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Issue Date: Vol. 53, No. 7, July 2013, Posted On: 6/27/2013


The Revolution Continues: Operators Must Keep Up With Wireless And Cashless Advances


By Ron Spinella, Apriva - Exec. VP of Unattended Payments
TAGS: Rinaldo Spinella, Ron Spinella, Apriva, wireless transactions, gateway services, mobile payments, cashless vending, vending machine operator, cashless technology, PCI-DSS security structure, GSM/GPRS 2G, EMV EuroCard, MasterCard, Visa, vending community, cashless technology


Over the past few years, those involved in the vending industry were exposed to one consistent story: Pay attention to cashless vending -- it has enormous potential to really change the economics of the industry. Providers readily acknowledged that accepting card-based payments could be a game-changer for operators. Wider margins, lower operating costs and, of course, bigger profits were in the offing. All that was needed was for operators to integrate these technologies into their businesses.

But, as is usually the case with new technology, it took some time for cashless vending to gain real traction. Cashless usage rates hovered around 10% as economic conditions and overall market uncertainty hindered adoption.

But some time in 2012, things began to change. Operators sat up and really started to take notice of cashless vending, to see how they could leverage the technology to improve their overall business performance. That 10% usage rate quickly escalated, and today we're on the cusp of a consumer cashless usage rate that is nearing 30%.

With this substantial growth, some may think that the hard work promoting cashless vending is over. They believe that momentum has kicked in, and once the successes of the first wave of cashless-adopting operators are shared around the industry, that 30% will climb exponentially to the point where cashless vending becomes ubiquitous.

While this may happen at some point, there are a number of new dynamics that have the potential for inhibiting -- and even derailing -- this growth. Cashless technology is a result of great innovations in wireless and data security technologies, and the pace of innovation continues without letup. The wireless network that transports the transaction, which was state-of-the-art just a few years ago, may become obsolete in the next 24 months. And the PCI-DSS security structure that has protected merchants and consumers from fraud may be shortly subsumed by new innovations.

The economic benefits of cashless vending are proven and long lasting, but it is now imperative that operators identify and choose technologies that will continue to serve their needs well into the future.

THE 2G-3G-4G SHUFFLE

One area that bears watching involves the cellular networks that transport transactional data. For years, mobile operators relied almost exclusively on GSM/GPRS 2G (2nd generation) networks to handle the bulk of voice and data traffic for consumers, businesses and industrial needs. The 2G infrastructure would have been more than sufficient -- had it not been for the introduction of the smartphone.

The bandwidth-hungry smartphone -- and the ever-more-popular tablet -- have been putting a strain on the mobile networks that few could have envisioned. An infrastructure deployed seven or eight years ago simply can't be expected to support the exponential growth in voice and data traffic. Even as the mobile operators introduced 3G and now 4G technology to address the demands for greater bandwidth, faster data transmission speeds and more efficient handling of voice and data, most transaction-based applications, such as vending, continued to work quite well on the older but robust and reliable 2G networks. However, as with every technology evolution, older systems become less cost-effective and profitable over time, and are removed from service as a normal course of business. With no technical or business reason to turn down the entire GPRS 2G network at one time, the wireless network operators are opting for a longer process that will impact different geographic areas at different times -- but make no mistake, the GPRS 2G networks will all go away.

While the long-term perspective of 3G deployments for the vending community is certainly positive, there are a few things that operators should monitor in order to make the transition to 3G as smooth as possible for their businesses.

The first issue revolves around the physical locations of vending machines. While it has been the practice of the carriers to make every attempt to notify customers in a specific area that they are turning off GPRS 2G towers, the unfortunate reality is that there have been many, many instances where customers were not informed, and lost a substantial amount of business due to an interruption in wireless coverage.

When GPRS 2G towers are turned off, in most -- but not all -- scenarios, the traffic is handled by nearby GPRS 2G towers. While the disruption to low-bandwidth applications like cashless vending should be minimal, the transition is in reality an inexact science. It bears saying that operators should carefully monitor their machines to ensure that cashless transactions and telemetry data are regularly transmitted, and that all wireless operations continue undisrupted.

Another item that requires attention is the actual radio in the vending machine that transmits the cashless transactions for processing. Most cashless vending systems that were installed through 2011 came equipped with GPRS 2G radios. While these work well in the majority of locations, the inevitable transition from 2G to 3G will render them useless. Cashless vending operators, especially those just getting exposed to the technology, need to make sure they have the proper equipment to conduct their operations in the new environment. Otherwise their cashless vending experience will likely be short -- and not at all sweet. It is important that operators work with their providers to ensure that their radios, and in fact all of their hardware, can support the business through this transitional phase.

THE ABCs OF EMV

In addition to the migration in cellular networks, another emerging technology promises to have a long-lasting effect not only on vending, but also for any merchant who accepts a credit card for payment.

All of the major card brands have announced plans to adopt EMV (EuroCard, MasterCard and Visa) technology and processes in the United States. EMV makes use of payment cards that have small, embedded chips. These chips contain similar information to what is currently encoded in the magnetic stripes of cards, but by design the chip makes it very difficult -- if not impossible -- to copy, thus providing merchants and consumers with a payment instrument that is exceedingly secure. In fact, EMV has already been in use for a number of years in many international markets, and according to many industry experts, has been very effective in mitigating fraud.

So how does EMV impact the vending community?

With the introduction of the new EMV cards, all merchants need to make certain that their payment-accepting terminals -- the card accepting bezels installed in the vending machines -- are EMV ready. This means that the machine can accept the card payments from a card with a chip or as a card swipe as is commonly used today. EMV also enables contactless transactions that can support "tap-and-go" payment.

Not having EMV-ready devices can prove problematic for the vending operator, particularly if they are not aware of the change in liability provisions of their merchant agreement. Under the EMV model, liability for fraudulent transactions will eventually transfer to the merchant, or in the case of vending, the operator. But the highly secure nature of the EMV card is expected to virtually eliminate many of the fraud risks common in the marketplace.

If the U.S. achieves similar results to those around the world, most merchants will see less exposure to the cost of fraud under EMV. While the potential threat of illegal activity remains small, it just makes sense for all merchants to remain fully compliant with EMV mandates, and ensure that their businesses are fully protected against fraud. Reputable cashless vending providers should be fully up to speed on the requirements of EMV, and should be an invaluable resource to ensure that operators don't experience any hiccups when EMV takes effect.

WORTH THE EFFORT

There's no doubt that cashless vending continues to gain traction in the marketplace. With a consumer usage rate that had hovered for years around the 10% level, we're experiencing sustainable growth that is now reaching 30%.

The signs look promising for further adoption -- but only if operators are vigilant about the cashless vending technology they're implementing to manage these services. Having obsolete equipment, particularly in a time of sweeping innovation, could be calamitous.

Consider that increased demand for cellular services mean that carriers are transitioning from 2G to 3G networks. Vending operators should check with their providers to make sure the radios on their vending machines, and the locations themselves, can handle this switchover.

Operators should also ask their providers about EMV. Is their card-accepting hardware EMV-compliant? If not, the operators will be required to use bezels that meet EMV standards, or face potential financial consequences.

The good news is that none of these fixes are overly expensive or complicated. And once implemented, operators should be able to enjoy the operational and economic advantages of cashless technology for many years to come.


Apriva, Ron Spinella

Rinaldo (Ron) Spinella is executive vice-president and general manager of unattended payments solutions for Scottsdale, AZ-based Apriva, a provider of end-to-end wireless transactions, gateway services and secure information solutions. AprivaVend is a comprehensive cashless payment solution for vending machine operators.


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