VeriFone Systems Inc. plans to use its acquisition of Way Systems Inc. to attract more merchant interest in its mobile-payment systems. But the deal also eliminates a competitor, analysts say.
San Jose, Calif.-based VeriFone is paying $6 million for Boston-based Way, with a possible additional $3 million if the company hits performance targets.
Way holds “numerous patents,” including the connection of a magnetic stripe card reader to a mobile phone, personal digital assistant or smart phone, VeriFone noted in a news release. A spokesperson says VeriFone could look to license that intellectual property.
Merchant Access
More than 25,000 merchants use Way’s mobile point-of-sale devices, VeriFone says. Approximately 100 independent sales organizations resell Way’s devices and payments services. The merchant and ISO combination made the company attractive, says Paul Rasori, VeriFone senior vice president of marketing. ISOs have the merchant contracts.
The ISO contract terms for the Way services are not changing, the VeriFone spokesperson says. Way products will be rebranded as VeriFone devices, he notes.
Additionally, an unknown number of Way staff has been offered either permanent or temporary positions. Another group was let go, the VeriFone spokesperson says.
Way approached VeriFone, looking to sell, four months ago, Rasori says.
“They had been in business for a couple of years and developed a pretty decent distribution channel,” he says. “And, to be honest, they were running up against the fact that you do need scale to compete.”
A Broader Base
Meantime, VeriFone already had launched its own PayWare Mobile reader that debuted in Apple Inc.’s retail stores earlier this year.
Some of the patents Way holds could bolster that technology, analysts say.
“It just kinda broadens the reach a little bit from very Apple-centric to a broader base,” Robert Dodd, managing director at Morgan Keegan in Memphis, Tenn., says of the acquisition.
Way’s patents are built more around Blackberry devices instead of Apple’s popular iPhone, he says.
VeriFone’s payment application first became available through resellers in January, and the U.S. version of the software became available on Apple’s iPhone in February.
“This illustrates that mobile terminals are an existing market, that’s well established,” says Aaron McPherson, a research manager who covers payments at IDC Financial Insights. “There is just a thriving business in mobile terminals.”
Still, the acquisition does not amount to much, Dodd says. “It’s not a significant investment,” he says “I don’t think it’s indicative of a change of plan or anything like that.”
Way was founded in 2002 with initial seed capital from Bill Melton, the founder of VeriFone. Melton has not held a position within VeriFone for several years.
Another Way founder, Will Graylin, now heads Roam Data Inc., a Boston-based mobile-payment company.
Melton was not a part of the decision to buy Way, Rasori says.
The acquisition will not have a material impact on VeriFone’s financial results, a release said.
Last week, however, VeriFone boasted record high earnings. The company said its revenue for the quarter, which ended July 31, rose 24% from a year earlier to $261 million.
With additional reporting by Kevin Woodward.
