Ahead Of The Curve: USA Technologies Sustains Growth By Adding Value For Vending Operators

Posted On: 3/5/2012

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USA Technologies, Stephen Herbert, Maeve Duska, Mike Lawlor, cashless vending, vending business, vending machine, vending machine operator, vending machine telemetry, vendign machine technonology, vending machine transactions, USAT ePort, near-field communications, NFC-enabled cellphones, mobile payments, AMI Entertainment, jukebox, Megatouch, contactless card reader, USALive network, USAT JumpStart, MasterCard PayPass, Visa payWave

MALVERN, PA -- When USA Technologies unveiled its initial production ePort for vending in 2000, it was offered in the context of a service that was the first of its kind: one-stop turnkey payments processing and telemetry designed specifically for small-ticket, unattended self-service retail applications like vending. There have been many changes over the ensuing 12 years, but the company's flagship comprehensive payments processing and telemetry service continues to keep USAT in the forefront of the market.

Over the years, USA Technologies has made continual innovation and customer service the mainstays of its offering. The company's management team emphasizes that it consistently strives to increase the value of its services by developing new options for operators. Recently introduced programs include two-tier pricing, and a new cashless payment program that will feature prepaid, loyalty and gift card options­ is slated for launch in the immediate future. Designed for use with near-field communications (NFC) enabled cellphones or passive transponder tags, it will allow USAT's operator customers to offer cutting-edge services including location-based promotions emailed or sent via text to patrons on their mobile devices; integration into social media sites like Facebook and Twitter; and the ability to monitor and manage customer interaction and campaigns online.

(See article on Two-Tier Pricing)

This new initiative, initially designed for operators with locations receptive to "closed" cashless systems, offers a wide range of opportunities to enhance client relations while boosting sales. In general, the operator and the location management invite personnel to enroll in a program by establishing online accounts. Each member then receives a "tag" containing an unpowered transponder that can communicate his or her identity to a vending machine's payment system using the NFC protocol. This tag can be affixed to the user's mobile phone; it will not be needed if the phone has NFC circuitry already onboard. Patrons establish online accounts for use in loading value onto the tags with a credit or debit card.

USA Technologies_Groupshot

PHOTO: USAT's executive team, from left, includes David M. DeMedio, CFO; Cary Sagady, product management and network VP; Michael Lawlor, sales and business development VP; George Harrum, operations VP; Stephen Herbert, chairman and CEO; and Maeve Duska, marketing VP. Featured is original 1996 ePort prototype (on desk) and 2012 model, held by Lawlor.

A mobile application, hosted by USAT, will debit payments from the consumer's account when he or she makes a vending purchase. Consumers could also receive coupons and promotions on their phones through the mobile app and log onto their accounts at any time to track their usage and rewards and learn about the latest promotions.

Since NFC uses the same wireless frequency as the familiar "tap-and-go" cards like MasterCard's PayPass and Visa's payWave, venders already equipped with contactless card readers can recognize the payment medium, and conduct transactions over USAT's network. Purchase histories can be tracked by USAT's servers, to record points and calculate loyalty rewards. The system also may be used to award bonuses under a location's employee incentive program.

USAT was ahead of the curve in bringing contactless technology to vending. When the company started rolling its G8 reader out about seven years ago, it was at the forefront of applying this technology to small-ticket transactions made at unattended self-service retail appliances. USAT now has over 50,000 terminals linked to its ePort Connect Service, able to accept NFC payments -- RFID and mobile -- enabling its operator customers to accept these new forms of payment immediately. The service is designed to be open to all mobile payment platforms, including Google Wallet, ISIS, PayPal and others. Together with the value-added features planned for launch as part of its own mobile platform, USAT is empowering its clients to navigate the changing technology landscape and assure that, no matter what consumers have in their pockets, a machine equipped with an ePort will allow them to make a purchase.

The new initiative is the latest in a series of innovations in the vending and other unattended retail industries that commenced in 1995, when USA Technologies exhibited the prototype ePort at a National Automatic Merchandising Association Expo, mounted on a Dixie-Narco cold drink machine. This was a proof of concept, workable but impractical because of the high costs associated with small-transaction processing and dealing with mid-'90s vending machine control circuitry. The company believed then that the steady growth in demand for wireless applications and consumers' growing demand to use credit and debit cards for small transactions would continue to reduce costs and enhance reliability, so the use of cards for mainstream vending purchases would become practical within a decade. This prediction has proven uncannily accurate.

USA Technologies_Eport Classic Terminal

Following its model of open, flexible turnkey services, USAT plans to supply the prepaid instruments to its vending operator subscribers under the new program. These media could be customized with a brand and logo. USAT also will manage the back-end system, and the company's representatives could assist operators in kicking off the program at their vending sites by meeting with employees to explain the benefits of the prepaid loyalty program, demonstrate how it works and sign them up.

Photo | WHAT YOU'VE GOT: EPort cashless payment terminal can read classic swipe cards with magnetic stripes, RFID proximity smart cards and similar media with embedded chips, and NFC-enabled smartphones or passive devices.

"We've had many requests from operators seeking a proprietary prepaid program for closed environments that they could brand for themselves and their locations," USAT vice-president of business development Mike Lawlor told VT. "It gives the operator a one-to-one relationship with customers, and a means for providing more value to them. It allows larger locations with both foodservice and vending patrons a new and exciting way to cross-promote their offerings."

The new prepaid/loyalty program is the latest step in USAT's strategy of leveraging its versatile managed network and services offered through ePort Connect in innovative ways to provide its customers with a growing roster of scalable business-building services. And operators who make use of ePort Connect can start by implementing remote machine monitoring, using the ePort or a third-party telemeter, to obtain the immediate benefit of real-time access to item-level machine sales data, and add cashless payment acceptance later, if they choose -- or do it the other way around.

"Machines were once remote islands. Now, when a customer's machine is on our network for cashless payment, it gives the operator the capability to access data, and for us to move more value through that connection," explained Stephen P. Herbert, who joined USA in 1996 and took on the role of chairman and chief executive in December following the resignation of George Jensen. "We can support operators with cashless payment capabilities, standalone DEX telemetry or both. They can expand their use of the technology, machine by machine, as they go forward. And they now can take advantage of their network connection by offering their customers a prepaid/loyalty program."

USA Technologies_Eport

USAT revolutionized vending by making credit cards a payment option with the commercial launch of its flagship ePort terminal, and companion service, more than a decade ago. Today, ePort Connect is a PCI-compliant, end-to-end suite of cashless payment and telemetry services that allows operators of vending machines, kiosks, laundry equipment and other self-serve appliances to wirelessly network the equipment online in order to process credit, debit and prepaid card transactions and remotely monitor machine performance and status online.

Photo | OUT OF THE BOX: EPort reads magnetic-stripe cards as well as new RFID "tap-and-go" media, and is ready for near-field communications media like the Google Wallet smartphone app as mobile payment systems gain traction.

Of all the segments that can make good use of these services, including amusements and arcades, kiosks, car washes and more, USAT continues to see vending as a major growth area. Cashless adoption has been increasing steadily in recent years, and has accelerated dramatically since the company's launch of JumpStart in December 2009. The JumpStart program bundles the ePort Connect Service with an ePort terminal for which operators pay a monthly fee; there is no upfront out-of-pocket expense.

"They can now have a simple month-to-month commitment and easy entry to roll out cashless without a big financial risk," Lawlor explained. "It's driven adoption by making it easy for operators and bottlers to get into cashless vending."

Nearly 2,500 customers now are on the ePort Connect transaction processing and reporting service, up from approximately 500 before the JumpStart launch 18 months ago. The number of connected devices climbed from 63,000 in December 2009 to 136,000 today, about 100,000 of which are in the vending market.

Herbert emphasized that while USAT's "one-stop shop" hardware and service solution appeals to the majority of its customers, the ePort Connect service is hardware-neutral, giving operators the option of using third-party, PCI-compliant hardware from suppliers like MEI and Crane Merchandising Systems. USAT also can partner with remote management systems that conform to the vending data interchange (VDI) standard to wirelessly transmit DEX data over its USALive network.

"We're a service business, and we're very interoperable," Herbert emphasized. "We compete with companies like MEI, but we also cooperate with them, since many of our customers use their hardware. We constructed the service to make it simple for vending operators to mobilize cashless without becoming credit card experts, no matter the hardware they prefer to use. Operators basically connect the device, and the money lands in their bank accounts."

Herbert pointed to a convergence of market forces that, together, are increasing the appeal of cashless vending and the opportunity it offers to operators. For one thing, today's consumers increasingly prefer cashless payment, and are becoming more and more comfortable with using credit and debit cards for small-ticket transactions. At the same time, vending operators are looking for ways to reverse shrinking margins, and to meet that card-based payment preference.

"On the technology front, wireless has become more reliable and secure, with better coverage at a lower cost," said Herbert. "In the early days, it cost about $200 for a wireless modem; now the whole device costs $200. When we talk to people nowadays, it's 'When can I get into cashless and how fast?' and it's for all of these reasons."

NFC-based mobile payment is also poised to further push cashless acceptance, he added. "Visa has come into the space as a big sponsor going after the market; this is one of the last opportunities for pure incremental growth for the payment industry," said Herbert. "Mobile payments will further drive and accelerate cashless."

And USAT is positioned to enjoy its piece of that pie, with ePort's ability to accept any form of NFC-enabled mobile payment, from PayPass or Google Wallet to payWave or Isis. "We want our customers to be able to accept whatever lands in their patrons' hands," Herbert emphasized, "We're giving operators a way to address consumers' concern that they might not be able to make a purchase when they approach a machine."

USA Technologies was well ahead of its time when it demonstrated that first credit card-activated vending technology at the 1995 NAMA show. "The cost of the device was more than that of the refrigerated beverage machine itself. It was all landline, no wireless, and very, very slow," recalled Herbert, who at the time was overseeing strategy for PepsiCo. "It wasn't a viable business proposition, but it was interesting technology."

Recognizing the constraints on its early technology in the vending market, USAT decided to devote its initial efforts to launching Business Express self-service business centers in hotels. These are automated mini-offices that allow their users to purchase access to personal computers, copiers, printers and fax machines, using their credit cards. Herbert left PepsiCo to join USAT and help spearhead that venture, which remains part of USAT's business today.

After honing its skill in small-ticket cashless payments with office equipment, USAT circled back to vending in 2000, unveiling its first production-model ePort device at the NAMA National Expo in New Orleans. "It had an interactive touchscreen, which was very leading edge, and it brought cashless payments to the industry for the first time. But the first units were big and bulky and weren't quick," Lawlor recalled. "On the wireless end, it took 12 to 13 seconds to get authorization, compared with today, where it can be just a few seconds." But the forces poised to revolutionize an industry were in progress.

Soon after its industry debut, USAT partnered with Elavon, then known as First Horizon, as its payment processor in order to secure a transaction cost that made the cashless rate structure viable for the small-ticket market. The company also collaborated with IBM to reconfigure its network for Web-based services, allowing customers to go online from any Internet-connected computer to view machine-by-machine payment activity -- in real time, if desired.

A major turning point for USAT and the industry at large came in 2008 when MasterCard began "seeding" the market, investing $7 million in thousands of ePort devices in a bid to get more points of contactless acceptance into the market. USAT, which had shown a prototype tap-and-go ePort at a NAMA show less than a week after the enabling EMV standard was adopted, distributed the cashless readers to bottlers and operators nationwide to help encourage deployment of cashless vending.

"We connected 1,000 machines to our service for The Philadelphia Coca Cola Bottling Co. in just a few weeks, and quickly expanded it to 10,000 machines nationwide," recalled Herbert. "That put cashless vending on the map for the first time. And by that time, we finally had a version that would fit into a bill validator cutout and that was priced affordably."

USA Technologies_ Larijani, Royce Photo | CONSISTENT IMPROVEMENT: At left, firmware engineer Mohammad Larijani tests software upgrades for ePort cashless payment system at USA Technologies' R&D center in Malvern, PA. At right, security and quality director Arthur M. Royce performs quality assurance tests on ePorts destined for use in self-service carwashes. EPorts are used in many unattended retail applications.

Today, with some 136,000 connections on its wireless network, USAT has a wealth of cash and cashless sales data in its Cashless Knowledge Base that it analyzes and shares with operators to help guide their success.

"When we set up a machine, we ask the operator what type of location it's in, so we can track how it performs. In addition to using the data to help operators understand the impact cashless and telemetry is having on their own business, we add that information to our Knowledge Base in aggregate, so we can use it to help other operators achieve success," explained Maeve Duska, USAT's vice-president of marketing. "Operators can meet with our deployment planning team if they're moving into cashless or DEX telemetry. We use the Knowledge Base to look at trends in their markets, so they have a good idea of what to expect. Then we visit with them and analyze their sales reports to help them repeat their success, or to redeploy their card readers if necessary. We have a wealth of data to help guide customers to make sure they get the most out of their investment."

The latest Cashless Knowledge Base data shows that there's a 15% to 25% sales lift in some machines that have been equipped for cashless payment acceptance. USAT sales figures also show that customers spend an average of 33% more per transaction when they pay with credit or debit cards -- about $1.49 per transaction, versus $1.15 with cash. Cashless as a percentage of all sales continues to increase, driven primarily by the purchase of higher-priced items and multiple vends, which account for 10% of cashless transactions, according to Lawlor.

"Card acceptance lets operators sell at $1.50, $2, $3," he explained. "It amazes me that vendors are charging $1, $1.10 and $1.15 for a 20-fl.oz. soda, when c-stores are getting $1.50 to $1.70 plus tax, because people are willing to spend more when they pay with credit and debit cards. With cash, sales decrease when the price goes up. With cashless, you can raise prices without losing sales."

He added that operators can receive DEX audit and sales data files through their USA­Live online reporting and telemetry system at no additional cost, and can use that information to "prekit" route orders to reduce their operating expenses. "Some customers' margins are 7%, 8% or 9% with cashless versus 1.5% with cash only. That has a lot to do with the limits of cash and coin. We're advocating adding credit," emphasized Lawlor.

One trend across the board, according to USAT's Cashless Knowledge Base, is the steady increase in the percentage of sales made with cashless media. Today, cashless represents 25% to 27% of total sales in the overall workplace market. That figure has risen sharply from 15% to 16% a few years ago. In some sectors the percentage is far higher (see chart below).

"That percentage will continue to grow," Herbert predicted. "People are still learning they can approach a vending machine without needing to have cash in their pockets."

USA Technologies credits much of its success over the past decade to its partners, and it continues to seek out collaborators with which to form mutually beneficial relationships. Recent alliances include an accord with Crane Merchandising Systems to become its preferred cashless payment service provider for both new machines and retrofits. "This brings a comprehensive turnkey cashless payment service option to operators by combining Crane's hardware with USAT's network," said Lawlor. "As partners, we both can provide extensive knowledge about the types of locations where cashless has been successful, and jointly take this information to our clients."

The company also partnered with Verizon to accelerate the adoption of wireless small-ticket cashless payment capability and "machine-to-machine" applications through the ePort Connect Service. USAT connects customers to its service using Verizon's wireless network. And Verizon's salesforce, through the co-marketing agreement, promotes and sells USAT's solution to its customers, giving the cashless vending provider a much broader reach into the marketplace.

"By bringing our solution to its clients, Verizon benefits in a number of ways, including increasing its number of connection points, and we benefit by more rapidly building our customer base with more feet on the street," said Herbert.

USAT also recently signed an agreement with Unified Strategies Group (Arlington Heights, IL) to provide the buying consortium's members with cashless transaction processing and DEX telemetry services. USG represents more than 700 vending operations doing $3 billion in annual sales.

The company also is targeting coin-op amusements as another growth area. It recently struck a deal with AMI Entertainment Network to become the exclusive provider of transaction processing services for all of its credit and debit card-enabled Megatouch touchscreen games and all Rowe jukeboxes. AMI uses USAT's ePort software development kit (SDK), which is designed to enable manufacturers of PC-based terminals -- kiosks, gaming systems and online jukeboxes -- to build OEM cashless payment acceptance functionality into their equipment.

The company also has increased its ability to offer cost-cutting solutions to its operator customers through selective acquisitions. One of these was Bayview Technology (Denver, CO), which developed the VendingMiser and similar devices that monitor a machine's actual demand for power and regulate its power supply output accordingly. Another was Stitch Networks, inventor of a hosted internal cashless payment system using RFID fobs that attracted wide attention.

Herbert emphasized that cooperation among industry suppliers is pivotal to the continued increase in cashless payment and telemetry adoption. "We actively encourage providers to work directly together to connect technology in order to deliver maximum value," said Herbert. "We've worked with Crane, MEI and others, and we want to do more in the future. We encourage providers to cooperate more closely to help the industry fully leverage this next generation of technology. If we deliver interoperable solutions as a group of providers, operators will benefit, and adoption will accelerate."

Today, USA Technologies enjoys an 80% share of the unattended small-ticket cashless transactions market. Its point-of-sale terminal shipment volume was ranked 5th among all suppliers in 2010 by the Nilson Report (up from 6th in 2009). The company has been awarded 79 patents.

And the firm's executive team is confident that the future will be even brighter. Business practices are moving in the direction of USAT's core strengths -- the increasing appeal of "cloud" computing and software as a service holds obvious promise for an organization specializing in complex network applications. These trends seem to validate the company's consistent strategy of steadily adding value for its operator clients.

USAT Technologies, cashless vending use