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VeriFone stops trying to sell Sail to merchants

14 December 2012  |  8111 views  |  1 Dead end

VeriFone has given up trying to sell Sail, its app and dongle-based system for turning smartphones into card acceptance devices, directly to merchants and will instead offer the technology to banks.

Terminal manufacturer VeriFone launched Sail in May as it sought to defend its turf against the rising number of new players, led by Jack Dorsey's Square and PayPal Here, offering merchants a cheap, mobile-based alternative to traditional point-of-sale systems.

However, in a fourth quarter results conference call with analysts, the firm's CEO Doug Bergeron revealed: "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."

The firm says that it will continue to develop Sail but rather than deal directly with merchants, will work with banks and acquirers.

"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. You can see evidence of other competitors' similar experience, as they shift their own business models to wallets," Bergeron told analysts, according to Reuters.

Square, in particular, has been gradually moving away from its app and dongle roots through its Wallet app and massive deal with coffee chain Starbucks, helping the company secure hundreds of millions of dollars in investments and a multi-billion dollar valuation.

VeriFone's decision to leave the field open to Square, PayPal et al, comes after an aggressive attempt to defend its patch which included a very public attack on Dorsey's outfit's security credentials last year.

Meanwhile, VeriFone posted an 18% rise in fourth quarter revenues, to $485.4 million. Net income fell 86% to $27 million, although the figure was skewed by a large tax benefit the previous year.

Comments: (1)

A Finextra member
A Finextra member | 17 December, 2012, 04:16

I’d suspect that the real issue here is the inability of Verifone to adapt its operating model to one that can work in a ‘micro-merchant acquiring’ environment, where the dynamics are significantly different and the key to success lies more in operational efficiency with a much larger base of direct customers.

Verifone are not alone in this respect, many other players in the payments industry are used to dealing with a small number of large entities such as acquirers and processors, as opposed to a large number of small entities such as merchants.

Similar parallels can be seen in the ‘Daily Deals’ space, with many banks launching services intended to compete with the likes of Groupon, but failing to make the necessary changes to their sales and marketing workforce in order to truly enable ‘micro-merchant’ activities to become profitable.

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