VeriFone Sees Smartphones Driving Mobile Payment Wave
VeriFone Systems Inc, the largest U.S. maker of payment terminals, expects to ship well over 1 million 'near-field communications' (NFC)-enabled systems this year, underlining growing momentum for a technology that allows shoppers to buy with little more than a wave of a smartphone.
NFC technology passes encrypted information between devices at close range without contact. Instead of swiping a credit card, shoppers can wave their smartphone near a terminal, effectively turning an NFC-enabled phone into a "mobile wallet."
"We're already seeing major systems purchases from some of the flock leaders in large retail asking for NFC capability ... and I'm sure that will continue and accelerate," VeriFone CEO Doug Bergeron told Reuters in an interview.
The technology -- which promises to replace credit and debit cards in the same way that plastic has largely displaced cash -- could spur equipment upgrades or fresh sales, tightening VeriFone's grip on the terminal market.
The number of mobile payment users is expected to top 340 million in 2014, ringing up $245 billion worth of transactions, according to research firm Gartner.
"There isn't a CEO in any payment facing industry that isn't at least trying to find out what role (their companies) play and how eventually to monetize it," Bergeron said, noting the scramble to get a piece of shoppers' mobile wallets.
Earlier this month, ISIS -- a joint venture between AT&T Mobility, T-Mobile USA and Verizon Wireless -- said it would pilot its mobile commerce program early next year, following Sprint Nextel Corp, which plans a similar launch this year, according to a Bloomberg report that also noted Amazon.com Inc may introduce a mobile payment service.
"Our economic success vis-a-vis NFC is not favorably or unfavorably impacted by the success of any one of (these) initiatives."
The typical refresh cycle for payment terminals is 3-4 years and if NFC succeeds, VeriFone would have the opportunity to speed up that cycle, Bergeron said.
The big three payment processors -- MasterCard Inc, Visa Inc and American Express Co -- have announced their versions of NFC-enabled services.
"All the new initiatives at the end of the day have to co-exist ... I think there's 15 companies that VeriFone is communicating with," Bergeron said, adding that with over a 60 percent share of the U.S. terminal market his California-based company stands to gain as the technology grows in popularity.
FROM "DUMB" CARDS TO SMART PHONES
Last month, the Wall Street Journal reported that Google, Mastercard and Citibank were working on a mobile payment partnership using VeriFone terminals.
Without commenting directly on that deal, Bergeron noted Google's interest could prove a turning point in adopting the technology.
"If you've got the provider of the most prolific and free operating system putting some whip, some marketing leverage, some mindshare behind it (NFC), I think it's inevitable that part of the chicken and egg gets eventually resolved," he said.
The more complexity that moves to the point of sale the better it is for us. A system that ... adds NFC capabilities is obviously higher margin than something that just swipes the credit card," added Bergeron, who has been CEO since mid-2001.
He also sees a shift from a "dumb" card to smartphone as creating opportunities beyond the traditional sale of a terminal or a contact-less upgrade.
Managing data on customers' shopping behavior on behalf of payment processors and retailers is one such opportunity, which Bergeron believes "naturally evolves into a recurring revenue model" for VeriFone.
VeriFone, which competes with Ingenico S.A., First Data Corp, Heartland Payment Systems Inc, Gemalto and PAX Technology Ltd, expects terminal sales to grow at over 20 percent this year.
Shares in VeriFone, valued at $4.6 billion, have risen from below $5 in late-2008 to a life high of almost $59 last month.