The role of payment terminal resellers -- and whether they can offer significant competition to global providers in the local market -- is taxing New Zealand's competition regulator.
The Commerce Commission announced it has failed to reach a decision on an application by payments terminal specialist Verifone to acquire Smartpay's NZ business within the 40 working day statutory time-frame.
The regulator released a statement of issues setting out competition concerns it had identified following an initial investigation.
While there are a number of redactions to the statement and an attachment that remained confidential, it is clear the regulator wants to understand more about whether and how resellers can compete with the large international terminal companies, especially through customising products and services to appeal to niche markets.
ComCom was also looking at the negative impact the proposed transaction may have on payment switch operator Paymark.
At present the main competitors to Verifone and Smartpay at the SME level were resellers, the statement said.
However, unlike Verifone and Smartpay, resellers do not import terminals themselves. Instead, they purchase terminals from wholesalers (such as Skyzer and Verifone) and sell these to merchants.
"Most evidence we have received to date indicates that resellers find it difficult to compete on price with Verifone and Smartpay in the SME market," the statement said.
"This was the view of several market participants we spoke to. However, one reseller considered that it was able to compete on price with Verifone."
Examples of where resellers were competitive were in being able to offer better support and service to merchants.
Resellers may also have an existing relationship with the merchant for another service, such as supplying other point of sale services, which they can leverage to sell terminal services to the merchant as well.
"Although Verifone and Smartpay appear to be the most aggressive price competitors, it is possible that resellers could be equally competitive so long as merchants value the additional service they provide," the statement said.
"That is, resellers may be competitive at a quality-adjusted price and, if so, may be able to each individually expand to gain merchants if the merged entity raised its price."
ComCom said it continued to assess the extent to which resellers could replace the lost competition from the proposed acquisition.
"One factor that we have been considering is that many resellers appear to be somewhat dependant on Verifone, and this could affect the extent to which resellers would constrain the merged entity post-transaction," it explained.
"Verifone wholesales a large proportion of the terminals that resellers supply to merchants and also processes the transactions for those terminals."
Verifone, therefore, would not lose all the profit from a merchant that switched from Verifone to a reseller who offered a terminal on the Verifone switch.
"This would not be the case where the reseller, or other competitor, offers a merchant services that do not rely on a Verifone terminal or switch."
ComCom invited further information on the constraint that resellers provided on Verifone and Smartpay.
Other issues being considered were whether other major players that operate in the terminal supply chain could compete more closely for SME customers, for example, whether Windcave could focus more on SME customers and whether Ingenico might start to compete directly for merchants.
Smartpay also currently uses Paymark to process its transactions but Paymark stands to lose a significant number of those transactions if Verifone were to switch Smartpay merchants onto its own switch after the transaction is completed.
"Due to the high fixed costs associated with running a switch, we consider it likely that [Paymark's owner] Ingenico will be motivated to maintain volumes of transactions over the Paymark switch," ComCom's statement said.
"We are considering whether there are any significant barriers that Ingenico would face to start competing for SME merchants directly, in order to maintain these volumes."
In that regard, Verifone submitted that it expected Ingenico would aggressively seek to expand in the retail terminal market, either directly or through its subsidiary Bambora.
"The evidence we have is that market participants expect Ingenico will enter the market (in some form)," ComCom commented before a redaction.
"One reseller considered that the proposed acquisition could lead to a price war between Ingenico and Verifone," the statement continued.
"Another reseller believed it would be a natural progression that Ingenico will go direct to market."