VeriFone Sees Promise in Mobile Apps And Taxi Transactions

VeriFone Holdings Inc. swung to a welcome $3.69 million profit in its fourth fiscal 2009 quarter and sees evidence of recovery in its global markets, but the leading U.S. point-of-sale terminal provider isn't expecting a rebound in its North American business for a while. “It's still kind of a shaky world out there,” VeriFone chief executive Douglas G. Bergeron told analysts late Monday. “We're assuming very little growth in the U.S.” Total revenues fell 11% to $217.8 million in the fourth quarter ended Oct. 31 from $244.7 million a year earlier. U.S. and Canadian revenues slipped 6% to $87 million. Still, VeriFone's bottom line was much improved from a year ago, when the company took a one-time, $289.1 million impairment charge, a major factor in its $366.6 million loss in fiscal 2008's fourth quarter. Asia, where revenues grew 23% in 2009's fourth quarter to $26.8 million and 16% over the year to $86 million, is recovering faster than North America and Europe, according to Bergeron. But, said Bergeron, “even North America should start to grow in 2010.” Merchants' ongoing replacement and upgrading of POS equipment to meet Payment Card Industry data-security standard (PCI) deadlines will drive sales, he said, adding that big processors are signing on to offer VeriFone's VeriShield Protect end-to-end encryption service to merchants. San Jose, Calif.-based VeriFone also sees big things in two new markets?mobile payments and taxicabs. The company will start shipping its PAYware Mobile application for Apple Inc.'s iPhone in early 2010, an application that turns the popular smart phone into a card-reading terminal (Digital Transactions News, Dec. 8). VeriFone has shipped about 300,000 portable terminals in the past five years, according to Bergeron, but he said PAYware's potential market is “in the millions.” Bergeron would not give a quantitative sales forecast, but said, “The response has been fantastic.” VeriFone also is seeing nice results from its specialized back-seat card terminals and video monitors for taxicabs in New York and some other big cities, according to Bergeron. The installed base is now 13,700, more than double that of a year ago. Card-based payments in cabs equipped with the readers are about 30% of fares compared with only 5% when they were first installed. Bergeron said they could go to 80% or more, though that could take up to five years. But Bergeron also said the readers, which appear to have overcome initial driver resistance in New York, also present a new opportunity for recurring advertising revenue. He noted that New York alone generates about 300,000 cab rides a day, with the average ride lasting 14 minutes¬, time that can be sold to advertisers. VeriFone will be greatly expanding its sales force promoting the readers, he said. On other topics, Bergeron, when asked by an analyst for comment about the impact of VeriFone's dispute with Heartland Payment Systems Inc., replied that VeriFone was trying to be an “honorable supplier.” VeriFone is suing the big merchant acquirer for alleged patent infringement involving end-to-end transaction encryption. Heartland, which has responded by suing VeriFone, is using contract manufacturers to make terminals that employ its new, proprietary end-to-end encryption technology (Digital Transactions News, Nov. 11). According to Bergeron, only about 0.5% of VeriFone's revenue comes from Heartland. “You're asking the wrong company with respect to the impact,” he said. VeriFone says that because of the alleged patent infringement, it will stop supporting VeriFone terminals used by Heartland's merchants unless they register by Dec. 31 for free VeriFone support, though Heartland insists they don't need to. Bergeron also gave an indication of the financial hit VeriFone took beginning a few years ago when First Data Corp., the largest merchant processor, began offering its merchants a low-cost, proprietary line of terminals under the “FD” brand and made by a contract manufacturer. VeriFone announced Nov. 2 that it had formed a “strategic partnership” with First Data and would take over production of the FD line, with First Data's Tasq Technologies subsidiary becoming a preferred VeriFone distributor. Bergeron said the deal, when it kicks in toward the end of 2010, could be worth $20 million to $25 million annually?about the same amount of revenue that VeriFone lost after First Data began distributing FD terminals.