VeriFone yanks SAIL out of 'unprofitable' mobile payments biz
VeriFone Systems is pulling out of the mobile payment processing segment dominated by Square and PayPal, calling the market "fundamentally unprofitable."
VeriFone introduced its SAIL mobile commerce platform in May 2012, enabling merchants to process credit and debit payments by sliding the customer's card through a dongle that plugged into Apple's (NASDAQ:AAPL) iPhone and Google (NASDAQ:GOOG) Android smartphones. SAIL also offered integration with VeriFone's signature countertop point-of-sale hardware. Speaking Thursday on VeriFone's fiscal fourth-quarter earnings call, CEO Doug Bergeron said the company will abandon its efforts to market the SAIL reader directly to merchants but will continue allowing its bank partners to resell SAIL processing services to their business customers.
"We are morphing SAIL, pivoting to a channel alliance strategy," VeriFone Vice President of Industry Engagement David Talach explained to Bloomberg News. VeriFone will look to divest SAIL assets developed around customer acquisition, risk management and customer billing.
"Our experience through 2012 with tens of thousands of these micro-merchants tells us that the standalone economics of micro-merchant acquiring is fundamentally unprofitable and destined to be a negative gross margin business," Bergeron said. "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."
Bergeron also referenced Square's evolution beyond its original dongle-based model into mobile virtual wallet services, a transition typified by its partnership with coffeehouse chain Starbucks. "I think you can see evidence of other competitors' similar experience as they shift their own business models to wallets," Bergeron said. "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."
Despite Bergeron's jabs at Square, SAIL bore unmistakable similarities to Square's reader technology and business model; moreover, soon after SAIL launched, VeriFone was forced to overhaul its merchant agreement following reports the document directly copied chunks of text from Square's own user contract. But while Square is now processing $10 billion in annual mobile payment transactions, up from $2 billion a year ago, SAIL never caught on with merchants, who've also gravitated to rival services like PayPal Here and Intuit's GoPayment.
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