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Blame Banks, Unexpected Micropayment Growth For Delay Of Cashless Applications In Bulk Vending

Posted On: 12/17/2007

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U.S.A. -- American operators are starting to look enviously at industry professionals in Europe and Canada, where the equivalent of a $2 bulk vend is commonplace. Many vendors have even expanded offerings to include products that retail for more than $4, and merchandise like licensed toys, which typically sell for 75¢ here, is now fetching $1 in Canada.

Without readily circulated higher-value coinage, Americans are at a distinct disadvantage. The $1 coin remains marginalized as long as the $1 bill is in circulation, and many operators have given up hope of its widespread use. For more than a few operators, increased prices may well represent the only chance at continued profitability.

BUMP IT UP: Coin Free's Bump device (short for "basic unattended micropayment") is described by the company as the smallest debit and credit card acceptor on the market today; it measures 3.8 ins W. by 2.35 ins. H. by 1.1 ins. D. The MDB-compatible unit uses wireless technology to process transactions, so it does not require connection to a phone or Internet line to operate.
One alternative on the horizon is cashless debit and credit card micropayments. Although not widely accepted or even understood among bulk vending operators, these systems have made remarkable progress in terms of both technology and consumer acceptance.

Thus, whatever delays exist in bringing cashless systems to bulk vending aren't due to consumers or technology. According to a recent survey conducted by Ipsos Insight, a unit of the leading market research firm Ipsos North America, more than 67 million Americans said they had used a debit or credit card for purchases of less than $5 in the past 30 days.

The survey is backed up by anecdotal reports from the field and leaves little doubt that consumers are more than willing to use their "plastic" for small purchases. In New York City, taxis are being outfitted with debit and credit card readers, and many municipalities around the country are installing debit card parking meters.

For bulk vending operators, the advantages of accepting debit and credit cards are obvious. They enable the sale of a greater variety of merchandise and formats, and could also increase the number of impulse-purchase vends.

"I think debit and credit card payments can expand the range of merchandise," said Michael Tiner, the marketing manager for Coin Free LLC, a firm that provides debit and credit card alternatives for coin-op equipment. "It gives operators and suppliers a mechanism for increasing the quality of products that can be sold from traditional and innovative machines on the market. It allows the envelope to stretch to the imagination's limit of what can be sold through bulk."

So, what's the hold up? According to Tiner, merchant processing organizations have much to do with the delayed acceptance of this technology. "The technology is here and it works, but merchant processing rates are still to high," he said. "I can tell you that Coin Free, along with our processing partner Chase Paymentech, are actively lobbying Visa and MasterCard International to create new codes with special rates and rules for [full-line] vending, amusement gaming and bulk."

In the world of micropayments, processing fees remain a large issue that has set the retailer against the processing company. In the case of larger, more traditional sales, the processing fees remain a small percentage of the total that the retailer can easily absorb. It's when those price points decrease to just $1 or $2 that processing fees become a larger factor.

A debit or credit card sale made from a vender is similar to that of a retail location. A consumer makes a purchase and the payment is processed through the operator's bank and the bank that issued the card, both of which add on a transaction fee to the seller or operator. These fees, known as interchange, are based on Standard Industry Code (SIC) or Merchant Category Code (MCC). Unfortunately, at the present time there are no codes specific to the coin-op industry.

As Tiner noted, Coin Free and others have been lobbying for coin-op specific codes that would open the cashless payments to coin-op by establishing lower bank fees.

"This process has been going on for quite some time, and we had to start with the basics, including an overview of how the vending and amusement gaming industries function," he explained. "They were quite surprised, for example, to learn that the games in a bar, or the vending machines inside a Wal-Mart, are not actually owned and operated by the owner of the venue. The technology is there, the public opinion and the consumer demand is there, so it's only going to increase yearly -- it's inevitable."

At this point, where the changes in the debit and credit card industry will originate is anyone's guess. Full-line operators have been pushing for changes, as have members of other industries. As the experts are quick to point out, micropayments are rapidly growing in popularity, but are still a relatively new consumer phenomenon. Much depends on educating the banking industry to the needs and potential of the coin-op industry.