The next big thing in vending won't be a trendy new product or delivery system. Rather, it will appear when we figure out just how stationary vending systems will adapt to an increasingly mobile world. The rapid growth of electronic transactions, particularly in the mobile payments sector, has produced promising advances and not a few intriguing challenges for the vending industry.
From the vantage point of the Electronic Transactions Association, which represents more than 500 of the nation's most innovative payments companies, we see an incredible level of activity in mobile payments. The reason is clear: U.S. consumers love using their mobile devices. There are now more mobile phones in service in the United States than there are people, with 321 million wireless subscriptions for 314 million Americans. Worldwide, there are a billion smartphone users, and that number is expected to double by 2015.
Mobile payments are on the rise, too. More than 21% of mobile device owners used mobile payments in 2012, up more than threefold from just four years ago, when only 6.9% were utilizing mobile payments.
Gartner Inc., a research firm, predicts that in North America, the number of mobile payments users will nearly triple in the next four years, from 32.7 million in 2012 to more than 90 million in 2016. Gartner Gartner predicts that in just four years, more than 448 million users worldwide will be utilizing mobile payments technology for an estimated $617 billion in transaction value. The Yankee Group research firm is even more optimistic, predicting that by 2015, worldwide transactions via mobile payments will exceed $1 trillion.
Whether it's $600 billion or closer to a $1 trillion, few would argue with the prediction that mobile payments will be the primary mode of payment by the start of the next decade. As more consumers carry mobile payment devices, fewer carry cash. In 2011, just 27% of all point-of-sale purchases were made with cash, according to Javelin Strategy & Research. A Harris Interactive poll
found that two-thirds of consumers expect that mobile payments will overtake credit and debit cards in the future -- more than half of them expect it to take place within five years.
Electronic transactions are getting more attention than ever before because they are playing an increasingly vital role in consumers' way of life. The ubiquity of mobile devices has created a consumer expectation for everything to be mobile -- from the television shows they watch, through their social networks to the way they pay for goods and services. That's why in 2013, for the first time in its history, ETA will showcase an entire area dedicated exclusively to mobile payments at its annual show and exposition in New Orleans in April. The payments and the technology industries are converging, and the business opportunity afforded by the proliferation of payments-enabled mobile devices also portends a dramatic shift in the vending industry.
VENDING IN THE SPOTLIGHT
As payments facilitated by smartphones and other mobile technology become mainstream, the vending industry is adapting by working with the mobile payments industry to develop mobile payment options for customers. USA Technologies (Malvern, PA), one of the largest providers of cashless vending technology in the U.S., recently reported that roughly 50% of the company's ePort Connect service base is now equipped for Near Field Communications, allowing purchases with the tap of a phone through Isis, a mobile payment partnership of AT&T Mobility, T-Mobile USA and Verizon Wireless.
Magnetic-stripe and proximity (contactless) card payment systems have revolutionized vending, expanding the operator's ability to enable customers to pay for purchases with whatever medium is most convenient for them. As NFC-based mobile payment services gain popularity, they will extend that convenience dramatically, at a very low hardware cost. And NFC's strong fraud prevention technology promises direct benefits for the vending industry.
The modernization of payments technology and vending machines has led to a resurgence of interest in vending options from customers in the Generation Y demographic, according to Rinaldo Spinella, executive vice-president and general manager of Apriva's unattended solutions group (Scottsdale, AZ). "The mobile phone has evolved from a two-way communication tool to a complete socially interactive, machine interactive device, and it's going to play an important role in the continued resurgence of vending," he said.
This resurgence leads to obvious benefits for the vending industry. Incorporating interactive smartphone features widens access to a new market of consumers who do not carry cash, but always have a mobile payment device in their pocket.
Smarter vending machines also open countless doors for value beyond the products being sold, including expanded capabilities like ATM services or the creation and accessibility of detailed product data and consumer habits. Smartphone applications can also use location-based technology to direct consumers to nearby vending locations. The vending industry today is taking greater advantage of the ability of cashless payment systems to provide useful detailed information on consumption patterns, to support incentive programs and to generate valuable sales data for product suppliers, which increases the appeal of vending-specific marketing programs to consumer packaged-goods producers.
Mobile payment technology has the potential to extend the reach of vending as a tool for collecting market intelligence by increasing the attraction exerted by vending machines on the younger, more mobile consumers who are most favorably disposed to automated convenience.
But along with the expansion of mobile payment technology come unique challenges for the payments and vending industries to solve together.
The strength of security features embedded in payment devices (such as phones), payment acceptance devices (such as vending machines) and the networks that transmit data is paramount. Through programs like the Electronic Transactions Association's Mobile Payments Committee and Compliance Day events, payments industry professionals are working together to find innovative solutions.
Larry Beck, director of payment portal systems for Heartland Payment Systems (Princeton, NJ), recently relayed some exciting discussions about the possibility of removing card data from the vending transaction process altogether through solutions such as QR codes, NFC variants and other future solutions. While these developments may be years away, the pace of innovation in this sector is breathtaking.
Amid the questions that remain to be answered, one thing is clear: Vending is already benefiting greatly from the proliferation of mobile payments, and stands to benefit even more as mobile payments providers continue to innovate.
JASON OXMAN is chief executive of Washington-based Electronic Transactions Association, which represents more than 500 payment firms around the world. He previously served with the Consumer Electronics Association, the Association for Local Telecommunications Services (now COMPTEL), Covad Communications Co. and the Federal Communications Commission. A former broadcast journalist on commercial and public radio, Oxman is also an attorney. ETA is online at electran.org and can be followed on Twitter @ElecTranAssoc.