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Last time I looked at Verifone (NYSE:PAY), in April, I called it "the safe play in mobile payments."

Not one of my brighter calls.

Since then the company has fallen out of bed. It started with the sudden resignation of chairman Charles Rinehart and accelerated with negative guidance which turned out to be honest. Since then it has drifted steadily downward, from a range of $50/share to its current price of $30.15.

Call it the Square hangover.

Verifone is closely tied to the existing payments infrastructure - merchant processors, re-sellers, and the banks who depend on them for acquiring merchant accounts. Square knocks these cozy arrangements on their head - merchants buy it direct, and link existing bank accounts directly to the service. (None of this having one bank for your money and another one to collect your money.) Square's pricing is also simple, 2.75% rather than the welter of risk-based fees and discounts used by Verifone's partners for decades.

So competing with Square isn't as simple as putting out a credit card reader that can be attached to a smart phone and matching prices, which is what Bank of America (NYSE:BAC) is doing. It's a death of 1,000 cuts, or at least 29 (so far).

Since acquiring Global Bay last year, the company has also acquired a Swedish company with a half-million accounts and this has not helped results. In fact, the company has piled up $1 billion in acquiring mobile technology but the technology is not the problem.

The problem for Verifone is one of business models, something it has always left to its banking partners. Merchants are getting used to better pricing, to more straightforward pricing, and to better access to data on customers, data they can use to create offers for their best customers and increase sales.

Verifone has fine technology. Its SAIL EMV will let all its banking partners compete with Square as a platform. But they're the ones who have to change, in basic ways, in order to really address the threat. It's not something Verifone has much control over.

That's something I didn't account for in my April call. But if Verifone can find a way to spur that business model innovation among its partners, it will still make today's investment good.

Source: Verifone Fights The Square Hangover