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Issue Date: Vol. 51, No. 12, December 2011, Posted On: 1/9/2012


In Demand: How Bill Recycling And Cashless Payments Work Together


by Chuck Reed
Chuck Reed, MEI, MEI Group, MEI payment systems, vending, vending machine, vending machine payment systems, cashless vending, mobile payments, Google Wallet, payment trends, cash recycler, Coca-Cola Bottling Co., ABARTA Beverage Group, Euromonitor International


Americans take their freedom seriously -- especially their freedom to choose. Think of the mind-numbing number of choices Americans make each day, from coffee (decaf, hazelnut, cinnamon, French roast, latte, Starbucks, Dunkin' Donuts, Maxwell House?) to cars (hybrid, SUV, battery-powered, luxury, pickup truck, sedan, Ford, Lexus, BMW?). Consumers today, especially Generation Y, have come to expect choices in nearly every area of their lives ... even methods of payment.


Consumers have more ways to pay today than ever before: cash, credit, debit, key fob and now mobile payments like Google Wallet. Payment trends from the Federal Reserve Bank of Boston show that all of these forms of payments are used, and that cash is still being used, too. Most convenience stores, drugstores, gas stations and quick-serve restaurants now accept all these forms of payment, giving consumers many easy options for buying snacks and beverages to satisfy their every craving.

MEI Payment Trend Chart

Your customers expect the freedom to pay as they like. As a vending operator, if you don't accept their payment of choice, they'll just give up on your vending machines in favor of the retailer around the corner. Luckily, today's latest payment technologies -- cash recycling and cashless -- provide total payment choice at the vending machine, eliminating the need for customers to look elsewhere.

ACCEPT MONEY, ANY WHICH WAY
Cash-recycling technology gives vending machine customers the choice to pay with the large bills, like $20s, that are most commonly in their wallets. Cashless technology has also become more affordable and widely deployed. Both of these payment technologies have a proven ROI, yet operators are still slow to pull the trigger. Possibly they are confused about which technology to deploy.

In a podcast recorded earlier this year, Buffalo Rock Vending Co. general manager Mike Bunt was asked if operators were hesitant to invest in cash-recycling technology because they anticipated heavy investment in cashless technology, which might therefore render cash recycling unnecessary. Bunt, who has invested in both throughout the Southeast, replied simply, "Operators need to do both."

Bunt continued, "Most of our machines accept cash and cards. They use a cash recycler to make paying with cash more convenient, and are ready for mobile payment technologies when they become mainstream. It doesn't make sense to not equip your machines to accept as much money as you can."

Most consumers carry at least one credit card and large-denomination bills like $20s, which are most commonly dispensed by automated teller machines. In fact, 31% of all paper currency in circulation today is the $20 bill, according to the Federal Reserve. On the other side, only 50% of consumers or less carry $3 in coins or bills -- the only payments accepted by most vending machines today. Clearly these machines are missing 50% of their potential sales, which isn't something operators can afford in this economy.

Many patrons leave those machines frustrated and without the refreshments they craved. They may even give up on the vending machine permanently, switch­ing to fast-food restaurants and c-stores that will take their cards or $20 bills.

And machines equip­ped with recyclers and credit card readers can provide greater product variety because they are not constrained to low-cost items. Higher-priced products such as healthy sandwiches and fruit are salable, and consumers can easily purchase more than one item per transaction. So, not only is it possible to deploy note recycling and cashless acceptance in one device: it may well be advisable.

The adoption curve of cash recycling technology has turned up dramatically in the past year. MEI, my company, has sold more than 20,000 cash recyclers to vending machine operators since October 2008. All operators who have deployed the technology have reported sales lifts, new profit opportunities, increased customer satisfaction and cost savings.

What is cash-recycling technology? The concept is simple: vending machines reuse cash in for purchases ($1 and $5 bills) as change out to customers. Unlike traditional accept/dispense systems that require substantial initial float loads, recyclers accept $20, $10, $5 and $1 bills, and give back $1s or $5s as change, as well as coins.

Field studies have demonstrated time and again that vending machines experience sales lifts simply by adding the ability to accept $5 bills. Adding the ability to accept larger denominations multiplies the sales lift -- an average 20% increase in overall vending machine sales, according to field data. This is especially true for vending machines with item prices above $1.25.

The earliest adopters of cash-recycling technology report sales lifts of 75%, and ROI in as little as six months. For example, the Coca-Cola Bottling Co. of Lehigh Valley, PA, part of the ABARTA Beverage Group, invested in recycling in 2009 and has reported sales increases in every machine equipped with the payment technology.

"Customers have told me firsthand how thrilled they are to receive bills as change instead of dollar coins," said Mike Gallagher, service manager for Coca-Cola Bottling Co. "Sales on those machines have increased, and the technology has been extremely reliable."

Another early adopter was Cotton Candy Vending of Denver. The machine manufacturer discovered that operators were losing sales to customers who only had $20 bills in their wallets. The cotton candy cost $2, so customers would get $18 in quarters as change when they inserted a $20 bill. Customers were unhappy, and change repositories were getting wiped out in hours.

To test the sales impact of recycling technology, Cotton Candy Vending installed cash recyclers in 50 machines as a modular add-on to the existing note validators. Results have been very promising, with high sales lifts and dramatically increased consumer satisfaction.

Buffalo Rock, a full-line vending operator and Pepsi bottler with more than 50,000 machines across the southeastern U.S., has achieved similar success. The company installed cash recyclers in 20 machines in three regions, and saw sales increases from 15% to 75%.

Cash management costs are lower, too, because machines with recyclers require far fewer coins for change. The 30 notes in the recycler replace far more than the equivalent of coins in the coin changer, because the recycler is able to pay back using larger denomination notes rather than smaller denomination coins. MEI estimates that adding a recycler to a machine reduces the required float by at least $80, because the machine uses the bills that customers insert for payments as float.

In family-friendly environments that lend themselves to bundled vend opportunities, recycling can really unlock the potential of the machine. The "entertainment" category in a recent trial produced the highest results: 29% lift for $5 acceptance and 4% lift for $10 acceptance at a vend price range of $2.50 to $3.25.

Hand-in-hand with improving sales lift and reducing cash management costs, cash-recycling technology creates loyal customers. Customers can return to that machine again and again, confident that they can make a purchase with whatever bills are in their wallets.

CASHLESS TECHNOLOGY
Today, almost 80% (77%) of Americans age 18 or older have at least one credit card. Many claim to use a credit or debit card much more often than cash; it's their go-to payment of choice when their wallets are thin. Rising product price points are also driving consumers to choose credit and debit cards for vending transactions.

Consequently, pairing convenient cash acceptance using a cash recycler, along with cashless technology like card swipes and near-field communications readers, lets operators offer total payment freedom ... never again having to turn away a customer because of limited payment options.

The National Automatic Merchandising Association estimates that fewer than 5% of the universe of U.S. vending machines currently have "open" cashless readers, but those familiar with the industry estimate the number has nearly doubled in the last year alone. Part of the reason for the increasing rate of investment is NAMA's cashless program, which offers operators favorable processing rates for cashless transactions.

NAMA and other organizations allied to the vending industry have also helped operators see the value of cashless by creating calculators to help determine annual net incremental operating profit per machine as well as incremental sales. Both NAMA and Vendors Exchange International (Cleveland) estimate that cashless will bring a 20% incremental sales increase.

There are now guidelines as to the most appropriate sites for cashless readers according to their demographics: colleges and universities, entertainment venues, hospitals and healthcare facilities, white-collar workplaces, upscale shopping centers and hotels, military facilities, and travel centers like airports and train stations. Cashless readers are appropriate for high-value machines in less secure locations, as well as for machines targeted for telemetry deployment for other purposes such as remote monitoring.

Guidelines have also emerged recently regarding what product price point makes the most sense for cashless payments. Field data show that cashless makes more sense for vend prices of $1.25 and above, and can provide significant sales lift for prices above $1.75. Like cash recycling, card readers also have been shown to encourage multiple purchases with one transaction: upsales. Data show that any machine that can produce $1,000 a year or more in cashless sales will achieve payback for the investment and operator profitability.

Some of the past reservations about investing in cashless also have been recently dispelled. One such concern was that offering cashless cannibalizes cash sales. For bulk water and ice provider Aqua Fill, this was not the case. After installing readers, Aqua Fill's cashless sales quickly escalated, but the level of cash-based sales remained level. "Our figures indicate that the cashless sales are mostly added revenue," said Ken Strong, vice-president of corporate development for Aqua Fill. "From what we've heard from customers, they like the convenience of paying by card. And quite frankly, we've found that accepting card payments reduces our operating expenses and increase the bottom line."

The benefits of offering cashless payments translate into hard numbers. Consider this scenario: for a machine generating $60 a week in gross sales (with a $1.25 vend price), operators will see a $615 per machine sales lift annually using both a credit card reader and a recycler. But, with a higher average vend price of $2.50, operators can increase sales annually by $2,349 per machine. Multiply that across an entire region of machines and the revenue growth is substantial.

PREPARE FOR THE FUTURE
The future of cashless technology goes beyond just card readers. Today, mobile payments are emerging in the U.S. with the recent launch of the financially backed Google Wallet app, which lets consumers make purchases with just a wiggle of their smartphones.

Jupiter Research predicts that the money flow through the mobile payments industry will reach more than $600 billion by 2014, but this technology is already popular in other parts of the world. Japan, for instance, was the first country to embrace mobile phones to make purchases. Since 2004, Japanese consumers have been making purchases in grocery stores, gas stations, retail outlets, and at venders with just a wave of their smart phones. Today, more than 60 million subscribers in Japan have cellphones equipped with Sony's near-field communication chips.

Euromonitor International projects that high-volume and low-priced purchases offer the greatest opportunities for mobile payment success. This bodes well for vending operators, who sell large quantities of under-$3 items.

Google Wallet will likely drive demand for cashless vending purchases, particularly from Gen Y consumers. These consumers already use their smartphones for a wide range of functions on college campuses -- for example, as a dorm room key, as a payment device, as a student identification card, and more. If operators ignore new forms of payment, they risk losing sales from tomorrow's buyers.

American Express, Discover and Visa have all licensed their NFC technologies to Google in anticipation of the mobile payment app going mainstream quickly. Other vendors like PayPal are piloting their own mobile apps. Integrate contactless payment acceptors now, so that your vending machines are equipped before the technology is in great demand.

Machines equipped with contactless readers have a competitive advantage because they are able to offer discounts, coupons and rewards through the Google Offers app that is bundled with Google Wallet. Like Groupon and Living Social, the app provides real-time discounts relevant to sales transactions. This functionality is particularly attractive to the Gen Y buyer. Continually reinforced positive customer experiences will pave the way for a prosperous relationship with all consumers.

Many operators don't realize that vending machines that now accept contactless payments automatically will work with Google Wallet, and vending machines that already accept swipe cards can add contactless technology (i.e., NFC) very quickly and inexpensively by simply replacing the bezel. By doing so, operators will offer consumers greater payment choice.

In the vending world, providing freedom of payment choice not only improves the customer experience, it also guarantees that you will never miss out on a sale.


CHUCK REED is marketing director of MEI's vending channel and has more than 12 years experience in the trade. He oversees all marketing efforts for MEI's vending, amusement and bottling products, including Easitrax hardware and software. He holds a bachelor's degree in business administration from Gettysburg College and an MBA in marketing management from St. Joseph's University (Philadelphia).


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