After several years of growth rates in the 4% to 5% range, North American point-of-sale terminal makers experienced a total increase of 12% last year. What's the long-term outlook?
In the view of many point-of-sale terminal makers, resellers and merchant acquirers, retailers and other merchants who need stand-alone POS terminals tend to be notoriously hard sells when pitched about replacing their devices. As long as a terminal's basic functions, especially authorization and electronic draft capture of credit and debit card receipts, go smoothly, they're satisfied. Hence, it's no surprise that POS terminal sales in the United States and Canada have been growing only in the 4% to 5% range in most recent years, basically keeping pace with the growth of the card-accepting merchant base.
But last year, merchants changed course, much to the relief of the terminal industry. Manufacturers in 2002 shipped 1.96 million stand-alone terminals in North America, up 12% from 1.74 million devices the previous year.
The totals, based primarily on shipment data supplied to CCM sister publication ATM&Debit News by manufacturers, include only new stand-alone credit and debit card terminals with card swipes. The manufacturers were asked not to include refurbished devices, personal identification number pads lacking card swipes or check readers that do not also handle transactions initiated with magnetic-stripe cards.
"It was a better year overall for terminal manufacturers," says Mike English, director of marketing at Ingenico, a Roswell, Ga.-based terminal maker.
Helping to fuel the shipment increase, according to English, was improved merchant confidence in the economy. There also was greater demand for terminals that can accept PIN-based debit cards, which cost merchants less to accept than signature-based debit or credit cards.
Moreover, Visa U.S.A. has set a Jan. 1, 2004, deadline for all newly deployed PIN terminals linked to its Interlink POS debit network to be capable of supporting the more secure Triple Data Encryption Standard (DES). So some merchants bought new PIN-capable devices in anticipation of the rules change, English says.
In terms of market share, Phoenix-based Hypercom Corp., despite experiencing significant financial problems the past few years, is now virtually even with Santa Clara, Calif.-based VeriFone Inc. in annual shipments. VeriFone-North America's traditional terminal-shipment leader-still holds a slight edge, however, with a 31% market share versus Hypercom's 30.5%.
Last year, VeriFone says it shipped 606,680 terminals in the U.S. and Canada, up 6% from 572,065 devices in 2001. Hypercom says it shipped 596,000 terminals in the region in 2002, up almost 14% from 524,114 shipped the previous year.
Hypercom Chairman and Chief Executive Chris Alexander says the company gained share by working closely with independent sales organizations that sell multiple vendors' equipment. "They (ISOs) have an awful lot of influence," he says. "You will see all manufacturers spending time and effort trying to train ISOs on their products and to convince them that their products are the ones they should sell."
All the leading terminal brands report shipment gains in 2002. Ingenico, the market's No. 3 player, says it shipped 286,718 terminals last year, up 10% from 261,128 in 2001.
New York-based Lipman USA Inc. shipped 184,000 terminals, up 15%. And Toronto-based Mobile Information Solution Technologies (MIST) shipped 70,000 terminals, up 6%. The Lipman and MIST 2002 totals are ADN estimates.
Among other leading vendors, Atlanta-based Thales e-Transactions Inc. says it shipped 50,000 terminals last year, up 19% over 2001. Armonk, N.Y.-based International Business Machines Corp., whose sole terminal customer is Target Corp., shipped approximately 37,000 smart card-capable devices last year, its first in the North American stand-alone terminal market. Target is retrofitting the point-of-sale equipment at more than 1,000 of its discount stores to accept its chip-equipped Visa card.
First Data Corp.'s Agoura Hills, Calif.-based Linkpoint International terminal unit says it shipped 36,333 terminals, up 44%. And New York-based SchlumbergerSema says it shipped 35,000 machines, up 9%.
Despite the manufacturers' reported growth in shipments, most are experiencing falling profit margins because of stiff market competition. Some companies, in fact, changed the way they operate to reduce internal expenses and increase profitability.
Pros and Cons
VeriFone, for example, now outsources all of its manufacturing, a shift undertaken when the company was owned by Hewlett-Packard Co. "That's probably one of the benefits of the HP supply-chain knowledge and experience," says Stuart Taylor, VeriFone vice president of marketing. "But we still think of ourselves as a manufacturer."
There are, however, pros and cons to outsourcing terminal manufacturing, notes Hypercom's Alexander, which still manufactures its own terminals with the exception of those sold in South America. While outsourcing can improve cash flow and help reduce risks associated with unstable economic markets, he says, it also can be more costly. This is particularly true with last-minute orders, as third-party manufacturers tend to charge higher fees under those circumstances.
"So you need to be good at forecasting your needs in advance when outsourcing," Alexander says.
While terminal makers experienced shipment gains last year, bigger gains from the long-anticipated emergence of a smart card-based payment system in the U.S. and Canada are on hold. The only major exception is Target, which is using the chips on its Visa cards to offer customers electronic coupons downloadable from in-store kiosks or from personal computers equipped with chip readers.
"Retailers are hesitant to spend money on things that consumers aren't requesting," Ingenico's English says.
Some manufacturers, including MIST, Linkpoint and Lipman, are finding some success fulfilling wireless-terminal demands in what observers say is a niche market. "The growth there is slower than expected," says Chuck Chagas, Linkpoint general manager.
Whereas the wireless terminals are becoming more popular in Canada, Chagas says, the total number of wireless devices shipped last year in the U.S. "might be 10,000 to 15,000 units."
Chagas hopes state electronic benefits transfer programs, which deliver food benefits via debit cards instead of paper food stamps, will help propel interest in wireless terminals among mobile farmers' markets. Thus far, though, they have not, he says.
Authoritative analysis and perspective for every segment of the payments industry
Authoritative analysis and perspective for every segment of the industry
Have an account? Sign In