VeriFone Systems Inc. recently acquired WAY Systems Inc. and Semtek to augment its long-range mobile payment solutions strategy. To that end, VeriFone will focus on building recurring revenue opportunities through its sales network and offer royalty-free software licenses to enable device manufacturers and payment processors to integrate Semtek's patented encryption technology into their own products, sources reported.
VeriFone paid an upfront price of $6 million to purchase WAY, a mobile POS solutions and gateway services provider; up to an additional $3 million will be payable in one year should certain performance targets be met.
The acquisition adds 25,000 mobile merchants to VeriFone's existing customer base, expanding the company's PAYware Connect Gateway infrastructure and mobile portfolio.
VeriFone media relations representative Pete Bartolik said, "WAY built its business model on equipping merchants with a mobile-phone like device that connects it through its gateway to payment processors, which is something that we have taken a similar approach with in our gateway mobile product for the iPhone that connects merchants to our gateway.
"This opens up a much larger market to the ISOs because it enables them to reach out to a target market that has been historically resistant to a dedicated device.
"They have the opportunity to sell hardware right away. They also get the opportunity to resell the monthly gateway service agreement to those merchants. So they get a piece of the pie in that regard."
Through VeriFone's gateway services, ISOs not only have the opportunity to sell a paid, ongoing revenue relationship with a merchant, but they also have the ability to prepackage additional applications or value-added services at a future point in time, Bartolik added.
As to what the future holds, Bartolik said, "I would say the big differentiation between the U.S. and other markets is the continued reliance on mag stripe as opposed to an EMV type of technology. Today it's a mag stripe world in the U.S. But that's changing to some degree, maybe not in terms of actuality, but certainly in terms of discussion."
Bartolik said a major hurdle for new technologies will be to convince merchants there is a reason to upgrade their equipment. He believes near field communication technology could be the game changer. "With the ability to advance into handsets or add relatively low-cost add-ons to a mobile phone or a smart phone, then all of a sudden you put the consumer into the picture," he said. "Once they get that capability and start using it in one place, they're going to want to use it other places."
The VeriFone PayWare Mobile credit card encryption sleeve is available through ISOs and Apple Inc. retail stores. The sleeve fits any iPhone 3G or 3GS model and delivers VeriShield Protect format-preserving, end-to-end (E2E) encryption from the point the card is swiped to the point the bank receives the card data.
VeriShield Protect was the first commercial offering of E2E encryption for payments using Semtek's patented technology, which VeriFone began implementing across its product line starting in April 2008. In the acquisition, Semtek shareholders received VeriFone common shares that valued the acquired company at $18 million. Semtek will be absorbed into VeriFone's Integrated Systems organization.
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