Picking a phrase to illustrate the latest strategy emerging mobile-payment schemes are following could fall somewhere between "If you build it, they will come" and "If you can't beat 'em, join 'em."
More and more are veering away from reinventing the wheel and instead are turning to existing merchant-processing rails. PayPal, Google Wallet and Isis all formed early partnerships with established payments companies.
Despite the decisions by some of the leading mobile-payment providers to work within the existing infrastructure, investors are concerned that legacy players' operations soon might become obsolete. And VeriFone Systems Inc. is serving as their poster child.
VeriFone saw its stock price plummet when Starbucks invested $25 million in Square Inc. and announced plans to have Square process its debit and credit card transactions. And Starbucks isn't even a VeriFone U.S. customer, a point Doug Bergeron, VeriFone's CEO, emphasized during a conference call to discuss fiscal third-quarter earnings last week.
"We appreciate that investors are concerned with possible erosion of this business to new entrants, but" VeriFone supports a wide range of payment systems, and most retailers "don't want multiple terminals on their counter," he said. Despite Bergeron's assurances, investors continued to pummel VeriFone's stock. The price fell another 10% after the call.
Bergeron likes to tout that VeriFone has 70% of the U.S. terminal market. But to investors, that makes it the most vulnerable to what has become what David Talach, VeriFone's vice president of strategic partner development, calls the "fuzzy frontier of payments."
"What used to be a very structured industry is undergoing a very radical transformation," he says.
What appears to have investors in legacy systems especially spooked is the emergence of so-called geo-fencing, which uses GPS, Wi-Fi and cellular-network information to establish where an individual is within a set area, such as in a store. PayPal and Square have systems built around this mobile technology, which does not require any interaction with a point-of-sale terminal.
ShopKeep POS used the technology to authenticate customers recently at a film festival in conjunction with PayPal. When a customer using the PayPal app clicked on a store's name, an image of the shopper showed up on the merchant’s iPad screen behind the counter. The merchant just clicked on the image to complete the shopper’s PayPal purchase to speed up the line. Square's system works much the same way.
Merchants that use ShopKeep POS do not require cash registers or traditional POS terminals, just an iPad.
"There no maintenance costs or hardware costs that way," says Jason Richelson, ShopKeep POS's CEO and founder. "All you do is put two iPads in every location and communicate through the cloud-based system that we run."
Richelson concedes it would not yet be efficient to run 300 stores that way, "but large retailers are contacting us to see how we're doing it," he says. "We're not ready for them just yet, but we're rapidly heading that way."
ShopKeep POS last week launched a new iPhone Dashboard app that displays sales data for each iPad register and provides a summary report of previous day's sales and other key metrics.
Ingenico, VeriFone's chief rival, is testing a tablet-based service that will combine a purpose-based point-of-sale mobile device–the iSMP–with a tablet to provide online access to applications.
"All segments are at a crossroad looking at innovations, like smartphones, tablets and handsets and geo-fencing," says Ingenico representative Svy Nekrasas, declining to discuss specifics about the tablet-based system. "All segments are trying to determine the best practices and to introduce point-of-sale solutions in an integrated business model that will include interaction with the customer."
Gil B. Luria, senior vice president at Los Angeles-based Wedbush Securities LLC, calls geo-fencing "a very interesting technology that's emerging."
Geo-fencing "makes sense in fast-food environments where transactions need to move fast and it's adding to the convenience and speed, and that has a lot of value," he says.
But Luria doesn't necessarily see the technology displacing payment terminals in the near future.
"Payment terminals will be around a long time; they just won't be as important," he says. "In the future, there will be other ways to close transactions that don't involve a payment terminal."
In the end, retailers want some management and some common sense in how various systems can coexist, Tallach says. "Even if geo-fencing becomes the next big thing, … there will be additional use cases that will be needed to support and work with it," he says.
SCVNGR's LevelUp, which recently announced plans to distribute new payment terminals that read both bar codes and Near Field Communication chips, says it could coexist with legacy terminal makers.
"We'll partner with pretty much any system that makes LevelUp work for more people," Seth Priebatsch, SCVNGR's chief ninja (CEO), wrote in an email. "We're not by definition a hardware company (software's our thing), so if we can work with VeriFone to increase acceptance of LevelUp, that's a big win for both of us."