Merchants’ security concerns are driving the development and sales of new payment hardware at VeriFone Systems Inc., the top executive at the payment-terminal maker told analysts during a March 1 conference call to discuss fiscal first quarter earnings.
Gas station owners, taxi cab company owners and retailers have expressed interest in using encryption to protect payments, said Douglas G. Bergeron, VeriFone’s chief executive.
To this end, First Data Corp. has said it would offer San Jose-based VeriFone’s VeriShield Protect service to customers unless they opt out. VeriFone says it also plans to follow a similar approach in Europe once its purchase of Hypercom Corp. closes.
VeriFone in November announced plans to purchase the rival terminal maker in an all-stock deal to improve its business overseas. Hypercom’s shareholders approved the deal Feb. 24 (
“These guys are growing very fast right now,” analyst Gil B. Luria of Wedbush Securities said of VeriFone. “They have a lot of things going well … ‘end-to-end’ encryption software to retailers, new petroleum products to gas stations. and taxi products and services. Those three things are helping them grow above and beyond.”
VeriFone reported net income of $32 million for the fiscal first quarter ended Jan. 31, up 202% from $10.6 million during the same period last year. Revenue was up 27%, to $283.8 million from $223.4 million. .
VeriFone estimated that about a quarter of its petroleum customers have signed up for a new software-maintenance program. It said it will deploy about 25,000 secure pump devices this year, about three times more than were sold last year.
VeriFone’s gas pump line has the potential to generate $200 million to $300 million in revenue over the next several years, said Tien-tsin Huang, a JPMorgan analyst who covers the payments networks.
Sales of VeriFone’s payment-acceptance hardware for taxis also are growing. So far, VeriFone has installed about 1,000 card readers in taxis in the London in anticipation of the city’s Olympics next summer.
“London has twice the number of taxis than [New York City], and average fares are slightly higher,” Huang wrote in a research note to investors Wednesday. That “bodes well for VeriFone’s opportunity to earn higher yields.”
During the analyst call, Bergeron said VeriFone’s pending acquisition of Hypercom will bolster its presence in Europe.
“Once we get the Hypercom deal into the fold, we are going to start moving in a much more aggressive manner,” he said. ”The transformational initiatives that we’ve been so successful incubating over the last two years in the U.S.,” including new software and encryption, will be taken “aggressively into Europe.”
Bergeron also said mobile payments initiatives, such as those being pushed by Isis (the network built by several telcos), Google Inc. and Apple Inc., inevitably will involve VeriFone because all of those companies will need to guarantee that their payments will work at the point of sale.
“Consumers need the confidence that their phone can be used nearly everywhere to force a sustainable change in buying behavior,” Bergeron said. “Mobile commerce must be integrated with other forms of payment and existing payment systems that are certified by major processors and installed in the vast majority of retailers.”
Bergeron also made an argument for the U.S. to switch to credit and debit cards with the EMV Integrated Circuit Card Specifications, commonly called “chip and PIN,” because consumers typically use a PIN to verify transactions made with EMV cards. VeriFone would benefit from any change that would cause merchants to upgrade their point-of-sale terminals.
“We absolutely do think that the U.S. does best to align itself with chip-and-PIN countries,” said Bergeron. “A lot of the hacking that occurs in Europe of credit card numbers ends up … producing mag-stripe variants of European chip cards for use only in American retailers. So a lot of the fraud is being exported to America.”
The U.S. has been slow to switch to EMV. The first U.S. company to issue EMV cards to domestic customers, United Nations Federal Credit Union in New York, only began offering the cards last year (
And Visa Inc. excluded U.S. merchants from a policy it announced last month to waive its requirement that merchants annually validate compliance with the Payment Card Industry Data Security Standard if 75% of the transactions they accept are made with EMV cards (
Still, some analysts say the U.S. will widely switch to EMV. In a recent study, Aite Group LLC of Boston forecasted that most U.S. consumers would be issued EMV cards in the next several years.
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