VeriFone Holdings Inc.’s efforts to drive payment card acceptance in taxis and at the gas pump appear to be paying off, VeriFone CEO Douglas G. Bergeron told analysts during a conference call this week discussing the point-of-sale terminal makers fourth quarter earnings.

 

The San Jose, Calif.-based company reported net income of $3.7 million for the quarter ended Oct. 31, a reversal from the $366.6 million loss the company reported for the same period last year. Revenue totaled $217.8 million, down 11% from $244.7 million. 

 

For the fiscal year, VeriFone reported a $137.8 million loss, down considerably from a $425.3 million loss in fiscal 2008. Revenue for the 12-month period totaled $844.7 million, down 8.4% from $921.9 million.

 

Within North America, the company’s products are deployed in 13,700 cabs, twice the total from a year ago, Bergeron said, noting revenue from devices designed for taxies accounted for 5% of VeriFone’s fourth-quarter revenue. 

 

Bergeron says he expects to add 10% to 15% more POS terminals in cabs over the next year accompanied by 20% to 25% growth in annual cab transactions. 

 

VeriFone is expanding its sales staff and is turning its attention to national sales of terminals designed for cabs, he says, noting between 30% and 35% of taxi fares are paid electronically. “The consumer studies we’ve seen suggest that once a rider uses a credit card twice, he’s very unlikely ever to go back to cash,” Bergeron told analysts.

 

VeriFone also hopes to capitalize on the video-monitor systems included with the terminals many of the taxis use by selling advertising for display on them. “There are 300,000 taxis fares a day in New York City averaging 14 minutes,” Bergeron said, making VeriFone’s POS taxi systems “most-precious media venues.”

 

VeriFone’s efforts to update payment card readers at U.S. gasoline pumps also are driving sales growth. Sales to petroleum customers grew 10% compared with the third quarter, which saw 12% growth over second-quarter sales, Bergeron said. Helping drive that growth is Visa Inc.’s July 1 deadline for all payment software connected to its network to comply with the Payment Card Industry Security Standards Council PA-DSS standard, and interest among fuel retailer continues to grow, Bergeron said. VeriFone also picked up some customers when a competing product ceased production and because of VeriFone’s loyalty program tied to fuel and general merchandise sales.

 

VeriFone’s overall security push, exemplified by  its VeriShield Protect system for encrypting transaction data, also should secure more customers, Bergeron said. Chase Paymentech LLC, a Dallas-based processor, and RBS WorldPay, an Atlanta-based processor, support VeriShield Protect, and two unnamed processors also will accept VeriShield Protect-encrypted transactions, he said.

 

Additionally, VeriFone is encrypting more than 5 million transactions per week at two national chain retailers, with “at least five other national chains in final testing and positioned to go live within a couple of months following a busy holiday shopping season,” Bergeron said.

 

Heartland Dispute

VeriFone’s dispute with Heartland Payment Systems Inc., a Princeton, N.J.-based payment processor, is having little effect on VeriFone, Bergeron said. While in development of a new Heartland payment terminal, the two companies saw the product going in different directions and ended up suing each other. VeriFone alleges that a new terminal that Heartland sought to develop with another manufacturer infringed on a VeriFone patent.

 

The U.S. District Court for the Northern District of California ordered the case to move to mediation, which is used to “encourage parties in litigation to settle in mediation before going through full litigation. Neither party is obligated to settle,” a VeriFone spokesperson says. 

 

In a separate suite, Heartland alleged VeriFone is engaging in unfair trade practices. 

 

In response to an analyst’s questions, Bergeron said Heartland sales represented between 0.4% to 0.6% of VeriFone’s annual revenue. Some costs associated with providing direct support to Heartland merchants using VeriFone equipment exist, but they have been “small,” VeriFone said.

 

The interest in the Heartland-VeriFone dispute is telling, says George Peabody, director of emerging technologies advisory service at Mercator Advisory Group Inc., a Maynard, Mass.-based firm. “The industry has wakened up,” Peabody says. 

 

“Between encryption and PCI, we have 1970s era technology, and what did we get? We get some security holes,” he says. 

 

The Heartland-VeriFone issue signifies the need for an industry standard, says Cliff Gray, an associate with the Strawhecker Group, an Omaha, Neb.-based consulting firm.

 

“If players continue to push for their own, proprietary protocols, it will only slow down industrywide acceptance and integration of encryption standards,” Gray tells ISO&Agent Weekly. “It could easily take a year or more for an industry standard to emerge, but it is very important that such a standard be

developed. Without one, the proliferation of end-to-end encryption will be a far more difficult and business-risky effort for those players involved.”

 

What players will use to plug these holes is still emerging, Peabody says. Many efforts have centered on encrypting card data or using electronic tokens to substitute for the payment information.

 

The ideal system would make it easy to migrate merchants with the least disruption possible, Peabody says. Many merchants have some concern about getting “locked in” to a particular system. As updated best practices for payment security develop, it could ease the minds of many merchants, he says.

 

Peabody also advises ISOs and acquirers to monitor their merchants’ exposure to PCI requirements and the audit costs associated with them. “If they’re audit costs are getting high and are likely to increase, the problem could get more sophisticated rather than less,” he says. “ISOs should look at strategies that could decrease the scope of a PCI audit” to help their merchants. 

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