/// Should VeriFone’s Exit From the Mobile Payments Space Worry Square?

December 15, 2012  |  All Things Digital

VeriFone, a company that has proclaimed in the past that it will be playing “the role of Switzerland” in digital payments, is naming at least one technology that it won’t be agnostic about: Mobile payments. A year and a half ago, VeriFone unveiled a product that would give small-to-mid-sized retailers the ability to use an phone or tablet to accept payments. But during a quarterly conference call this week, Verifone chief executive Doug Bergeron explained that the company would be discontinuing the service, called Sail, because it is unprofitable. “Customer acquisition costs, either through search engines or TV advertising cannot and will never justify the razor thin margins produced by merchants with infrequent volumes and extremely high attrition.” Square must be feeling a little bit vindicated that VeriFone couldn’t hack it in the space, given the two companies’ ongoing rivalry. The two first started bickering more than a year ago after VeriFone wrote an open letter about Square , calling out a potential security flaw in its mobile-phone card reader. When Square promised to add encryption to its devices as part of an investment by Visa, VeriFone felt like it won that battle . Shortly after, it unveiled Sail, which was targeting smaller merchants, such as food trucks or taxicab drivers — much like Square. VeriFone said that, going forward, it will focus exclusively on providing mobile payments to small merchants through an indirect channel. The company plans to sell off its assets, although it didn’t expect a deal to be financially meaningful to the company. Reuters first reported the company’s moves on Thursday. As part of the call with investors, Bergeron didn’t stop at explaining VeriFone’s reasons for exiting the business. He also took the time to question whether the model was flawed for all companies, and not just VeriFone. “I think you can see evidence of other competitors’ similar experience as they shift their own business models to wallets. My belief is that 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’s statement does bring up a good question: If charging a flat rate of about 2.75 percent per transaction doesn’t pay off for the mobile payments industry, then what other features will they have to build in order to bring in revenue? Square, which is now processing $10 billion annually in transactions, isn’t the only company in the space. Other players include PayPal, Intuit, Pay Anywhere and, more recently, Groupon. For them, it’s not all about the transaction fee.

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Should VeriFone’s Exit From the Mobile Payments Space Worry Square?

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