Square’s success with small merchants apparently is partly responsible for VeriFone abandoning its plans to pursue that section of the payments arena.
VeriFone Thursday announced during its earnings conference call with analysts it was leaving the space because of thin profit margins on this kind of transactions.
“Our experience through 2012 with tens of thousands of these micro-merchants tells us that the standalone economics of micro-merchant acquiring are fundamentally unprofitable,” Doug Bergeron, chief executive of VeriFone, said during a conference call with analysts.
The cost of tracking down and signing up small and individual merchants, through things like TV and Internet-search advertising, “will never justify the razor thin-margins produced by merchants with infrequent volumes and extremely high attrition,” he added.
Instead of signing up small merchants directly, VeriFone plans to partner with banks and so-called merchant acquirers who will use its SAIL platform and services to sign them up, the CEO explained.
Bergeron went on to say he believes success with this kind of transaction only will be achieved if the provider adds additional benefits to acceptance.
Companies such as Square and Groupon indeed are pursuing this option. Square produced a coup in the space when it aligned itself with Starbucks earlier this year with its Register service.
It appears something such as VeriFone’s announcement was bound to happen at some point as this corner of the payments market is saturated with providers. Whether that leads to consolidation remains to be seen, but competitors competing in the space or thinking about entering it need to have more to offer than just a snazzy dongle.
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