The mobile point-of-sale bandwagon has one less occupant. During VeriFone's Q4 earnings call yesterday, CEO Doug Bergeron announced the company would be getting out of the dongle business, citing customer acquisition costs that didn't "justify the razor thin margins produced by merchants with infrequent volumes and extremely high attrition."
The merchants to which Bergeron was referring are the independent micromerchants — plumbers, lawn services, dog walkers — targeted by mPOS providers.
Bergeron said the company will continue to provide support for the SAIL product exclusively through indirect channels, i.e., third-party partners such as merchant acquirers. VeriFone will provide the readers and payment gateway through that channel, as well as a global EMV version of the product, but it will divest itself of customer acquisition, risk management, and customer billing assets developed to service its SAIL business in the U.S.
Launched in May, SAIL was VeriFone's entry into the crowded mobile POS market. The market, which offers small merchants the ability to accept credit and debit cards using card-reading dongles attached to smartphones and tablets, is dominated at the moment by Square. But there are dozens of competitors, with more entering the space all the time.
A few of the competitors in the mPOS space, such as Intuit (which actually introduced the first solution in 2009), and recent entrant Groupon, offer mobile processing in addition to other business services and software. According to Bergeron, companies that provide other services on top of the mobile POS solution can survive in a market comprised of merchants who are "fundamentally unprofitable" to acquire and service through the standalone mobile POS model.
As a maker of point-of-sale devices, albeit one that owns a massive share of the market, VeriFone is limited in additional services it can provide to those small merchants.
"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 micromerchants," Bergeron said.
A sign of a bigger shift in the market?
Most mobile POS solutions charge merchants anywhere from two to three percent on each debit or credit transaction. However, fees for credit transactions run around 2.5 percent and eat up most of that revenue. Debit card fees are now capped at around 25 cents, thanks to the Durbin Amendment, but that still means low dollar debit transactions, the type a small merchant might generate, remain unprofitable for mPOS providers.
Bergeron said that competitors' addition of other mobile payment technologies such as a digital wallet to their mobile POS solution is an indication that they're feeling the same squeeze.
"I think you can see evidence of other competitors’ similar experience as they shift their own business models to wallets," he said.
Recent news from Square may be a sign that it's aware of the economic realities of processing payments for small merchants. Though the company has signed more than two million small merchants, and is reportedly processing around $10 billion in transactions on an annualized basis, it signed a deal with coffee retailer Starbucks earlier this year to process its debit and credit transactions.
Square has also made changes to its Square Wallet to entice more users to that product. Earlier this week, the company began offering digital gift cards through the wallet for Square-accepting merchants. Additionally, Square is reported to be on the cusp of announcing a deal with luxury brand Burberry to provide point-of-sale devices in its stores.
Still into mobile payments
The news of SAIL's fate doesn’t mean that VeriFone is getting out of mobile payments altogether. Bergeron said the company will continue to provide its more robust PAYware mobile point of sale solution through GlobalBay, the retail solution provider it bought a year ago. PAYware is suited to bigger retailers looking to integrate a mobile processing option as a part of a larger POS system.
Bergeron said GlobalBay's mobile payment offering continues to grow with revenues from the solution expected to double to more than $40 million this year. He also noted the recently announced deal between GlobalBay and Fujitsu to offer sophisticated POS solutions for large retailers that incorporate the PAYware mobile product.