Ingenico VS Verifone

Sometimes, controlling 80 percent of a market doesn't offer much protection.

Verifone Concerns Hit Ingenico

Worries over U.S. tech switch and emerging-markets competition spread to payments sector

Source: Bloomberg

U.S. payments technology provider Verifone cut its guidance for full-year earnings on Tuesday by around 17 percent, blaming pricing pressure in Asia and delays in implementing chip-card technology in the U.S.

That sent the firm's stock down almost 30 percent on Wednesday. Ingenico, the company's biggest European competitor, also slipped as much as 7 percent, suggesting these worries aren't unique to Verifone.

Cooling Growth

Adjusted annual revenue growth rates for top payments terminal providers are seen slowing

Source: Bloomberg data

Together the two, which were both founded in the 1980s, account for 80 percent of the market for payment terminals - their core bread-and-butter $3.4 billion market.

While it may be a stretch to compare them with much younger fintech start-ups like LendingClub or Square, all of them are being forced to curb their growth expectations as boom times threaten to peter out. And Verifone and Ingenico are finding their long-standing competitive advantages - high barriers to entry and a market duopoly - are under threat.

VeriFone warned that the economic slowdown in China - which accounts for 12 percent of sales - is "real." Across Asia, retailers and other clients are increasingly looking for cheaper payment terminals that do the job with fewer bells and whistles. The company has had troubles in China in the past - it has lost market share as it's tried to adapt to local regulations. Asia revenue was down almost 11 percent in 2015.

But the worry is that growth targets for the big players in Asia may turn out to be too optimistic - even for Ingenico, whose Asia-Pacific revenue grew 19 percent last year. Technavio analysts estimate demand for payment terminals in China is expected to grow by 18 percent between 2014 and 2019, while Ingenico has said emerging markets will see a 50 percent rise in point-of-sale terminal penetration by 2020.

Terminal Growth

Ingenico expects the U.S. and China to drive growth in the payment terminal market through 2020

Source: Ingenico

Verifone's warning may give investors cause to think twice about those forecasts - especially if taking share is set to get tougher than expected.

Growing competition from smaller rivals such as Hong Kong-listed PAX or Lakala of China is squeezing prices in Asia and Latin America. Even though investors have already taken into account recent turmoil in emerging markets, if competition gets much tougher, valuations for the whole sector may start to look stretched.