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The mobile payments market may be set to pull in $171 billion this year, but for VeriFone, it’s been a big waste of money.
VeriFone launched Sail, its Square-wannabe mobile payment system in May. And while the venture had the name power of VeriFone behind it, name power was apparently not enough for VeriFone to actually make any money of it.
As a result, VeriFone says it’s ending its mobile payment ambitions altogether, as Reuters reports. VeriFone CEO Doug Bergeron says the costs of acquiring new users don’t justify the market’s thin margins.
“Our experience through 2012 with tens of thousands of these micro-merchants tells us that the standalone economics of micro-merchant acquiring are fundamentally unprofitable,” Bergeron said during VeriFone’s third-quarter conference call yesterday.
To really make money, Bergeron said, companies have to offer additional features like mobile wallets on top of mobile payment systems. Square has already figured this out, which is why it introduced Square Wallet to its own system.
Essentially, the problem is one of scale: Micropayments systems require big user numbers in order to be profitable. Sail never attracted those big user numbers, which is why it didn’t make VeriFone any money. (Another issue is fraud, which VeriFone, as the service provider, is at least partly responsible for. More money gone there.)
But what’s most telling here is that the tiny, tiny Square has managed to edge out the much larger VeriFone. Clearly, being able to operate on razor-thin margins is a major asset in the mobile payments market.