ARLINGTON HEIGHTS, IL — Incredible Technologies here has teamed up with Chase Paymentech Solutions to support credit card transactions on IT’s Golden Tee LIVE platform. As VT went to press in late January, IT’s new credit and debit card service is processing more than 1,000 transactions daily, a number expected to increase rapidly. The service launched on Jan. 5.
Paymentech, a joint venture between JPMorgan Chase & Co. and First Data Corp., is a leading electronic payment technology company whose overall business is expected to process approximately 13.1 billion transactions annually, with more than $500 billion in annual bankcard volume in both the United States and Canada.
IT’s executive director, Andy Kniaz, predicted that credit and debit card acceptance will lift same-machine transactions between 15% and 20%. “All an operator has to do is turn on the machine and it will process credit cards,” he said. “No work or new bank account is required. The accounting is very simple to understand, and operators will find it fast and easy to make a proper split with their locations.”
IT’s cashless technology also simplifies the transaction process for players, who have the option of requesting an email receipt for their records at the game terminal. Additionally, all transactions are posted to players’ security-protected accounts at goldentee.com and are itemized on their monthly credit card statements.
In merchandise vending, the ability to add cashless payment functionality to equipment is the direct result of affordable wireless networking technology. In the coin-op amusement sector, IT’s Golden Tee LIVE platform is the first video game product to use a wireless Internet connection to support a wide variety of features for both players and operators.
According to Kniaz, IT can add several cashless payment systems because the Golden Tee LIVE network is built on the company’s secure ITNet backbone through a permanent connection. In addition to credit cards, gift cards and player accounts are among the cashless options presently supported.
The executive director noted that Golden Tee LIVE, which always shipped with a card reader, had the ability to read credit and player cards to identify registered users when it launched in September 2004. And this holiday season, the company sold some 10,000 Golden Tee LIVE gift cards to players and operators.
We are very pleased with the performance of our wireless networking technology,” Kniaz said. “A great majority of our customers have benefited directly from low online fees and a stable infrastructure that allow our games to be deployed easily in a variety of environments. Whether the game is on Sprint’s wireless network, or linked by a local broadband provider, we are able to offer a flexible and secure solution so the cashbox can benefit from gift cards, player account money and credit cards.”
Small-volume credit and debit transactions, Kniaz explained, are classified in two groups: small payments and micropayments. A micropayment transaction is typically between $1 and $5, while a small payment describes transactions up to $20. On Golden Tee LIVE, players typically purchase nine- and 18-hole rounds of video golf for glory or for prizes for $3 to $5 per game. For its credit card solution, IT has developed a seamless method of processing micropayments, and payment restitution to the equipment owner.
At the point of sale on location, the player chooses the type of game he or she would like to play and swipes their card. Card information is encrypted and sent from the game to an IT server, which in turn sends the account data to the acquiring bank (Chase, where IT’s merchant account is held). Chase sends the card information through Visa or MasterCard – also known as the “card association” – to the bank that issued the consumer’s credit card. The issuing bank checks the standing of the card and approves or declines the transaction; it also captures the funds from the customer’s account and sends the message back to the card association. The card association forwards the approval or decline message to the acquiring bank, which in turn sends the information back to IT and the game.
“This process takes only few seconds,” said Kniaz, adding that IT has built in a secondary process wherein it submits a batch of credit card transactions to the acquiring bank, Chase settles those accounts with the issuing banks, and the money from the various credit card transactions are deposited. From here, IT does a monthly accounting process and direct-deposits money into the operator’s bank account from any and all cashless payments.
Kniaz points out that IT is the merchant of record for credit card transactions. “We deal with all of the overhead on behalf of the operator including credits and charge backs,” he explained. “For many years, operators have set up bank accounts when they become an online ITNet operator. In the past, these accounts have been used by IT to sweep monthly online fee charges, and now we use these accounts for both fees and cashless payment credits. We reconcile the fees with the owed credits and then if there is a surplus, we deposit the funds directly into the operator’s bank account. In this way, initiating cashless payments on Golden Tee LIVE was a natural extension of our existing business, and operators were comfortable with the arrangement.”
To operators who decide on using the credit card feature, IT suggests setting up savings accounts, which usually bear no minimum balance requirements or fees associated with them.
As part of its cashless initiative, IT has developed a tracking system, which it calls a “virtual meter,” that records cashless transactions on Golden Tee LIVE games. This virtual meter behaves just like a mechanical meter, only it provides onscreen data of all payment methods and fees on the screen. The video game manufacturer is selling the virtual meter feature as a kit upgrade that includes a new CID (cabinet identification device) and switch.
Before entering into a contract with Chase, IT had to meet the requirements of the Cardholder Information Security Program by rebuilding its network infrastructure and its security procedures. CISP compliance is required of all merchants and service providers that store, process or transmit Visa cardholder data. The program applies to all payment channels, including retail (brick and mortar), mail and telephone order and e-commerce. To achieve compliance with CISP, merchants and service providers must adhere to the Payment Card Industry Data Security Standard, which offers a single approach to safeguarding sensitive data for all card brands.
“After we were sure we were compliant,” Kniaz said, “we hired an accredited third party and had a security audit performed so we could be certified as CISP compliant. Concurrently we worked for some time on the game interface and the actual sending of the data to Chase. We had to buy and build new servers, increase staffing, install a dedicated communications line between us and the bank, set up merchant and bank accounts, and fill out paperwork. In short, we had to jump through some hoops, but overall we are very pleased with how things turned out, and Chase has been a great business partner.”
To make the cashless feature attractive to operators, IT created a system that charged a low 7.2% flat fee per transaction. The flat fee, IT underscores, carries no additional surcharges.
“In general, when you price out credit card transactions there is a per transaction surcharge tacked onto the standard percentage,” the executive director explained. “As an illustration, people may be familiar with rates like 2% + $0.30 per transaction. Using this rate makes a lot of sense with a $100 transaction because in high-dollar purchases, you are worried about the percentage and not the 30¢.
“If you flip the financial model to a $4 transaction,” he continued, “you become far more concerned about a 30¢ surcharge. So, using 2% + $0.30, we can figure out the relative flat percentage fees: on $100, 2% + $0.30 becomes 2.3% of the transaction, but on $4.00, 2% + $0.30 becomes 9.5% of the transaction.”
In exchange for the pass-through fee, Kniaz added, IT deals with all of the infrastructure setup, security issues and such customer service concerns as charge backs and credits.
The IT executive believes that credit card usage will appeal to consumers beyond its hardcore playing audience. “Take a look at today’s business landscape,” he instanced, “small and micropayment transactions are two of the fastest-growing areas for credit card use. Pepsi, McDonalds, Burger King and other large businesses are turning to credit cards to boost sales where the total ticket amount could be from $1 to $20. Businesses, IT included, are moving in this direction because people in the U.S. are carrying less and less cash, and want buy the products they want using a variety of payment methods.”
Kniaz cites a proven statistic that projects 15% to 20% increases in gross sales when a cash-only business enables credit card and debit transactions. “In other words,” he said, “people buy more and more often at businesses enable cashless payment. If this means that our operators will earn 15% to 20% more money in their cashbox by accepting credit cards, then we thought it might be a good addition to Golden Tee LIVE.”
IT’s executive director also points out that cashless capability addresses the change that has occurred in the location base served by the industry. “Several years ago when most amusement pieces were in arcades, the culture was cash, the average users were usually teenagers and credit cards were not necessary. The focus has shifted now that we’re putting more games in street locations where many people are eating and drinking on a credit card… and our user-base is primarily between 21 and 35 years of age.
“If a bar or restaurant takes a credit card, then our game should,” Kniaz concluded. “It’s a natural extension of the environment. If a customer does not have cash in his pocket, he still should be able to play a game of Golden Tee instead of walking away. Our business is surrounded by every competing form of amusement and distraction that our customers encounter in locations, so we must lower the barrier to entry at any cost.”