Mercator Perspectives

What VeriFone’s Sail Announcement Means for the mPOS Industry

VeriFone Dec. 13 announced it will divest many of its assets in its Sail mobile point-of-sale (mPOS) product. The San Jose, Calif.-based company said it is no longer confident it could compete with the more advanced solutions being offered by the likes of acquirers and ISOs. And thus, VeriFone Sail becomes the first major mPOS solution to withdraw from the booming market.

While this is a significant development for VeriFone, the more pressing question is: what this means for the mPOS market itself? Until now, companies with any experience in payments had been racing to introduce their own mobile-payment acceptance solution. The business model seemed flawless: develop the basic software, produce a relatively inexpensive magnetic stripe-reading dongle, provide the solution to merchants, and just watch the money roll in as merchants that were previously unable to accept card-based payments paid a premium of 25 to 100 basis points to do so.

Suddenly, VeriFone is saying its product is unprofitable, and that it intends to focus on providing solutions (including mobile based ones) to the relatively larger merchants it traditionally has done business with. Who could have predicted that?

Well, Groupon probably could have. As could any other company that rushed into the daily deals craze of 2011. After Groupon’s initial success, there was a similar influx of companies trying to grab their own piece of the pie. Just like with mPOS, the barriers to enter the daily deals market were low (set up a website and establish some merchant/consumer relationships), and the demand was high. As a result, new daily deal providers were being introduced seemingly every other day -- until they weren’t.

Organizations in other industries, seeing Groupon’s success coupled with the low barriers to entry, realized that they could leverage their established business to provide improved, more efficient daily deals. Financial institutions and payment processors integrated deals directly into their systems, where they could process the deals behind the scenes, eliminating the large amount of friction that daily deals created at the point of sale. Payment solutions like LevelUp were able to not only provide an upfront incentive to patronize the merchant for the first time, but since it could easily track repeat purchases, it could also provide loyalty rewards that would encourage repeat business, something that daily deals providers struggled to do. As a result, simply providing a standard daily deal was no longer sufficient. The smaller daily deal providers quickly backed out of the market. Even the big names, like Groupon and LivingSocial, quickly began to suffer, and today are facing regular rumors of collapse. An industry that once looked like an opportunity to print money died seemingly overnight.

As might have been expected, mPOS appears to be following a similar timeline. Intuit has introduced a mobile payment acceptance solution that integrates with its QuickBooks business-management software. PayPal’s solution includes a dongle for card payment acceptance, but also accepts checks and PayPal. Groupon has one that easily accepts daily deals. Even Square, the company credited with bringing mobile point of sale to the mainstream, is diligently working on building out its solution, providing merchants with analytics to better understand their business. It also is developing a mobile wallet for consumers, which enables them to use their mobile device to make purchases from any merchant who accepts payments via Square.

As with Daily Deals, the mPOS market is saturated, and is being taken over by companies that can provide solutions with added benefits above standard mobile payment acceptance. While VeriFone was the first to leave, many can be expected to follow in their footsteps over the next six months.

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