How VeriFone's Challenges Could Make EMV Mainstream in the U.S.

by Michael Misasi 0

Last week, Verifone prematurely announced thecompany’s first quarter results due to less-than-expected results.Investors were disappointed with the announcement, but the weakoutlook could prompt VeriFone to intensify their EMV salesinitiatives, accelerating adoption of EMV-enabled devices by UnitedStates merchants.

From the earnings press release:

The lower than expected results for the firstquarter were driven primarily by…increased focus and investmentsthroughout 2012 on longer-term service initiatives in multiplejurisdictions at the expense of near-term hardware and softwarefeatures and customization projects that were reduced or delayed,which resulted in missed revenue opportunities.
A possible example of a “longer term service initiative” thatdetracted from short-term performance is VeriFone’s failed attemptto build a profitable micro-merchant acquiring business, which thecompany scrapped in late 2012, concluding “the standalone economicsof micro-merchant acquiring is fundamentally unprofitable,” DouglasBergeron, VeriFone’s CEO, said during the company’s fourth quarterinvestor call. The company completed the sale of its SAIL Paymobile POS business on Jan. 31 (click here for more PaymentsJournalcoverage).

The missed revenue opportunities related to near-term hardware andsoftware features, however, almost certainly refers to EMV, whichVeriFone still expects will help the company grow.

Also from the January announcement:

“Our industry remains vibrant and offerstremendous opportunity for growth especially around complexity atthe point of sale and EMV mandates,” said Bergeron.
VeriFone has remained optimistic about the business impact of EMVsince Visa announced its timeline for U.S. adoption, but it onlyhad marginal success upgrading its merchants. For the past year orso, about a quarter of VeriFone’s U.S. shipments have beenchip-enabled, but it has not made an effort to sell the softwarerequired to activate the terminals’ EMV functionality. Consumers’POS experience will factor into the rate at which EMV transactionsbecome mainstream. And for the few U.S. consumers that have an EMVcard, the ability to use the chip is crucial for spreadingawareness of the technology.

There is enormous pressure on VeriFone to stabilize its business.The company’s stock price declined more than 40% after the earningsannouncement, and a recent Reuters article reports that some WallSt. analysts are confident that the company will be acquired nottoo long from now. Mounting pressure could motivate VeriFone to tryto cash in on EMV terminals, a product for which the card networkshave already created a huge market. VeriFone by far has the largestU.S. market share for POS terminals, so a ramped up salesinitiative could substantially increase the country’s readiness forpending liability shifts – if merchants are willing.