VeriFone

VeriFone's Mission Is To Create and Lead the Transaction Automation Industry Worldwide. But POS systems are only part of VeriFone's future. With the increasing saturation of the domestic POS market, the company has turned its attention to emerging markets to fuel its future growth. If VeriFone has its way, "transaction automation," as the company calls its industry, will become increasingly less reliant on physical products and instead turn to a virtual realm where cash will become obsolete. VeriFone has been at the forefront of this transition, shifting its own emphasis from manufacturing hardware to designing complete software solutions. Toward this end, the company has focused on two primary areas: the "smart" card and the Internet. Smart cards replace the magnetic stripe of typical credit cards with tiny processors. The chips, which may contain as much as one megabyte of RAM, can be encoded with a variety of information, such as the amount of money available to the cardholder. Purchases made using a smart card are automatically deducted from the holder's account. Transactions are immediate, require no authorization, and thus enable the card to be used in low denomination purchases that would be too expensive or time-consuming with the typical credit or debit card. In addition, smart cards can be encoded with much more information, including a person's health insurance information, as well as that person's various credit card accounts. William Melton already had more than a decade of experience in payment processing before founding VeriFone in 1981. Ten years earlier, Melton had founded Real-Share, Inc., in Hawaii, a pioneer in the use of computers and other database and telecommunications systems for check authorization and guarantees. In 1980, Melton sold Real-Share to TeleCheck Services, later part of First Financial Management Corp., for some $3 million. Melton used this money to start up VeriFone in Honolulu the following year. Initially, the company provided retailers with access to information on people known to have written bad checks. The company started at the local level, but soon spread throughout the islands. Part of Melton's operating philosophy was to place his sales and support staff close to the company's customers. To maintain contact among his widely dispersed employees, Melton turned to the nascent networking and portable computer industries, outfitting the company with early e-mail messaging and online database capabilities. VeriFone introduced its first POS product in 1982. By slashing operating costs and lowering manufacturing costs by outsourcing production, VeriFone brought its first system to the market at $500. In financing this effort, Melton received help from Lexis-Nexis founder William Gorog, who had sold that company and founded Arbor International to produce credit card authorizations systems under contract for Tymnet. When Tymnet decided not to pursue the POS market, Gorog agreed to finance VeriFone with letters of credit. He next brought VeriFone in contact with a venture capital firm for additional financing. In return, Arbor received the right to sell VeriFone products east of the Mississippi. The company doubled revenues, to about $30 million, in 1986. But VeriFone's products were beset by quality problems, the company was barely producing profits, while in constant need of new financing, and investors were critical of the company's management. As one early investor told the New York Times, VeriFone was led by "management by reactive panic mode." The venture capitalists behind VeriFone urged Melton to bring in a new president and CEO. Melton chose Hatim A. Tyabji. Born in Bombay, India, Tyabji had moved to the United States at the age of 22 to attend graduate school, eventually earning two graduate degrees. Tyabji joined Sperry Corp. as a junior project manager, but in 13 years rose to become president of information systems products and technologies. When Sperry was bought up by