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Table of Contents

Lead Story

Thriving in a disruptive market - ISO strategies

News

Industry Update

FTC reports on Durbin enforcement

VeriFone says micro-merchant acquiring unprofitable

New malware infects POS terminals

SmartMetric CEO may see confidential info

Features

The Business of Wanting More:
A capitalist's guide to transformation

Five predictions for billing and payment in 2013

Research Rundown

Meet The Expert: Matthew Golis

ISOMetrics:
Showrooming: A merchant's challenge

Selling Prepaid

Prepaid in brief

Gift card mall goes mobile

Gift cards remain prepaid powerhouse

Views

Replacing rootstock: The payments agenda for 2013

Brandes Elitch
CrossCheck Inc.

Education

Street SmartsSM:
Thwart SAD: Winterize your sales plan

Jeff Fortney
Clearent LLC

Take stock with a brand and marketing audit

Peggy Bekavac Olson
Strategic Marketing

Mitigating POS terminal fraud in India

Sunil Rongala
MRL Posnet Private Ltd.

Company Profile

eMerchantPay Corp.

Merchant Statement Analysis

New Products

A smart, customer-centric platform

Genius Customer Engagement Platform
Merchant Warehouse

Patented, online mobile fraud protection

SecureBuy 2.0
SignatureLink Inc.

Inspiration

Use your strengths to improve weak areas

Departments

Readers Speak

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

January 14, 2013  •  Issue 13:01:01

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VeriFone says micro-merchant acquiring unprofitable

VeriFone Inc. is shifting its mobile payment strategy, Doug Bergeron, the company's Chief Executive Officer, said in a Dec. 13, 2012, conference call held to discuss his company's fourth quarter earnings report. Hereafter, VeriFone will no longer compete directly to acquire micro-merchants and will distribute its SAIL mobile commerce platform only through its ISO, processor and channel partners. VeriFone introduced SAIL in May 2012. The platform targets the same merchant group courted by Square Inc. and PayPal Inc.: small merchants who typically do a limited number of credit or debit card transactions per month.

VeriFone priced SAIL transactions at a flat 2.7 percent of each sale for lower-volume businesses; it offered higher-volume businesses a $9.95 monthly subscription fee that discounted the transaction rate to 1.95 percent. "We have decided to focus exclusively on an indirect distribution channel strategy for providing mobile payment solutions to micro-merchants," Bergeron stated in the conference call.

SAIL's customer acquisition, risk management and customer billing assets will be sold. The financial impact of this divestiture is not yet known.

The SAIL technology

SAIL provides the micro-merchant with a free mobile app and card reader with built-in encryption for secure transactions. The card reader dongle attaches to the ear jack of most mobile devices. The technology is supported on an open platform. Merchants with high volumes and multiple locations can integrate SAIL with VeriFone countertop POS systems that support the Europay/MasterCard/Visa global standard, near field communication, and mobile wallet technologies.

In addition, the SAIL platform includes a mobile software development kit; a secure gateway with end-to-end encryption; real-time fraud screening and boarding; merchant processing and settlement services; and marketing, loyalty and social media tools.

Unprofitable micro-merchant acquiring

Bergeron said VeriFone is changing its SAIL strategy because "our experience through 2012 with tens of thousands of these micro-merchants tells us that the standalone economics of micro-merchant acquiring is fundamentally unprofitable."

The company concluded micro-merchant acquiring is destined to be "a negative gross margin" business. "Customer acquisition costs, industry search engines or TV advertising cannot and will never justify the razor-thin margins produced by merchants with infrequent volumes and extremely high attrition," Bergeron said. "I think you can see evidence of other competitors' similar experience, as they shift their own business models to wallets.

"My belief that the only possible survivors in this fundamentally challenging business model will be companies who might have an opportunity to provide other services to these micro-merchants."

VeriFone spokesman Pete Bartolik said ISOs and other distribution partners see the potential of the mobile payments market and are providing merchants with services that complement payments and help businesses.

Bergeron said VeriFone will help its distribution partners by providing technology and gateway services that will bring them "significant competitive advantages over standalone dongle companies."

Processor says VeriFone had no chance

Bruce Shirey, Senior Vice President of Business Development for the software development and processing services provider eProcessing Network LLC, was not surprised by VeriFone's decision to back out of the small-merchant acquisition business.

Shirey said history shows ISOs prefer to work with a trusted processing services provider "over an industry device vendor who decides to go head-to-head with them for the merchant's processing business. ... The only companies I know who compete successfully with the channel they sell to are the big processors that compete with their own banks for merchant acquisitions."

Shirey believes many resellers are able to operate successfully in the same market VeriFone is abandoning. "Successful resellers have always understood that they cannot be a 'one-trick pony' and are up-selling other value-added services such as business management tools and loyalty programs that enhance the payment processing experience," he said.

Shirey added that the small merchant market has many opportunities for companies that are innovative and quick to adapt. He said it is vital for ISOs to understand merchants will need mobile solutions that are more than just a plug-in device as they replace legacy equipment and software with new devices that support EMV and customer relationship management solutions.

For additional news stories, please visit www.greensheet.com and click on "Read the Entire Story" in the center column below the latest news story excerpt. This will take you to the full text of that story, followed by all other news stories posted online.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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Spotlight Innovators:

North American Bancard | USAePay | Impact Paysystems | Electronic Merchant Systems | Board Studios