As More Merchants Begin Accepting Credit Cards with Chips, How will Verifone’s EMV Segment Benefit?

Photo Credit: Pierre Metivier

VeriFone (PAY), the leading payment service solution provider, will be reporting its Q42015 earnings report on Monday after the closing bell. The company has beaten Wall Street analyst expectations on both revenue and earnings for 9 straight quarters and looks to continue the trend this quarter. New innovations and initiatives have been a point of emphasis for growth and opportunity as the rise of mobile payments and e-commerce has been causing a ruckus in the industry. The Estimize contributors have predicted an EPS of $0.49 and revenue of $517.6 million while Wall Street analysts are not too far off on earnings, forecasting EPS of $0.48 but revenue of $513.4 million.

Focus on Europe

The San Jose, CA based firm has recently acquired InterCard AG, an established payment as a service provider (PaaS) in Germany. This highlights a solid positioning and market growth opportunity as Europe is shifting towards more cash-less payment options. VeriFone’s already significant reach across Europe and the globe is growing, as retailers are constantly looking for the best services to expand and simplify the payment process.

Additionally, a partnership has been finalized with Danish mobile payment application Swipp. Swipp can be used amongst 30,000 merchants in Denmark who employ VeriFone terminals and products. The payment process with Swipp is rather simple. When a consumer is ready to purchase an item, they will need to place their phone close to the terminal and swipe the application to complete a payment.  VeriFone currently supplies more than 50% of all payment terminals in Denmark and expects this partnership with Swipp to help gain extra market share in Europe.

VeriFone Edge

Things at world’s leading payment and commerce solution provider are changing. As consumers prefer to shop online and as retailers and shops are starting to use other mobile technology systems for payments (like Square, (SQ)) VeriFone has shifted its focus to enhancing the consumer experience with innovative solutions.

Enter VeriFone Edge. This new product is a Linux-based terminal that provides merchants a wide array of payment solutions and services. For example, some of these new Point of Sale (POS) enhancements include immediate coupons, on the spot offers, and rewards for loyalty shoppers, a simple interface to make the payment process more smooth, and third-party applications on the VeriFone App Marketplace to promote customization for merchants.  The product has been made available and will be accessible in Europe in 2016. Sales and revenues directly from Edge will be a figure to watch in the coming quarters.

EMV Growth

Europay, Mastercard (MA), Visa (V) (EMV) systems are those which accept credit cards with chips. You may have noticed your credit card provider has recently moved away from issuing cards with magnetic strips in favor of chips. Close to 40% of US card holders already have these chip enabled cards. The technology behind EMV is a technical standard that has already been widely accepted by most European countries and Canada. The payment terminals usually accept cards with chips rather than magnetic stripes and require a 4 or 6 digit PIN rather than a signature. In 2014, the percentage of EMV enabled devices only reached 27%.

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PAY data by YCharts

This immense growth is quite lucrative for payment terminal providers such as VeriFone (PAY). These numbers confirm a large revenue opportunity for VeriFone, it also points to the fact that there is plenty of room for future growth. Not only so, but merchants using non-EMV compliant terminals just began assuming liability for fraudulent transactions starting on October 1, 2015, a liability previously covered by the credit card companies. VeriFone CEO, Paul Galant, pointed out that none of the 1 million gas stations in the US have EMV capable devices and that this trend should change soon, providing VeriFone with steady revenue momentum. However, gas stations have been granted an extra two years to become compliant with EMV rules, due to the high cost of updating self-service gas pumps.