VeriFone Systems Inc. shares fell the most in more than two months after Starbucks Corp., the largest coffee-shop chain, said it will use Square Inc.’s rival payment system in 7,000 stores.

VeriFone, based in San Jose, Calif., declined 11 percent to $34.52 at 1 p.m. in New York, for the biggest drop since May 25. The stock had fallen 29 percent from its 52-week high in April through Aug. 7.

Square will process Starbucks credit and debit card transactions in the U.S. and provide a mobile payment application for Starbucks customers. The Seattle-based coffee chain will invest $25 million in the startup, and Starbucks Chief Executive Officer Howard Schultz will join Square’s board, the companies said today.

VeriFone, which is the largest maker of credit-card terminals, competes with Square in the fast-growing market for payments made via mobile phones and tablets. Both companies make accessories and software that let merchants accept credit and debit cards via mobile devices. The market for the micro- merchant processing may reach $1 billion in 2016, up from $30 million last year, according to Aite Group LLC.

John Williams, a UBS Securities LLC analyst, downgraded VeriFone’s shares to neutral from buy yesterday, citing growing competition from Square.

Although VeriFone has introduced similar products, “innovation and lower prices will win out -- meaning the new competitors will likely pose a legitimate threat to the status quo in payment hardware and services over the next several years,” Williams said in the note.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry