Enjoy your holiday shopping this year; it could be the last time you reach for your wallet to pay for all of those gifts.
A week ago, conventional wisdom would have dictated that Americans would need to wait at least five years before such a reality were even possible, never mind widely available. On October 27, 2010 all of that changed when PayPal (the largest alternative financial institution in the world) signed an agreement with VeriFone (the largest producer of credit card acceptance devices for retailers in the US).
If you read the press release announcing the partnership, it seems like an interesting niche service that is targeted at low-volume, small-business merchants, such as small businesses. VeriFone’s Payware is a piece of hardware that connects to an iPhone. The hardware is supported by a simple iPhone application, and the combination of app and hardware transforms an iPhone into a credit card reader. With the new PayPal partnership, PayWare will accept PayPal payments in addition to traditional credit-card transactions. The physical device provided by VeriFone will allow the user to swipe a card directly on their cell phone, and the cell phone will complete the transaction using PayPal service. It may appear that this alliance is targeted at another card-to-mobile interface: Square. It is, but VeriFone may have something else planned.
A CLOSER LOOK AT THE PARTNERSHIP
The partnership brings eBay-owned PayPal’s merchant services to VeriFone’s formidable product line. PayPal is the largest alternative payments company on earth with more than 87 million active accounts in 190 markets and 24 currencies around the world. PayPal is made up of three payment services: the PayPal global payment service, the Payflow Gateway and Bill Me Later, according to PayPal’s website. Currently, all of these services are available only for online purchases, but try to imagine all of those forms of payment available at every retail store.
“Rapid adoption of mobile payments makes it possible to further align PayPal payments with traditional card-based transactions at the physical point of sale,” said Jeff Dumbrell, VeriFone executive vice president.
Although Mr. Dumbrell politely used the word “…align…”, what he is describing is really “competition.” And the competitive advantage that VeriFone offers to PayPal is formidable; just look at their market penetration figures: In 2009, approximately 13.1 Million POS terminals were shipped worldwide according to leading Payment industry publication the Nilson Report (Issue # 955). Of those, VeriFone shipped more than 3.1 Million terminals, or about 23% of the worldwide market. That makes VeriFone’s market share of new shipments second in the world only to Ingenico (a French Company). In the US, VeriFone’s share is even greater, with an overwhelming 48% share of new shipments, which translates to over a million units shipped annually, more than doubling the #2 player Ingenico. With a million new products shipped in the US annually, VeriFone could support a new technology and (assuming it could be priced competitively), deploy it across the US quickly. With their new VX product line, they are ready to do exactly that.
VeriFone is now supporting modules to its new VX Evolution, line that do not inherently support NFC (near field communication) technology, but are designed to accept a module for various types of contactless payments. In an email interview with Pete Bartolik, VeriFone Media Relations, he said:
“Many of our products can be configured with contactless modules or accept a contactless peripheral. Earlier this year we announced a next generation product line, VX Evolution, with integrated contactless capabilities built in.”
But how will a customer initiate a transaction at point-of-sale? How will a Smartphone tell a VeriFone VX module to initiate a transaction through PayPal?
The quiet third party in the announcement is Bump Technologies. VeriFone’s PayWare is now enabled with the most popular and secure form of near field communication called “bump” transactions, which is a transaction that begins between two enabled devices by literally tapping a Smartphone to a compatible device (like another compatible Smartphone, or a VX terminal. The “bump” technology is currently available on both iPhone and Android Smartphones, and it is licensed from Bump Technologies, which wrote the software for the original app that swaps contact information by “bumping” two Smartphones together.
So, how long before we see a new module for VeriFone’s VX Evolution series that supports the Bump Technolgies’ product? Certainly less than a year, one would think, but only VeriFone knows. If that happens, merchants using the VX series would only need to purchase the “Bump Module” from VeriFone, and their system is upgraded.
ONE YEAR? REALLY?
Granted, a prediction of total migration from the physical wallet to the “Smartphone wallet” in less than a year is profoundly aggressive. While consumers may not buy all gifts using a Smartphone in 12 months time, there will be enough merchants available to do much of your shopping using only your Smartphone by then.
I am willing to put my money (or at least my time) where my mouth is. I will wager that I will be able to complete at least 25% of my 2011 Christmas shopping at brick and mortar stores within 15 miles of my home using only my Smartphone. If I cannot, I will give 1 hour of free consulting time. Otherwise, you will owe me one radiant recommendation on my LinkedIn profile.