Merchant Acquiring

VeriFone Banking On EMV, Mobile Pay To Fuel Future Revenue

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VeriFone Systems Inc. continues to show positive quarterly results in terms of revenue and net income, and company executives expect the trend to continue as contactless mobile payments grow worldwide and EMV chip-and-PIN takes hold in the United States.

“For the seventh consecutive quarter, we posted all-time record results,” Douglas Bergeron, chairman and CEO of the San Jose, Calif.-based payment-terminal maker, told analysts during a Sept. 6 conference call to discuss fiscal third-quarter earnings. “This is also the fifth straight quarter that growth rates have exceeded 20%.”

The recent acquisition of most of Hypercom Corp.’s non-U.S. assets, combined with the need for new payment terminals or upgrades related to evolving technologies, will aid future earnings for VeriFone, Bergeron said.

VeriFone completed the purchase in early August. Private equity firm Gores Group LLC acquired Scottsdale, Ariz.-based Hypercom’s U.S. properties (see story).

Looking ahead, VeriFone contends it is well prepared for the 2012 Olympics in London and beyond by signing nearly 6,000 taxis to five-year processing agreements over the past six months. About 1,000 of those cabs already use the combined VeriFone card-payment and digital advertising system it made available in February, Bergeron told analysts. He also commented on the London cab deal during a call earlier this year (see story).

United Kingdom merchants are focusing on the 2012 Olympics by embracing mobile Near Field Communication payment systems, and VeriFone is engaged in those discussions as the terminal provider to advise about upgrades or terminal replacements, Bergeron added.

Visa Inc.’s recent directive to accelerate acceptance of EMV contact and contactless chip technology in the United States, combined with an overall industry interest in NFC technology, creates an opportunity for VeriFone to benefit from the resulting terminal-upgrade cycle, Bergeron said. Visa announced its directive Aug. 10 (see story).

“It’s too early to predict what other card networks will do, but directionally this could mean a complete product refresh over the next several years, representing hundreds of millions of dollars in business,” Bergeron said.

Asked how much more a merchant might have to pay to upgrade a VeriFone terminal to accept EMV cards or smartphone payments, Robert Dykes, VeriFone executive vice president and chief financial officer, told analysts during the conference call it was more likely merchants would need new terminals as EMV card use became widespread.

 “It’s not just how much extra you sell a terminal for, but you sell a whole new terminal,” he said. “Particularly with EMV, it cannot be an add-on to a terminal. It takes a whole new terminal, and that’s the exciting part about it for us.”

VeriFone continues to work with Google Inc. to provide terminals at Google Wallet pilot locations, Bergeron said, noting he expects the next Google Wallet pilot phase to increase the number of locations using the mobile-payment technology to increase from “hundreds of locations to tens of thousands of locations” in the next month. VeriFone worked with Google Inc. before the Google Wallet launch in early June (see story).

Bergeron reminded analysts that the conversion to EMV, and merchants making the change in their terminals, could take several years. VeriFone likely will not see an increase in revenue related to EMV terminals until large merchants such as McDonald’s Corp. and Costco Wholesale Corp. make the switch while smaller companies wait to see how the technology takes hold, he added.

VeriFone reported a 21.5% increase in third-quarter revenue of  $317 million for the three-month period ended July 31, up from $261 million during the same period last year. Net income rose 42.2%, to  $26.3 million from $18.5 million, the company reported.

The company estimates its Hypercom acquisition could contribute another $350 million to company revenue during fiscal 2012.

A key for VeriFone moving forward will be converting Hypercom customers to VeriFone products on a global basis, analyst Gil Luria of Los Angeles-based Wedbush Securities, tells PaymentsSource.

“Some of those customers will go elsewhere because they are loyal to the Hypercom equipment and they may not want to migrate to VeriFone, but I believe most of them will go to VeriFone,” he says. “There is no doubt that business is going very well for VeriFone.”

           On July 29, VeriFone secured a $6.9 million, four-year contract with the Metropolitan Transportation Authority of New York City for use of 1,000 NFC-enabled TransitPay systems on Staten Island buses (see story). 

 

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