CONNECTIONS at CTIA 2013 - Interview with Erik Vlugt, Verifone

Foreign TV where Parks Associates connections conference at CTIA with Eric Luke of Verifone. Eric, you were just on the panel talking about mobile payments. What was the takeaway for you from that panel?

Yeah, it was an interesting panel. It talked about a lot of different things. It's apparent that particularly at this conference, there's a lot of other interests. I do a lot of panels that are specifically targeted at payments, so a lot of folks in the room that weren't necessarily part of the payments ecosystem. There were definitely some basic education questions, and it was a good session with good questions. We took it into some areas that you wouldn't normally take as part of a payments panel, so it was good and enjoyable.

Well, it's important to note that Verifone has how many? 18,000 terminals. There's a huge number of terminals that allow merchants to take credit cards, right?

Yeah, absolutely. Depending on the market segment, we have probably in the U.S. about 60 or 70 percent market share. It's a little bit higher in mass retail and then a little bit lower in other areas, but yeah, there are many millions of pieces of Verifone equipment out there today.

Well then, of course, those are fixed pieces generally, right? But what happens as this mobile revolution comes? Is that good or bad for Verifone? How does Verifone kind of fit into the idea of a smartphone taking payments?

Sure. Yeah, it's great, right? Because innovation is bringing a lot of new things to this industry. Yesterday, the majority of those millions of devices are fixed mount that sit on a counter, that kind of thing, but many of them now, and we've been shipping them for years, are mobile devices as well—mobile acceptance equipment. And it's great for Verifone because it adds yet another dimension to the payment acceptance side of things and certainly is an exciting space to be working on, and it's only growing at this point. So now, where before we would have, 10, 15 years ago, would have been all fixed mount, then we sort of got into the wireless terminal space, and now we're getting into enabling consumer electronic equipment for merchants to start accepting mobile payments, like iPhones and Android devices, Windows mobile devices, etc. So it's wonderful for Verifone.

So, from an acceptance, a customer acceptance, I guess there's two aspects: there's the one actually taking the payment, but then you've got the idea of making payments with your phone. Where do you see us in the development and the adoption of that methodology where people forget their wallet at home and use their phone?

Yep. So, we're definitely early stages in that as far as consumer adoption of that technology is concerned. Making great headway. I think you're talking about mobile wallets—effectively putting a wallet on the phone, whether it's through NFC or barcode or some other mechanism. Given our market share, the 60, 70 market share, we're obviously a big player in that because all the infrastructure needs to be enabled for that. So it's early days. We've enabled many systems over the last couple of years with that technology, and you're starting to see rollouts now of that technology and mobile wallets to consumers with initiatives like Isis and Google Wallet and those types of systems. So it's picking up, and I think with EMV, which is payment through chip cards as opposed to magnetic stripe cards, coming to the US over the next couple of years as well, that will provide a great catalyst for not only merchants to update their infrastructure and acceptance equipment but also a change in payment behavior on the consumer side. So those two things will probably go hand in hand to a large extent and come to the payment world we both live in every day.

What do you see kind of as the areas of friction? Why it just doesn't happen immediately?

So, a rollout of that requires a lot of changes, right? So you need changes on the consumer side: consumer behavior, consumer value, putting phones in the hands of consumers that are capable of conducting those transactions, and that's happening today. Many handsets support NFC now; most handsets support barcode-based mechanisms. So with the smartphone revolution, that's pretty well taken care of. On the acceptance side, we've been working on it for years. I mean, merchants now realize they need to start hardware enabling their equipment, so a lot of the systems, if not all of what we're shipping today, is hardware ready to accept not only the EMV type payment that we were just talking about but also ready to accept NFC mobile wallet-based payments and other technologies as well, like audio-based technology or barcode-based technologies. So for us, it's all about helping our customers be enabled with this technology. And I guess it does reduce the friction as far as people making payments, right? The whole idea is just make it easier to get that in and out.

Um, like with the early adopters, are there any concerns about the security? Like, okay, great, my phone's stolen, and now someone can access my credit card?

Right. I think consumers may well be concerned about that, and luckily, it's not found. In reality, a card stored on a mobile phone in what we call a secure element, in the case of an NFC wallet, is orders of magnitude more secure than a magnetic stripe card in your wallet ever was, right? Because it's stored in secure memory and can't be duplicated and accessed by fraudulent applications. So that is one of the major values it provides to consumers—it is a more secure way of having your wallet stored on the secure element of your phone. So I think we should feel good about that instead of fear.

Just need to make sure the consumers are educated about it, though, right? Absolutely, consumer education and all of these things—all of these types of technologies, emerging technologies, add value and is one of the key factors of making something successful. So absolutely agree. Okay, well, Eric, I appreciate your insight on this and look forward to continuing conversations about it.