Groupon (GRPN) in Sights as VeriFone (PAY) Exits Mobile Payment Segment
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Groupon's (Nasdaq: GRPN) now-peer VeriFone Systems (NYSE: PAY) issued quarterly results to the equivalent fanfare of walking into work one day and realizing you have your shirt on backwards. That is to say, nothing more than a snicker and half-heated choleric comment from your secretary.
However, CEO Doug Bergeron did make a key point on the company's conference call: it would be exiting the mobile payments market. Currently, VeriFone offers the Sail card reader to small businesses.
Bergeron explained that VeriFone was exiting the segment because it was "fundamentally unprofitable" and margins were "razor-thin," meaning the cost to acquire new business was "unlikely" to offset the outlay. Sail will continue to be offered via resale by small banks, but a further push for VeriFone is just about done.
Where Groupon comes into play here is that CEO Andrew Mason has explained that it plans to expand into the payments processing segment. While Groupon doesn't have plans to introduce a card of sorts, investors might keep an eye on margins as a broader push into the small business payments arena continues.
Currently, most companies are aiming to take a bite out of Square, co-founded by Twitter's Jack Dorsey. The company recently inked a large deal with Starbucks (Nasdaq: SBUX) covering mobile payments in the U.S.
Below is an excerpt from the Q4 conference call with Bergeron's comments:
"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. Customer acquisition costs either through research engines or TV advertising cannot and will never justify the razor-thin margins produced by merchants with infrequent volume and extremely high attrition.
I think you can see evidence of other competitors' similar experience as they shift their own business models to wallets. My belief is that the only possible survivors in this fundamentally challenging business model will be companies who might have a opportunity to provide other services to these micro-merchants. VeriFone will help its traditional partners leverage their significant competitive advantages over standalone dongle companies by providing our technology in gateway services. Therefore, we have decided to focus exclusively on an indirect distribution channel strategy for providing mobile payment solutions to micro-merchants. And as a result, the assets that we have developed around customer acquisition, risk management and customer billing will be divested. The P&L impact from discontinuing this operation and the expected terms of the divestiture are not material. Now VeriFone will continue to offer a channel-driven version of SAIL and will continue the SAIL brand globally as with the recent SAIL EMV launch."
Groupon's (Nasdaq: GRPN) now-peer VeriFone Systems (NYSE: PAY) issued quarterly results to the equivalent fanfare of walking into work one day and realizing you have your shirt on backwards. That is to say, nothing more than a snicker and half-heated choleric comment from your secretary.
However, CEO Doug Bergeron did make a key point on the company's conference call: it would be exiting the mobile payments market. Currently, VeriFone offers the Sail card reader to small businesses.
Bergeron explained that VeriFone was exiting the segment because it was "fundamentally unprofitable" and margins were "razor-thin," meaning the cost to acquire new business was "unlikely" to offset the outlay. Sail will continue to be offered via resale by small banks, but a further push for VeriFone is just about done.
Where Groupon comes into play here is that CEO Andrew Mason has explained that it plans to expand into the payments processing segment. While Groupon doesn't have plans to introduce a card of sorts, investors might keep an eye on margins as a broader push into the small business payments arena continues.
Currently, most companies are aiming to take a bite out of Square, co-founded by Twitter's Jack Dorsey. The company recently inked a large deal with Starbucks (Nasdaq: SBUX) covering mobile payments in the U.S.
Below is an excerpt from the Q4 conference call with Bergeron's comments:
"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. Customer acquisition costs either through research engines or TV advertising cannot and will never justify the razor-thin margins produced by merchants with infrequent volume and extremely high attrition.
I think you can see evidence of other competitors' similar experience as they shift their own business models to wallets. My belief is that the only possible survivors in this fundamentally challenging business model will be companies who might have a opportunity to provide other services to these micro-merchants. VeriFone will help its traditional partners leverage their significant competitive advantages over standalone dongle companies by providing our technology in gateway services. Therefore, we have decided to focus exclusively on an indirect distribution channel strategy for providing mobile payment solutions to micro-merchants. And as a result, the assets that we have developed around customer acquisition, risk management and customer billing will be divested. The P&L impact from discontinuing this operation and the expected terms of the divestiture are not material. Now VeriFone will continue to offer a channel-driven version of SAIL and will continue the SAIL brand globally as with the recent SAIL EMV launch."
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