The complexities of enabling U.S. merchants to accept contactless smart cards and various mobile-payment technologies represent a significant revenue opportunity for VeriFone Systems Inc., the company says.
During a conference call to discuss fiscal first quarter earnings, VeriFone executives cited numerous mobile-payment initiatives and partnerships as key factors helping the company grow. This includes VeriFone's work with the carrier-backed mobile payments venture Isis to provide the necessary readers at the point of sale.
The San Jose, Calif.-based terminal maker sits in a favorable position as a provider of technology for the conversion of U.S. terminals to accept smart cards now that it owns Swedish payments provider Point.
And the expected conversion to the EMV smart-card standard in the U.S. represents far more than just replacing terminals at merchant sites, said Douglas Bergeron, VeriFone's chief executive, in a conference call with analysts.
"The MasterCard and Visa announcements to push EMV in the U.S. create an opportunity to extend beyond just the potential replacement cycle," Bergeron said during the call. "The level of complexity that U.S. merchants must manage at the point of sale will grow significantly."
Unlike with magnetic stripe cards, EMV systems require regular updates, mostly brought about by Payment Card Industry data security compliance specifications, Bergeron said.
The education and attention U.S. merchants will need related to EMV conversion fits into the service Point has provided in Europe for several years, he said.
"In Europe and other parts of the world, companies like Point grew out of retailer and acquirer demand for ongoing services and support brought about by EMV complexity," he said.
Much of that complexity comes into play when other contactless payment technology is layered on top of an EMV system, making it important for merchants to set up next-generation systems in a manageable way, Bergeron said.
"Over time, we see an opportunity to wrap our certified EMV products with managed services designed to allow merchants to maintain compliance and still have the broadest access to new mobile and alternative payment platforms," he added.
VeriFone can point to a long list of achievements in a quarter that produced a 40.4% increase in profit compared with last year's fiscal first quarter, to $156.6 million for the three-month period ended Jan. 31 from $111.5 million the previous fiscal year. Revenue rose 47.7%, to $419 million from $283.7 million.
The company reported "exceptional progress" in its mobile-payment initiatives, building off the November acquisition of GlobalBay by introducing the software with U.S. retailers in January.
In addition, Whole Foods Market IP LP, Adidas AG and Limited Brands retail outlets in the United Kingdom incorporated VeriFone's Payware Mobile software to enable employees to move around a store with a tablet as the payment terminal.
VeriFone expects to come close to its projection of having its payment terminals in 10,000 London cabs for the 2012 Olympics, Bergeron said. More than 8,500 cabs are signed up for the equipment, and 3,000 terminals already have been installed.
In China, VeriFone reported it signed agreements with China UMS and Agricultural Bank of China, the country's two largest acquirers in terms of point of sale systems placed.
VeriFone's successful first quarter illustrates how many different revenue streams exist in the modern payments industry and that the company has been wise to acquire or create partnerships with various vendors, says Brian Riley, senior research director and analyst with TowerGroup.
This year "is shaping up as the year of the vendor because there will be so much re-terminalization with EMV and the coming of" near-field communications, Riley says.
But a slight danger exists for companies that may get too far ahead of themselves in the pursuit of EMV, Riley says. The payments industry has not agreed on whether to use a PIN for EMV cards, he says.
