For payment-terminal manufacturers, making a buck from hardware sales is tough.
The industry's profitability challenges are no secret: price competition is endemic, sales of point-of-sale equipment involve short-term contracts with a limited number of processors and tend to be cyclical, and many merchants are quite content with old machines that just keep going and going.
One of the major terminal makers, Phoenix-based Hypercom Corp., knows the industry's probability challenges intimately. Hypercom lost $2.22 million in the first quarter compared with $2.03 million in the year-earlier quarter.
Like its biggest rivals such as VeriFone Inc. and Ingenico, Hypercom continues to roll out new hardware, including Internet-enabled terminals. But, under the direction of Chairman and Chief Executive Chris Alexander, Hypercom is now pursuing long-term recurring revenue. Alexander thinks he's found one answer by offering merchants using dial-up terminals network services typically handled by others, especially phone companies or specialists such as TNS Inc.
After quietly launching it in Canada, Hypercom in April announced it would soon offer its new HBNet service in the United States and later expand it worldwide. The service takes the transaction from the terminal to the front-end processor for authorization, and then back.
Hypercom is pitching HBNet as a faster, continuous-service alternative to traditional dial-up authorizations. The network can work with all the major POS terminal brands, according to Sharon Cline, HBNet senior vice president and general manager. It also provides processors with Web-based reports for downloading transaction information and quickly spotting unusual activity, such as suspected fraud.
In concert with Canadian merchant acquirers, Hypercom launched HBNet in Canada in 2003's first quarter. Cline claims HBNet already is handling about 50% of Canada's traffic.
In the U.S., where TNS has well over half the market, Cline expects HBNet to capture 10% market share "in a very short period."
"We want to get away from the old business model," says Alexander, who expects HBNet to become profitable later this year.
Authoritative analysis and perspective for every segment of the payments industry
Authoritative analysis and perspective for every segment of the industry
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