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CHANGING TIMES: Can Operators Adapt To The Cashless Society Of Tomorrow?

Posted On: 11/20/2005

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Walk around with an operator at a trade show -- or watch him pay for lunch at a restaurant -- and sooner or later, you're likely to see him retrieve a wallet thick with banknotes. Or perhaps he just carries a fat roll of bills. Operators live with cash every day. They earn it, collect it, count it, transport it, vault it, bank it and pay for everyday transactions with it. In fact, they eat, breathe and think cash, with some operators practically swimming in it. And, after generations of doing business this way, cash is almost as invisible to these operators as water is to fish.

Accordingly, such operators may be the most surprised people in the United States when cash eventually disappears. And it will vanish someday -- and soon if the banking and credit card industries have their way. These powerful institutions like the speed, flexibility and convenience of electronic transactions. What was once a quiet trend away from cash has now become an open, and aggressively pursued, agenda. Top executives at MasterCard, to take just one example out of many, speak boldly of "realizing our vision of a truly cashless society."

The amusement machine industry overseas is enthusiastically embracing the cashless trend, according to some experts. "The main operators in South America have gone cashless," said Jorge Mochkovsky, director of Sacoa Entertainment, the Argentine maker of a cashless payment and control system for arcades. "In Europe, many leading operators have also gone cashless, such as the largest operator in Spain. I could say for the Middle East and Russia, the main operators have switched to our system. The U.S. is really just starting."

To be sure, cashless retailing in general has caught on more quickly in countries where insufficient currency circulates, as in some Eastern European states. It also has found favor in nations where operators and consumers still remember periods of hyperinflation, during which coin operation was impractical because of the need for frequent price changes.

Yet the most forward-thinking U.S. operators do acknowledge and embrace the concept of doing business without focusing exclusively on the cashbox. Strong evidence of this is seen in the fact that the Amusement and Music Operators Association presented one of its 2005 Innovator Awards to Incredible Technologies for its inclusion of a cashless payment system in "Golden Tee LIVE."

And, of course, digital downloading jukeboxes can offer credit-card acceptance as an option. As equipment increasingly is assembled into networks, cashless operation becomes simpler and more appealing. Whether the network interface exists to permit online posting of high scores or access to music in a central library, the network also can handle authentication and payment authorization.

Many other American operators may resist going cashless, but if the larger U.S. economy does so, eventually they could have no choice. At this point, the decisive factor won't be technology but, most probably, a simple matter of marketing -- figuring out what kinds of cashless payments consumers like best.

As long ago as 1994, experts were stating that "The elimination of physical cash from our economy is already feasible from a purely technological perspective. The economic barriers are also disappearing." This bold statement was part of a speech made by Reynolds Griffith of the Southwestern Society of Economists. The major barrier to going cashless, Griffith said at the time, was consumer resistance.

Twelve years later, such resistance has all but vanished. U.S. consumers are rapidly moving from cash to plastic (and other digital payment systems such as cell phone systems). And they're doing so even for small purchases. The Boston Globe recently reported: "As we continue our transition into a cashless society, the payment-card tracking firm says credit and debit card transactions under $10 hit $35.5 billion last year, more than six times the use of plastic for small transactions purchases in 2000."

Indeed, social and economic pressures are virtually forcing American consumers to embrace credit and debit cards whether they want them or not, according to the Dallas Morning News. A recent feature quoted Terri Rimmer of Fort Worth as saying: "It's possible, but it's difficult [to live without a credit card]. People look at you funny. Now it's like an oddity if you don't have one."

Like the lagging U.S. amusements industry (at least, it's lagging in the view of experts such as Mochkovsky), the American economy as a whole is also behind the curve on the cashless society. This is not unusual. Cell phones and broadband were both adopted more quickly in Japan and Europe than in the U.S. But after a gap of several years, these technologies finally arrived here, and with a vengeance. The same may be true of "going cashless." In Japan, some three million cell phone subscribers now use a Mobile Wallet from NTT DoCoMo to purchase items at 20,000 stores and vending machines. Iceland is fast becoming a cashless society, with fewer than 5% of all transactions made with cash or check.


Another opinion is that cashless payments validated over data networks have caught on more quickly in countries without the highly-ramified structure of local and regional financial institutions that exists in the United States. A nation without a tradition of personal checking accounts (like France), for example, is likely to witness faster adoption of cashless alternatives than one in which citizens on the go always have had reliable ways to make purchases.

A predominantly cashless society is coming fast to the U.S., according to information revealed by the Smart Card Alliance, which held its 13th annual fall conference in Miami, FL, in October. A new technology called "contactless payment" is the most important trend. Contactless payment uses RF or other technology for identification and debiting, rather than requiring consumers to swipe a card and punch in numbers and show their driver's license or other identification. According to the Alliance, contactless payment is rapidly becoming common in the U.S. Meanwhile, said Alliance members, smart cards are replacing credit and debit cards in Canada and Mexico.


A major boost to small-payment cashless transactions is the adoption by MasterCard International and Visa International of a common communications protocol for contactless transmission of data in payment applications (see VT, April). At this year's National Automatic Merchandising Association Spring Expo, USA Technologies demonstrated an in-machine contactless card terminal that works with RFID media that comply with the new standard (see VT, May).

MasterCard calls its contactless payment medium "PayPass," and Visa is marketing the "Visa Contactless" program.

North American smart card microcontroller shipments will top 132 million units in 2005 and grow at a rapid 27.7% compound annual rate through 2010, according to remarks made at the Smart Card Alliance conference by market research company Frost & Sullivan. And payment cards figure prominently in that forecast.

"We expect a huge change in smart cards used in payment applications between 2004 and 2010, and that will be driven by take-up of contactless payment cards in the United States," said Karthik Nagarajan, senior analyst for Frost & Sullivan. The new report, "Americas' Smart Card Market Analysis," was the result of a project designed to estimate the market in the Americas; it was undertaken by the Smart Card Alliance in collaboration with Frost & Sullivan.

Meanwhile in the U.S., government and large retail industries are boosting the trend away from cash. Cashless parking meters have begun to appear in more and more cities across the country. Cashless tollbooths that allow drivers to pay with "EZ Pass" and "FasTrak" transponders or other devices are also increasingly popular. In the armed forces, the U.S.S. Harry S. Truman -- an aircraft carrier -- has gone cashless. The crew has been issued debit cards in a patriotic red, white and blue color scheme. This technology will spread to the rest of the fleet, according to news reports.

Perhaps the cashless medium most familiar to American motorists is ExxonMobil's "Speedpass" keychain "wand," which can be used instead of cash to buy gas at ExxonMobil pumps. Cox News Service reported last spring that "American Express this year plans to introduce 'ExpressPay' at 5,300 CVS drug stores nationwide. It also has signed up other merchants, including 1,500 Ritz Camera shops and Sheetz convenience stores. Other credit card companies are making similar moves."

Advancing technology creates more and more ways to process transactions electronically, rather than with cash. Last fall, reported "USA Technologies and AT&T Wireless have begun implementing digital payments on vending machines, parking meters and just about any other automated electronic self-service device..." Meanwhile, the Associated Press reveals that cell phones can be equipped with a short-range radio chip to beam credit card information to a terminal at a store register.

The latest cashless technologies even do away with "wands" and contactless cards. According to a story this year in the Christian Science Monitor, a San Francisco company called Paybytouch is offering an electronic payment system that lets consumers use an optical bioscanner that reads their fingerprints and takes payments from the consumer's account (checking, credit card or debit card).

"Biometric" identification systems have been in use for security and access control applications for three decades. They have been given a cashless payment role in areas of the world where customers cannot carry cards or other media that can be stolen from them by bandits. In such situations, the added expense of the technology is more than offset by its ability to allow customers to make transactions that they otherwise could not make at all.

Countertrends and contrary indications do exist. For many generations, conventional wisdom asserted that "cash is king" and in some respects, this remains true. MEI division of Mars Inc., the subsidiary that manufactures electronic payment systems, highlighted a 2002 Nilson Report which predicted rising cash usage in the U.S. economy through 2005. At the time, Nilson said that "currency and coins are still king and will continue to provide a method of payment that will never be completely replaced by any other system at any time."

The report also forecast that the average amount per transaction would grow from $21 in 2001 to $27 by 2020. And overseas, almost three-quarters of UK consumers prefer to pay in cash when they go out shopping, according to a fall 2005 survey by Alliance & Leicester Commercial Bank.


"Cash will always be the most convenient form of payment for small-value transactions such as taxi fares, tips, newspapers and magazines, shoeshines, currency-activated gaming machines, convenience store purchases, etc.," stated the Nilson Report. "Because those who use cash remain anonymous, they can't be audited, transactions can't be traced and it never requires identification of users."

Further, Fiona Naughton, MEI's global business developer for the retail market noted, "We continue to caution retailers not to ignore the large percentage of their customers who prefer to use cash for their transactions when they design kiosks and unattended sales centers. In terms of sales and ROI, kiosks and self-checkout systems that provide a cash option continue to out-perform those that don't."

More evidence in favor of cash includes a recent statement from Tracey Mills, spokesperson for the American Bankers Association. Quite simply, cash is still popular, she said. Mills also pointed to the fact that pundits have been predicting a cashless society since the first general-purpose credit card appeared on the market 50 years ago, but so far their predictions have failed to materialize.

Yet even Mills admitted noncash usage is rising, and that debit and credit purchases surpassed cash for the first time in a 2003 study by the American Bankers Association. Debit and credit card payments accounted for 52% of consumer in-store purchases, while cash and check payments went down to 47%, Mills said in a story published last June in the Topeka, KS, Capital-Journal newspaper.

In 2004, the last year for which such data was available, a U.S. Federal Reserve study showed that debit card usage is rising fastest -- as quickly as 25% per year -- while check usage is falling the most quickly of any major payment medium. ABA's Mills said growing reward incentives, flexibility and convenience will continue to drive debit card and other electronic payment usage rates upward for the foreseeable future. Online payments are the second fastest growing method of noncash payment, the Fed report showed.

As noncash payments continue to increase, cash increasingly may be viewed as being associated with the underground economy -- either transactions that are not reported to the government or even outright criminal enterprises -- according to a story picked up by Yahoo News. The service quoted two economists who estimated that in 1990, the last year for which such data was available, something like 7% to 14% of the U.S. gross domestic product was "underground."

Eliminating cash is attractive to government and industry for many reasons. According to a 1994 article in The Futurist, "The immediate benefits would be profound and fundamental. Theft of cash would become impossible. Bank robberies and cash-register robberies would simply cease to occur. Attacks on shopkeepers, taxi drivers and cashiers would all end... urban streets would become safer... security costs and insurance rates would fall. Property values would rise... sales of illegal drugs, along with the concomitant violent crime, should diminish. Hospital emergency rooms would become less crowded....A change from cash to recorded electronic money would be accompanied by a flow of previously unpaid income-tax revenues running in the tens of billions of dollars. As a result, income-tax rates could be lowered or the national debt reduced."

How operators might adjust to a world without cash is an open question. Obviously, numerous smart card and smart pay systems are already on the market, geared specifically to street and arcade operations.

Beyond technology, however, the key question for the U.S. amusements industry could be the simple matter of operators' attitudes. The loss of operators' jealously guarded privacy is a negative that many may never accept. Yet (as with the advent of operator-run video lottery, which is closely monitored by government regulators) it's just possible that operators may find something to like in cashless payments. Benefits include greater security, flexibility, speed, convenience, and -- above all -- more revenues.

John Gould, director of bank card research for the consulting firm TowerGroup, was recently quoted by Forbes as saying: "When someone uses a piece of plastic they spend more, so there's an uplift." If an electronic cashbox is fuller than a physical cashbox, will it make for a happier amusements operator? Like it or not, it's a question that the U.S. amusements industry may have to face, and fairly soon.