VeriFone Systems (NYSE:PAY), the provider of secure electronic payment solutions, seem to have been surrounded by various issues which is hampering its growth. The problems include a poor acquisition strategy, poor planning and execution, macroeconomic headwinds, and most importantly, a change in business model.
VeriFone has been trying to turn itself around, but things seem pretty difficult from here. The company’s former CEO Douglas Bergeron stepped down in March last year. Revenue across various geographies declined in the previous quarter and this does not make for good reading. VeriFone’s competitors, such as Ingenico (INGIY.PK), have made life difficult for it and seem to have pushed it into a corner.
VeriFone understands that lack of innovation has hurt it, and the fact that it strayed from its proven model of selling hardware to a monthly subscription model hasn’t done any good either. While this has had a terrible impact on the company’s financial performance, competitors have moved in and it would be difficult for VeriFone to move into markets where players like Ingenico have established a hold.
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For instance, Ingenico rolled out contactless payment terminals in Mexico for Banco Nacional de México (Banamex) in the country. Banamex had planned to deploy this system to around 30,000 retailers which allowed the 1 million contactless cards which were issued to be used with them.
Now, this is certainly a massive boost for Ingenico. But at the same time, this is a big loss for VeriFone as it was among the technology providers who were trying out for the project and finally lost out to its competitor. Moreover, when you consider that VeriFone had its D.C. Taxi smart meter contract overturned as the Taxicab Commission decided that it’ll allow multiple vendors to install credit card readers, taking exclusivity away from VeriFone, question marks might be raised over the company’s future.
Lack of R&D efforts
Moreover, there is a further threat from the likes of PayPal from eBay (NASDAQ:EBAY). eBay has been taking PayPal to retail stores and it had entered into a partnership with Ingenico last year to enable in-store payments. Consumers would be able to make payments via a PayPal card or mobile. It should also be noted that PayPal has a similar deal in place with VeriFone as well.
eBay might disrupt the space, and it could even eliminate the need for terminals in the future once it establishes its presence in stores. Since PayPal’s in-store payment system doesn’t require an NFC device, the company is well-capable of pulling a fast one on the likes of VeriFone.
The advent of mobile payment solutions is a threat to VeriFone’s business, and given the fact that the company has failed to focus on research and development has made life further difficult. VeriFone accepts the fact that a failure in R&D led to a loss of market share as customers switched to competitors.
While the company is now looking to fix that, I doubt whether a customer who has bought a different device will switch back considering the logistical challenges of switching every now and then. Failure to innovate and execute properly has also increased threats from the likes of Square as VeriFone had to shelve its own solution that was intended to compete with Square.
VeriFone Systems has gone through a difficult phase, but its recent efforts look interesting and might get the company rolling. However, it is difficult to be sure about the future prospects of the company. Increasing competition and a rising threat of disruption of newer technology has made VeriFone look like a doubtful investment proposition. Hence, staying on the sidelines might be a safer thing to do.