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Well, maybe not greatly exaggerated…but certainly overstated, according to the most recent statements from the Company. The past week has brought a flurry of doom-and-gloom rumors surrounding payment terminal and solution provider ViVOtech, one of the more prominent NFC payment solution providers. While there does seem to be an element of truth to the preliminary headlines, it now appears that the outlook for the Company is somewhat less dire than the original rumors indicated. According to official Company statements, ViVOtech is not planning to cease operations, but is indeed restructuring its business to focus on mobile commerce software solutions. As part of the restructuring efforts, the company is working to divest its payment terminal/NFC reader business.
Early this past Friday, July 27th, reports (attributed to “unnamed sources”) that ViVOtech would “cease operations” circulated online, but the Company quickly issued an official statement indicating that its “business fundamentals are strong,” and that “orders and contracts are building in both its reader and software” businesses. However, despite claims that its reader/payment terminal business is growing, ViVOtech indicated that it working to divest the same. Ultimately, should it come to pass, this divestiture would be part of a broader restructuring effort via which ViVOtech will exclusively focus on mobile commerce software.
From a certain strategic perspective, the divestiture of ViVOtech’s payment terminal business is logical. Thinking strictly in the context of the cutthroat competitive forces in the payment terminal market—specifically, constant pressure on margins, increasing entrenchment of giants like VeriFone and Ingenico and proliferation of low-cost suppliers, particularly in APAC—focusing on more profitable software at first seems to be a well-advised move.
However, from a broader standpoint (one that includes sales and end-user perspectives), we believe abandoning hardware altogether is a risky strategy for ViVOtech. When it comes to payment solutions, most merchants prefer one-stop, end-to-end solution providers. Thus, by moving away from hardware entirely, ViVOtech could alienate a significant percentage of its installed base and prospective customers that may look to the Company as a payment solution provider in the future. If ViVOtech does ultimately divest its hardware business, we think the Company would be well-advised to establish partnerships, either with the acquirer, channel resellers, or other hardware-only providers, in order to maintain at least a certain degree of end-to-end capability.
Update, 8/6/2012: ViVOtech announced today that it has completed the sale of its reader business to ID Tech, a US-based supplier of contactless, magnetic-stripe, and bar code readers and related POS peripherals. No details regarding the terms of the transaction were disclosed.