchants who commit themselves to a long-term processing contract. The device will be available in Apple stores this month, and Rasori said Apple will set the sales price.

The Apple store strategy was disclosed during a conference call VeriFone held last week to discuss its first-quarter results. It said that today, PayWare is marketed online and through 70 ISOs.

The average PayWare transaction is $100 to $200, but the average PayWare merchant uses the device for only 20 transactions a month — VeriFone said it expects much of its revenue to come from the $15 monthly gateway fee it charges merchants. It also charges merchants $49 to enroll.

VeriFone may face some competition from Square Inc., a start-up that announced its own iPhone payment card reader last year. Square has gotten a lot of attention because it is headed by Jack Dorsey, the founder of the Twitter Inc. microblogging service. Though it beat VeriFone to the marketing punch, the Square hardware is still in beta tests, whereas VeriFone's PayWare is available today.

Square is also being pitched, in part, as a product for consumer person-to-person payments; as such, the company puts less marketing emphasis on merchant needs.