Verifone Plans to Carve Up the Mobile Point of Sale Market

Verifone's presence in the mobile point of sale market is as old as Square's, but it has had a bit more trouble reaching Square's market. This year, Verifone's strategy will be to move the goalpost — and to chop it up into smaller segments.

This is a departure from its most recent strategy of playing to its strengths by targeting its large-merchant client base. It's not the first time Verifone has taken risks to reach a new market, but the company is confident in its potential.

"Verifone's initial focus has been on mobile point-of-sale solutions for larger merchants in developed markets," said Verifone CEO Paul Galant during the company's first-quarter earnings call on March 10. Verifone will focus on global demand with three new devices, a move that will help Verifone "nearly double our mPOS revenue in 2016," Galant added.

The global market segment for mobile point of sale will grow from what were 5 million units in 2014 to approximately 13 million this year, he said.

In the past, Verifone and Square were going after the same customers, and Verifone's previous CEO went after the newcomer in a marketing campaign that bore more resemblance to a political attack ad. This year, Verifone has a new leadership, a new strategy and a much more diverse market for its product.

Square and its rivals have grown the mobile point of sale category in recent years, a fact that is "very, very good for Verifone," Galant said. "We operate at tremendous scale, and have a saying around here that if it doesn't have scale, it doesn't matter."

Verifone has solid growth in the tabletop terminal business, so the company's strategy for mPOS is likely not entirely based on immediate scale, but more to get established in the market and introduce more features to the solution in the future, said Gil Luria, analyst with Los Angeles-based Wedbush Securities.

"There were some in the industry who were worried that mobile acceptance would be the end of Verifone," Luria said. "Mobile acceptance is an interesting market, but just a small fraction of the market. It's not going to replace the payment terminals on a global basis."

The vast majority of retailers that accept payments are still going to need conventional terminals, but there are "many great applications for mobile acceptance and mobile point of sale" that Verifone can eventually offer, Luria added. Ultimately, Verifone can be "very successful" in that market, Luria said.

Verifone is not totally clear of its combative relationship with Square. Verifone's earnings came a day after Square reported its first quarter as a public company. During its earnings call, Square outlined a strategy to build on its more robust hardware to help merchants accept the EMV and Near Field Communication-based payments that older terminals don't support.

Verifone has been "watching this space incredibly carefully," Galant said. As a result, the company intends to turn its investments in mPOS into a solution that "will greatly outperform what some of the early entrants were doing," he added.

Those early entrants include Verifone. It unveiled its first mPOS device, Payware Mobile, shortly after Square launched in 2009. Verifone's next major product for the micro-merchant market was its Sail reader, which it debuted in 2012; it sold off its Sail assets by the end of that year.

Today, Verifone's mobile product line bears more traditional hardware names like the E355 and E335. But it is preparing once again to go after the micro-merchant market with a product designed and priced for that audience.

While respecting the other mPOS market players, Galant insists Verifone will come in with an edge because of operating in 150 countries and servicing 29 million devices.

"We are going to have a tremendous set of hardware capabilities connected to world-class scaled service capabilities," Galant said.

The market is "lumpy," Galant said, because many clients will not view mPOS as a strong fit. But many Verifone clients and ISOs may have many merchants showing an interest, Galant added.

Verifone enjoyed a solid first quarter in reporting $514 million in net revenue, a 5.6% increase over the $486 million in the same period a year earlier. Verifone's fiscal first quarter ended Jan. 31.

The conversion to EMV terminals in the U.S. helped Verifone deliver $235 million in revenue in North America, a 47% increase over the $160 million it reported a year earlier. This increase helped offset decreases in the Latin America, European and Asian markets that Verifone continues to target for future growth.

"Paul Galant has done an incredible job at Verifone," Luria said. "He unfortunately inherited a company that has a lot of global business at a time where currency in emerging markets has been weak."

Galant's successes have as much to do with his effect on the company's internal culture. Prior to hiring Galant, the terminal maker admitted to having a troubling "lack of partnership" with its own clients.

"[Galant] has done a phenomenal job of fixing relationships with the U.S.-based merchant acquirers who were always in conflict with Verifone," Luria said. However, the global economy remains a big concern for Verifone, he added.