Digital Transactions Authoritative, insightful and timely information for payments professionals
“Selling boxes is an unpredictable thing,” Paul Galant, chief executive of VeriFone Systems Inc., told stock analysts Thursday afternoon. Seldom has that been truer for terminal kingpin VeriFone than now, when an unexpected slowdown in EMV adoption by small and medium-size merchants has cut into the company’s sales and hurt its fiscal third-quarter results.
By year’s end, fully 14 months after the liability shift, there will still be about 5 million U.S. point-of-sale terminals requiring upgrade to handle EMV chip cards, Galant said. That’s more than VeriFone had predicted earlier in the year, when it saw what Jennifer Miles, president for the Americas at VeriFone, said during Thursday’s analyst presentation was a “profound surge” in EMV sales.
“SMB deployments continue to trend below expectations,” Galant said during the call to discuss VeriFone’s fiscal third-quarter earnings. Indeed, the slowdown has developed swiftly, setting in just in the past three months, Galant added. “It was hard to imagine [the EMV rollout] would hit the brakes the way it did, but hit the brakes it did,” he said. “We’re doing everything we know how to do.”
A key factor in the slowdown, Galant told analysts, is a program Visa Inc. introduced this summer to bring relief to merchants inundated with chargebacks resulting from counterfeit cards. Since Oct. 1, 2015, merchants that aren’t equipped to process EMV cards have been liable for any fraud from fake cards. Visa in June announced a new policy to stop all chargebacks for counterfeit fraud under $25 from going to acquirers and their merchants, effective July 22. As of October, it will also cap at 10 the number of counterfeit card chargebacks of $25 or more an issuer can send back to merchants on any single card account. Issuers will have to take responsibility for any such chargebacks after that.
Visa projected at the time that the new policy would cut merchants’ counterfeit card chargebacks by 40% and their dollar losses by 15%. But the moves also “definitely take the pressure off of some retailers,” Galant said, to upgrade their POS devices. He did not disclose figures for VeriFone’s actual EMV shipments in the quarter, but told the analysts that “the EMV narrative in the U.S. has been really problematic.”
Other factors figure in the slowdown, the VeriFone executives said, including the adoption by higher-risk merchants earlier in the year, leaving now a market less sensitive to fraud risk.
The company also blamed political turmoil in Turkey, a key market, and weak economies in Latin America for its results. Non-GAAP revenue for the quarter ended July 31 came in at $493 million, down from $510 million in the year-ago period. North American revenue finished at $196 million, down 6%.
Still, Galant and Miles predicted sales to SMB merchants will pick up as the Visa policy, set to expire in April 2018, runs out and merchants finally tire of dealing with customers who want to know why they don’t support EMV. “This [slowdown] is not a binary thing,” Galant said. “It’s a delay. They’re going to take longer to do the upgrade.”
He also pointed to a “silver lining” in the slowdown. It will provide an opportunity for Engage, a new line of multimedia terminals, to enter the market and gain attention, he said. He told the analysts revenue from Engage and Carbon, a new line of smart terminals, will start to build next year, amounting to “a meaningful part” of the company’s overall revenue.” In 2018, he predicted, the new products will start to “move the needle.”
