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.
We are not surprised.
Meanwhile, VeriFone’s quarterly earnings were short of impressive.
Verifone Systems – Verifone reported fiscal fourth-quarter profit of $0.76 per share, matching estimates. However, revenue was below consensus, as was the electronic payments company’s first-quarter earnings and revenue forecasts. Costs of recent major acquisitions have been weighing on profits, as have efforts to expand beyond Verifone’s traditional payment terminal business.
From Motley Fool:
For the quarter ended Oct. 31 (Q4), VeriFone Systems missed slightly on revenues and met expectations on earnings per share. Compared to the prior-year quarter, revenue expanded significantly and GAAP earnings per share dropped significantly. Gross margins grew, operating margins grew, net margins contracted.