The world’s leading payment-terminal manufacturers expect to see a modest uptick in demand this year after a lengthy, recession-driven sales slump. France-based Ingenico, along with U.S.-based VeriFone Holdings Inc. and Hypercom Corp., all are cautiously optimistic about this year’s sales outlook, partly because of improving economic trends in certain global regions and new data-security mandates that will require certain merchants to replace existing terminals.
Terminal makers also are hoping to stir up new business by offering add-on services to help merchants better manage their payment devices and by selling new technology to encrypt data at every stage of a transaction. VeriFone even is looking to further exploit its niche in generating advertising revenue through taxi payment terminals.
Visa Inc.’s impending data-security mandate likely will be the primary catalyst for terminal-sales growth this year. On July 1, all devices and host systems designed to accept Visa’s Interlink PIN-based point-of-sale debit brand must comply with the Triple Data Encryption Standard. Terminal manufacturers expect a portion of merchants worldwide to upgrade their terminals to comply with the mandate.
But no one is forecasting a major turnaround. Observers and analysts are having difficulty forecasting actual shipments for this year because of uneven demand in various regions and ongoing economic uncertainty. Contactless-payment terminal upgrades also remain sluggish in most markets because of the general economic slowdown, the manufacturers say.
Besides those headwinds, terminal vendors have a few new potential challenges to worry about. One is the mushrooming numbers of downloadable applications enabling payment acceptance through mobile devices such as Apple Inc.’s iPhone. Most vendors say cell-phone apps serve niche audiences and are not yet a direct threat to replacing traditional payment terminals.
So far the type of smaller merchants using cell phones as payment-acceptance devices is “not a large group,” Chris Justice, managing director for Ingenico in North America, tells PaymentsSource, suggesting that cell phone payment applications eventually might spur new business for terminal makers. “If handsets were to eventually become widespread for accepting payments, they would need a great deal more built-in security than what they have today. And then handsets would begin to resemble our type of payment terminals, and they would need our technology,” Justice says.
Vendors also are concerned about potential new competition from Asian companies selling cut-rate terminals to merchants in Asia and other emerging economic regions (
Quarterly Declines
All three top terminal vendors’ revenues declined in their most recent quarterly earnings reports compared with year-earlier results.
Ingenico’s revenue for the third quarter ended Sept. 30 was 176.1 million euros (US$264.2 million), down 3.2% compared with 182 million euros during the same quarter a year earlier. On a constant-currency basis, Ingenico says its revenue for the quarter declined 1%.
VeriFone’s revenue for its fiscal fourth quarter ended Oct. 31 was $217.8 million, down 11% compared with $244.7 million during the same period a year earlier. Net revenues from VeriFone’s international business decreased 14%, while net revenues from VeriFone’s North America operations decreased 6%.
Hypercom revenue was $102.4 million for the third quarter ended Sept. 30, a reduction of 15.4% compared with $121.1 million during the same quarter a year earlier that the company attributes to industrywide component shortages.
Overall, the top terminal manufacturers expect to see somewhat higher sales this year, particularly in Canada, parts of Europe and certain emerging markets. In developed markets such as the U.S., pockets of higher demand will exist as merchants that have not yet done so move to comply with Visa’s data-security mandate.
Ingenico, the world’s leading terminal maker in terms of revenue, expects to see “slightly better” sales this year than in 2009, Justice says. “We are not getting ready to see a big (economic) recovery in 2010. But we expect to see growth in certain sectors, and we expect our market share of payment terminals to increase,” Justice says.
Emerging markets in Africa, Asia, India and Latin America show the most promise for sales growth this year, Justice says.
Ingenico also expects to notch more sales in the U.S. this year, where it lags behind VeriFone and Hypercom in domestic market share.
“We have a large position in the U.S. in major retail signature-capture,” Justice says. “The top 500 U.S. retailers are all upgrading their terminals to comply (with Visa’s July mandate), and we have a big chunk of that business. So we are putting pressure on VeriFone in the large-retail arena, and we are also gaining on Hypercom among midsize retailers.”
Justice also expects healthy growth this year in Canada, where merchants by October must comply with the EMV standard for point-of-sale chip card acceptance.
As for competition from newcomers, including Asian manufacturers willing to sharply undercut existing players’ prices, Justice is more guarded in his prediction. “We can never turn our backs on the possibility that a newcomer may make an aggressive move to begin selling terminals in North America,” he says. “We are always closely watching the global marketplace, investing in our own [research and development] and working to stay ahead of anyone who might decide suddenly to enter this market.”
VeriFone is banking on general sales growth from merchants seeking to comply with the new Visa security mandate, Paul Rasori, VeriFone senior vice president of marketing, tells
PaymentsSource.
“About 1 million” terminals are deployed in the U.S. that do not meet the new requirements, Rasori estimates, also citing the demand for new tamper-proof devices to drive growth in the next few years.
“As acquirers and merchants further lock down their data through encryption and other processes, fraud is starting to migrate toward device-tampering,” he says, noting VeriFone’s newest generation of terminals is “far less vulnerable” to tampering than were previous models.
VeriFone’s VeriShield Protect “end-to-end” data-encryption technology, introduced in 2008, is driving new business for the company in the U.S. and abroad, Rasori says. And merchants overall are requesting broader services, he says.
“There is growing demand for back-end services to help our customers track our equipment and provide real-time security updates,” Rasori says.
VeriFone says its strongest sales last year came from U.S. demand for new terminal installations in taxis and from upgrades to card readers at gasoline pumps.
Global demand this year likely will be uneven, Rasori says. Contactless-payment terminal sales this year will be most brisk in the United Kingdom, Canada and Turkey, where merchants are showing more eagerness to invest in contactless technology, but overall contactless-terminal growth is slow, he says, because of the global recession.
China generally is a bright spot because the market is still growing, and the country’s merchants deploy relatively few payment terminals, he says. Though “there is a lot of local competition,” VeriFone remains a dominant vendor, Rasori says. “Little companies crop up all the time trying to copy our stuff, but we plan to stay out in front in China,” he says.
New Revenue Channels
VeriFone also is experimenting with new revenue channels. Last year, the company announced plans to expand the video ads that appear on payment terminals installed in New York City taxicabs to large retailers’ payment screens. And in January of this year, VeriFone announced plans to buy the taxi media business from advertising company Clear Channel Outdoor Inc., a division of Clear Channel Communications Inc. Terms were not disclosed.
Rasori is not concerned about foreign terminal manufacturers threatening its U.S. turf any time soon.
“Other terminal makers have been trying to muscle into the U.S. market for years, and it’s difficult to penetrate,” he says. “Ingenico has been here for years and, while they have had some success in multilane retailers, they still lack major success in the core bank and processor channels.”
Hypercom this year expects to reap the results of key initiatives announced late in 2009, Philippe Tartavull, the company’s president and CEO, tells PaymentsSource. He has high hopes for Phoenix Managed Networks LLC, a company formed late last year through a joint venture with The McDonnell Group LLC to run Hypercom’s HBNet transaction-transport business.
Tartavull expects Hypercom’s existing transaction-transport service, which provides data-communication links for transaction-based applications to such diverse industry players as payment processors, financial institutions and retailers, to get a huge boost from the new venture. Jack McDonnell, former founder and CEO of data-communication services rival Transaction Network Services Inc., runs the service.
“We are taking a tiny business and making it much larger,” Tartavull says. “This should certainly give us a marketplace advantage.”
During the second half of this year, the U.S. will emerge from a “holding pattern” with stronger sales in mobile and countertop payment terminals, Tartavull predicts. In particular, Hypercom expects to see fresh sales of payment terminals to U.S. multilane retailers and within the U.S. hospitality industry.
Canada will be “a huge opportunity” for Hypercom this year, Tartavull adds, noting the company recently enhanced sales and management forces there.
Hypercom last year re-entered the payment-terminal hardware market in France, and Tartavull expects strong growth there in 2010. Hypercom also hopes to build on its existing strong market share in Germany and expects growth to come also from the United Kingdom, Latin America, Australia and New Zealand, where Westpac Banking Corp. last year agreed to buy $50 million worth of Hypercom’s products and services.
Data security will be an important lever for growth, Tartavull says, noting Hypercom is developing an “open” data-security product for Europe and North America based on technology created in Asia.
New technology and data-encryption services may stir up the payment-terminal market. Though lower-cost terminal makers in Asia are not yet an immediate threat, the leading manufacturers are keeping close tabs on them. PS
