V-Commerce

Recognizing that consumers have become comfortable with electronic payments for small dollar purchases at quick service restaurants, online websites, and local convenience stores, vending machines in the US need to provide payment flexibility to remain competitive. Historically, vending operators have been hesitant to install electronic payment technology given the cost of requisite hardware, software, and netware as well as associated transaction processing fees. Given advancements in payment processing economics, coupled with improved category management techniques, cashless vending is more feasible and attractive than ever. Operators are witnessing a positive movement to cashless vending accompanied by real opportunities for growth. The combination of new product offerings, convenient methods of payment, accelerated transaction throughput, and overall improved machine operations are among several key factors influencing the transition to cashless vending.

Key Factors

Self-Service Economy - pay at the pump, ATM machines, self-checkout kiosks, and e-commerce are contributing to positively influencing the drive toward cashless vending. Soda and snack machines are just the start for electronic payments in the unattended point-of-sale vending channel. Machines that sell travel tickets, electronic gadgetry, personal grooming supplies, clothing items, and other non-traditional vending products are also candidates.

Machine Interface - implementation of MDB technology within the machine electronics simplifies the connectivity of peripheral equipment and enables less expensive, more robust hardware and software for transaction processing and data capture a result of MDB technology. Other advances in technology, such as cost-effective Ethernet and/or cellular remote machine connectivity also help alleviate additional deterrents to electronic payment acceptance.

Competitive Influences - the ability to conduct cashless transactions at convenience stores, online websites, and quick service restaurants has contributed to consumers seeking identical payment options at all points of purchase. Given the ubiquitous acceptance of credit and debit card settlement, consumers likely desire and expect the same payment options at vending machines. Many operators have cited the value of cashless vending as a competitive advantage in attracting new accounts or retaining (and enhancing) existing accounts. In addition, the trend toward consumption of well-established, branded products - at premium prices - also can help drive the move to cashless settlement.

Processing Fees - transaction fees on small dollar value items have been a major deterrent for implementation of cashless vending applications. Providers now offer a fixed transaction fee to help ease concerns relative to unfairly reducing already small contribution margins on small dollar transactions. Setting reliable interchange and processing fees on micro-transactions $5 or lessprovides a long awaited incentive for vending operators. Applying a flat 5% transaction fee regardless of the value of a transaction is expected to increase number and size of purchases. A 5% transaction fee is more prudent than the traditional variable fee applied in other industries computed as a percentage of the transaction value plus a few cents. It is no coincidence that these new rates and fees have become available at the same time as contactless credit and debit card readers.

Communication Fees - the ability to transfer machine-level item and event data, as well as electronic payment records to an automated clearinghouse (ACH) or processing center at a cost ranging from $6-10 per machine per month renders cashless vending more financially appealing than earlier solutions. Communicated data enables a host of remote machine monitoring applications in addition to deferred settlement.

Hardware Costs - reduced hardware costs for electronic payment capture and processing can be accomplished through installation of a combination reader device. A combination reader may serve as a bill validator, magnetic card reader, and contactless RFID reader, or a subset of the three, all in a single unit (e.g. MEI Combo, CoinCo Bill Pro, USAT ePort, JCM, etc.). An additional benefit of a combination device is that it may not require an additional bezel in the machine facing since most are designed to fit the dedicated bill validator opening. A combo unit may also resolve concerns related to hardware installation and maintenance.

Cashless Purchase Habits - with cashless purchasing consumers tend to spend more money and complete multiple purchase transactions. Cashless vending suppliers credit higher transaction averages research by USAT, for example, finds that only about one-fourth of US vending machines sell items for $1 or more. With electronic payment technology claims of higher sales and product velocity have been documented. While the consumer enjoys the convenience of faster transaction speeds, the vending operator benefits from reduced cash management and increased average purchases.

Processing Incentives - an additional incentive to the adoption of cashless vending is the recent change by major card processors that transactions of less than $25.00 no longer need to be accompanied by a required PIN code or authorized signature. While adoption of cashless vending has been slower than expected, recent actions by Visa and MasterCard, designed to stimulate the settlement of small dollar purchases to cards, is expected to impact implementation decisions.

Security - with cashless vending there is no cash, minimal auditing, reduced possibilities of fraud, and no storage of proprietary data. While the anonymity of cash is appealing to some consumers, the fear of theft or fraud related to cash management is real to the vending operator. The costs associated with cash collection, sorting, counting, and processing can be excessive. With cashless vending the focus shifts away from monitoring cash to transmitting encrypted electronic transaction records.

Contactless Payments - The concept of contactless payments is not new. Domestically, Mobil Speedpass, which relies on RFID (radio frequency identification) technology, has been available since 1997. In addition, many US state and federal highways offer highway toll paying via RFID interface. It is important to note that the infrastructure necessary to support contactless cashless payments is minimal given existing magnetic stripe architecture. Contactless transactions are capable of integrating with existing credit card processing networks while offering additional information-capture capabilities and support for new features and products such as integration with prepaid accounts and loyalty programs.

Contactless transaction technology allows customers to authorize and settle transactions by holding, tapping, or waving RFID media within a limited proximity of a specialty scanner designed to capture radio wave transmissions. While the implementation of this technology is in its infancy in the US, it has been successfully implemented in many European and Asian markets. The contactless process involves waving a credit card with an embedded RFID chip near a scanning device that connects to a settlement processor. Purchases can be made instantly without the need to swipe a magnetic stripe or a sign a signature panel.

The specific form of RFID, technically classified as ISO 14443, for contactless transactions is short range (several inches or closer) and is data encryption-enabled during transmission, thereby substantially increasing security over conventional electronic data capture. Contactless media is available in a variety of formats (tags, fobs, and cards) and contains a small microchip and radio wire antenna. A variety of sophisticated scanners including, ViVOtech readers which have been integrated into vending machines through USA Technologies’ e-Port cashless payment system, have been approved by electronic payment companies as part of a comprehensive program. In the United States, contactless offerings include MasterCard’s Pay Pass. American Express's Express Pay, and Chase Bank’s Blink.

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