* Handling small merchant payments is unprofitable-CEO
* Survivors will be companies that offer other services-CEO
* VeriFone decision reduces competition for start-up Square
By Alistair Barr
SAN FRANCISCO, Dec 13 VeriFone Systems Inc
said on Thursday it will pull out of the hot business of
signing up small merchants to accept credit card payments,
reducing competition for start-up Square Inc and other companies
that jumped into the space recently.
VeriFone, a leading provider of card readers and payment
processing services, unveiled SAIL in May, a service that lets
small and individual merchants accept card payments through
devices that plug into smart phones and other mobile devices.
The move was a response to the success of Square, a start-up
led by Jack Dorsey, which has a card reader that has been a hit
with small merchants such as cab drivers.
However, it is hard to make a profit from such services
because the provider is at least partly responsible for any
problems, such as fraud. That's the reason VeriFone decided to
get out of the business.
"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.
In addition to VeriFone, EBay Inc's PayPal
division, Intuit Inc and Groupon Inc have
gotten into the small merchant payments business in the past
year, making it one of the hottest parts of the massive payments
industry. However, VeriFone's move may be an early sign of a
shakeout in the sector.
Square is already branching out into other services and is
focusing on larger merchants. It recently developed a digital
wallet, similar to PayPal's main service, and signed a major
payments deal with Starbucks Corp, the world's largest
Groupon's payments business is designed to encourage more
merchants to run its daily deals, rather than generate big
profits for the company.
"The only possible survivors in this fundamentally
challenging business model will be companies who might have an
opportunity to provide other services to these micro-merchants,"
Bergeron said. "You can see evidence of other competitors'
similar experience, as they shift their own business models to
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
The move means VeriFone will not be exposed to the risks and
costs of handling fraud and other problems from these small
VeriFone plans to sell the customer acquisition, risk
management, and customer billing assets it developed for the
micro-merchant initiative, Bergeron said.