In 2006, the entire retail market changed with the introduction of Chip and PIN technology. This technology provides both the ability to validate the card via a payment terminal and the ability for card holders to be verified automatically, via the PIN, without the need for a cashier to check the signature. This was nothing short of a revolution in the UK payments industry.

PIN numbers had been introduced on bank cards for withdrawals much earlier, with great success. The weak link in the system at that time was the reliance on the magnetic stripe of a card - which can easily be read and ‘cloned' to create a card that seemed identical to the ATMs of the time. Because of this, the EMV standard was created in 2002, upon which Chip and PIN is based. Adding smartcard technology made the cards impossible to copy. Most importantly, therefore, Chip and PIN was designed to help the industry battle fraud that had started to mire the industry with considerable expense.

With the advent of chip and PIN, vending machine providers have been able to alter their strategy. Higher value goods and multiple payments types have broadened the sales strategy.

However, how does the public view kiosks two years after the change? Do they even notice there has been a change or has it merged into everyday life and expectations so seamlessly, that there is a relative disregard for the changes made around them? To answer this, we commissioned some independent research.

Vending research results

1,000 British consumers were surveyed on their spending habits in three key areas: the maximum amount they would be willing to spend on a single purchase, what type of goods they would be happy to buy and what their preferred methods of payment would be. Overall, the research shows that the UK is starting to catch up with the US, where kiosk usage is already widespread, but there are still market opportunities in the UK which haven't been seized.

The research assessed different ways that UK shoppers pay for goods - from coins and notes, to debit/credit cards, to mobile phones. Although coins are still overwhelmingly the most popular means of payment (96 per cent being happy to use them), over a third (34.5 per cent) of those surveyed would use debit/credit cards in a vending machine. Rather surprisingly, ten per cent saw the convenience in using Near Field Communications (NFC) payments through their mobile handset - a technology which has only just launched in the UK.

This consumer acceptance of new technologies which offer greater convenience is essential to the expansion of the vending market. Likewise, retailers must also offer such payment means, if they are to capture all available customers.

Overall, 83.5 per cent of respondents were happy to use vending machines. Though this figure is high, the UK market itself still doesn't compare with that of the US or Japan. If we look at the US model as being most culturally similar to our own, it is surprising that kiosk use is higher in America than Britain. So why? The answer is in the status quo of the British industry.

For years, the content of vending machines has altered little, due to the spend ceiling consumers have. The ability to use cards in vending machines has started to change the market, but in many cases, the perception appears unchanged. When asked what their spending ceiling would be in a vending machine, 92 per cent said they would not spend more than £7. However, over half (52.5 per cent) are happy to buy cinema, train and theatre tickets from vending machines - many of which cost more than £7.

Interesting insights into the age demographic

In conducting this research, it has been interesting to note the variations in consumer spending between each age group. It would not be unfair to assume that uptake of new payment methods and purchasing of high value electrical products (such as digital cameras, MP3 players and mobile phones) would be highest among the 18-24 years age bracket. However, we found that this wasn't necessarily true.

On average, 6.8 per cent of respondents were happy to purchase high value electricals from vending machines. The smallest age bracket to embrace this was the 18-24 age group with only 4.3 per cent. Quite surprisingly, they were followed by the 45-54 bracket (5.6 per cent) and then the 55 and over with 6.5 per cent (see graph 1).

When looking at various payment methods and those that they would be happy using, only a quarter of the 18-24s wanted to use credit and debit cards. Indeed, the group most keen to use this method were the over 55s with 43 per cent (see graph 2). As expected, the oldest age group were least keen on using NFC technology to pay, but again, they were closely followed by the youngest category. It appears that these means of payment should be targeted more at the 25-44 age brackets, over one in ten of whom would like to use this method (see graph 3).

Contactless technology - the future of payments

The payment industry, like many consumer-focused markets, is always striving for innovation and convenience for our users. All too often, innovations are difficult concepts to explain, but are quickly understood once they are used. Technology of all kinds can be years in the making, yet full adoption can take a fraction of this time. Just as with the take-up of CD and DVD technology, contactless transactions will become the norm almost overnight once consumers see the considerable benefits the technology offers them.

Consider the widespread adoption of electronic/chipped bank cards - once adoption was universal, it seemed incomprehensible that someone would want to pay by cheque at the till. It was so slow, so why would anyone choose to pay that way? However, when cheques, cash and unchipped bank cards were the only way to pay, we didn't see the inconvenience in waiting a few minutes for a transaction to be completed. Instead, we marvelled at how we could pay considerable sums of money without the need to carry a roll of notes.

So what's next for the payment industry and how will it affect us all? Contactless payments are the next innovation. Using similar technology to the UK's Oyster Card for transport networks, the cards can be used to pay for items by simply placing them near a reader. The most important feature is that contactless transactions typically do not require a PIN entry. This is for use when purchasing low value goods to significantly speed up the transaction process, thereby offering the consumer greater convenience while retailers benefit from faster throughput of sales.

Major UK banks are already in the process of rolling out these cards in the UK and, by the end of 2008, millions of consumers were expected to have been carrying them. Once they are, they will want to use them, and the kiosk market is an ideal adopter, due to the large numbers of kiosks which currently vend low-value goods.

Following on from contactless cards, but using the same technology, the mobile phone market will soon see the launch of a large number of NFC-enabled handsets. These will enable consumers to use their phones in much the same manner to make a purchase as with contactless cards, but will provide many other benefits ensuring rapid adoption.

So, why should the vending industry take note of these new payment methods? Firstly, there is the convenience of using contactless. The transaction takes place more quickly than cash or ‘contact' card transactions, which, in busy areas, will allow a greater number of consumers to use the machine.

Secondly, once contactless cards are ubiquitous - which will be the case during 2009 - it will be viable to provide cashless vending systems that only allow contactless card transactions. This will change the logistics landscape of vending forever by removing the need for complex and costly cash handling.

Additionally, the design of contactless allows for greater security. As there is only the need for a contactless reader, rather than card slots and PIN buttons, vandal-proofing the device is much simpler, as is preventing water or dust ingress.

The revival of the UK kiosk market

The emergence of these new payment methods, from Chip and PIN, to contactless and NFC, are starting to open up the vending market again. Consumer confidence in payment technologies and kiosks is on the rise. As adoption of these technologies increases, there will be an amount of upheaval in the industry, but it will bring with it greater opportunities, both in the increased targeted consumer base and the product ranges on offer.

www.ingenico.com

Ingenico is the world's leading provider of payment solutions, with over 15 million terminals deployed across the globe. Delivering the very latest secure electronic payment technologies, transaction management and the widest range of value added services, Ingenico is shaping the future direction of the payment solutions market.

Leveraging on its global presence and local expertise, Ingenico is reinforcing its leadership by taking banks and businesses beyond payment through offering comprehensive solutions, a true source of differentiation and new revenues streams.

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