VeriFone Sees a Potential Bonanza in Mobile Wallets Tied to NFC

Bullish on the prospects of electronic wallets residing on smart phones equipped with near field communication (NFC) chips, leading point-of-sale terminal maker VeriFone Systems Inc. says that topline revenues from software, services, and equipment for NFC wallets could increase in the United States between $100 to $150 million, and more internationally, if and when such electronic wallets become mainstream.

The prediction, made during the company’s second quarter earnings call with analysts on Thursday, is contingent on the success of several current pilots for NFC-enabled smart phones chief executive Douglas G. Bergeron told analysts.

The most prominent NFC pilot is Google Wallet, which Web search giant Google Inc. announced last week. Google Wallet, which will be tested in New York and San Francisco with a planned rollout this summer, incorporates MasterCard-branded credit card accounts from Citigroup Inc. as well as a Google prepaid card that can be funded with any card. Participating merchants will use VeriFone’s NFC-enabled point-of-sale systems. First Data Corp. is serving as trusted service manager, a role in which it provisions card-account details to the Google phones. Sprint Nextel is the carrier network.

“We assume that when this goes mainstream that 15% to 20% of our U.S. customer base will upgrade to NFC card readers or accelerate the cycle to integrate NFC capabilities,” said Bergeron. “We have 4-to-5 million VeriFone customer lanes in the U.S. and more globally. If NFC trials are successful, we expect one million lanes a year to get upgraded.”

Merchants are likely to pay $10 to $15 per lane to download the software needed to support an NFC wallet, Bergeron added.

In addition, VeriFone announced an NFC application for restaurants with Micros Systems Inc., a provider of hospitality systems. The solution will allow NFC-based payments at the table along with redemption of electronic coupons and promotions by incorporating smart mobile devices with restaurant management systems.

VeriFone posted net revenues of $292 million for the second quarter of fiscal year 2011, up 21% from the second quarter for fiscal year 2010. Services revenue grew at more than twice the rate of systems revenue during the quarter over the same period a year earlier. Overall, solutions represented 80.4% of revenues in the quarter and services 19.6% of revenues.

The petroleum market remains a strong source of revenue for the company as petroleum stations continue to upgrade pay-at-the-pump card readers to become PCI-complaint. VeriFone announced it has secured deals with two leading oil companies that will likely lead to upgrades at 30,000 pumps over the next 12 months.

In addition, 60% of petroleum merchants have signed up for the company’s petroleum-product-maintenance program, up from 25% during the first quarter. VeriFone also introduced a managed-services program targeted primarily at independent station owners. These owners can pay a “low monthly service fee” to upgrade to VeriFone’s Secure PumpPAY application that helps secure in-pump card readers from skimming attacks. In addition, Secure PumpPAY now supports media that allows the pump to host full-motion video content sold by VeriFone.

On the merger-and-acquisition front, Bergeron said the company has scrapped its plans to sell the U.S. business of takeover target Hypercom Corp. to rival Ingenico and is currently entering into discussions with several other potential buyers, but would provide no further details or take additional questions on the topic. The U.S. Justice Department last month raised objections to the proposed VeriFone-Hypercom deal, arguing the proposed sale of Hypercom's U.S. assets to Ingenico did not address antitrust concerns.

One acquisition the company did discuss is the agreement to acquire Destiny Electronic Commerce Ltd, a South Africa-based provider of secure payment technologies and point-of-sale solutions. VeriFone views South Africa as a $100 million market. The acquisition is expected to close this summer subject to the satisfaction of customary closing conditions.