VeriFone Sees ‘Two-Way’ Communications In Its Terminal Future

VeriFone Systems Inc. is planning major investments in payment terminals with contactless readers built in as wireless carriers, card networks and banks proceed with mobile-payments initiatives.

“This next generation of smart phone payment isn’t just going to be waving a phone at a contactless reader,” Doug Bergeron, the San Jose, Calif.-based company’s chief executive, said in an interview Dec. 2. “It’s going to be a rich, two-way application-centric experience between your phone and that computer sitting on the point of sale.”

In October, VeriFone entered into an agreement with eBay Inc.’s PayPal Inc. payments unit that will give users of the terminal maker’s PayWare Mobile card reader for Apple Inc.’s iPhone the ability to accept funds by bumping two devices together (see story). It announced a separate deal in September with Bling Nation Ltd. under which the terminal maker plans to use its reseller network and payments gateway to extend point-of-sale acceptance to PayPal and to Bling’s rewards-based contactless tags (see story).

Such deals have been made amid the backdrop of recent mobile-payments technology development. AT&T Inc., T-Mobile USA and Verizon Wireless in November announced they are building mobile payments system, Isis, that will rely on devices embedded with Near Field Communication chips and route transactions over Discover Financial Services’ network (see story).

Visa Inc. and MasterCard Worldwide also have been working with banks in mobile-payments trials.

“This all points to kind of a ‘Wild West’ environment we think for the next couple of years, but in an environment that’s very much leveraging the VeriFone installed footprint and the richer capabilities that now exist at the point of sale,” Bergeron said during a Dec. 2 earnings conference call.

VeriFone could leverage the technology going forward, analysts say.

“The mobile story with contactless is the answer for how they continue to grow for the next three to five years,” says Gil Luria, an analyst with Wedbush Securities in Los Angeles. “How fast they are growing right now is not only based on market growth but clearly based on share gains.”

Last month, VeriFone announced plans for an all-stock purchase of Scottsdale, Ariz.-based rival Hypercom Corp. valued at $485 million, including net debt VeriFone would assume (see story). The planned acquisition, which VeriFone expects to close later next year, along with the company’s plans to acquire the terminal business of Dutch card maker Gemalto NV soon could make VeriFone the largest terminal maker in the world.

Wedbush estimates VeriFone’s and Hypercom’s combined revenue for 2010 to be $1.44 billion.

Advertising in the back of cabs and at terminals also could become a larger part of VeriFone’s cash flow in the future, says Darrin Peller, an analyst at Barclays Capital. He estimates such advertising already generates about 5% of VeriFone’s revenue.

“There is a lot going on in the underlying services, recurring revenue story of this company. They are moving very quickly,” Peller says.

VeriFone’s fiscal fourth-quarter revenue rose 27%, to $276 million from $217.8 million during same period ended Oct. 31 last year (see story).

At mid-day trading Dec. 3, VeriFone’s shares were up 9.25%, selling at $40.16.

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