Payment terminal maker Verifone says it will stop offering a dongle directly to small merchants that enables them to process customer payments using a smartphone or tablet.

This is the first sign of fallout from a market that has seen a high level of interest in the US. Square is the highest profile participant but others include PayPal and Intuit.

“Customer acquisition costs, either through search engines or TV advertising cannot and will never justify the razor thin margins produced by merchants with infrequent volumes and extremely high attrition,” Verifone’s CEO Doug Bergeron said about the market during a quarterly call with analysts.

Instead of going direct to small businesses, the terminal maker will offer its Sail platform, which is built around the dongle, indirectly through banks and merchants.

Verifone’s change of strategy is indicative of what has become a highly competitive market with low barriers to entry. Other dropouts are likely given the relatively high numbers who have entered the market to date.

Verifone’s Bergeron went further in his analysis of the market: “My belief is that the only possible survivors in this fundamentally challenging business model will be companies who might have an opportunity to provide other services to these micro-merchants.”

Market leader Square has branched out from accepting payments to enabling consumers to make purchases via its own app. The company has also been bolstered by the backing of Starbucks.

Verifone’s indirect approach means it will no longer be responsible for handling fraud and other problems generated by small businesses. It also plans to sell the customer acquisition, risk management and customer billing assets it developed for the Sail initiative.