Mobile Payments Are Slow To Catch On In Vending, But Use Is Growing

Posted On: 6/2/2017

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TAGS: mobile payments, cashless vending, Apple Pay, USA Technologies, Three Square Markets, micro market, Patrick McMullan, Gator Vending, Gary Arwin, PayRange, Yoke Payments, USConnectMe app, Lisa Leuchter, Snackworks Inc., Continental Cafe, Jim Belisle, 365 Retail markets, SnackDot

cashless vending, Apple Pay, USA Technologies, mobile payments What's taking mobile payment technology so long to take hold? The vending industry isn't the only sector that could ask this question as everyone around us seems to be glued to their smartphone. But it's a question to which the vending industry has to pay attention -- if it doesn't want to be left holding the bag when the mobile payment tsunami comes crashing down on the retail landscape. While payment equipment providers have developed various mobile options for vending machines in recent years, the number of operators of them has been small. Recent developments in both the payments industry and the consumer market, however, indicate the long-expected adoption of mobile payments could be close at hand, with significant implications for vending and refreshment services.

BI Intelligence expects mobile payments volume to rise by a compound annual growth rate of 80% to $503 billion by 2020, according to the researcher's 2016 Mobile Payments Report. Mobile wallets offer enhanced security features, faster checkout and loyalty rewards integration. Near-field communication, the dominant mobile wallet technology, has expanded since Apple introduced Apple Pay in late 2014.

One reason for the slow rate of adoption in vending is that operators have already equipped thousands of machines with card readers and they do not necessarily see the benefits of introducing mobile payments. For new locations, however, it can make sense to accept mobile payments, along with card payment capability.

Combination Offer

"Mobile is a much faster way to pay," said Ray Friedrich, chief executive of Sterling Services/Fresh at Work Markets (Sterling, MI). "I think the curve is going to go straight up on this. People who work for me that are under 30 are really into it, so we know it's the future. There's no delay. There's no typing in a PIN."

Friedrich recognizes that mobile payment adoption has not met expectations -- not just for vending, but in general. As for vending, "It is virtually negligible, the number of Apple, Google type of payment methods," he said. "Maybe we don't advertise it properly."

The Fresh at Work chief thinks the slow adoption of EMV-certified payment equipment has slowed down the advance of cashless technology overall.

What About Micromarkets?

Because micromarkets are expanding, mobile payments could take hold faster in this sector than in vending. Friedrich thinks 75% of micromarket purchases could eventually be mobile.

He recently introduced PAX payment terminals on his micromarkets. The terminals include a keypad, card insertion and card swipe, and they support NFC contactless. "We wanted to be prepared," he said.

App-based technology has enabled the "kiosk-less" micromarket, a concept that could have far-reaching consequences for vending and self-checkout shops alike. Downloadable payment apps are the backbone of these systems in which consumers purchase products from a market using a mobile app on a phone or tablet. As payment apps become more widely used, this highly economical concept stands to expand in the refreshment services industry.

The kiosk-less micromarket is in its infancy, but it holds significant promise since it allows locations to offer consumers refreshments without requiring vending machines or payment kiosks. Operators are already using these systems profitably to serve locations with fewer than 100 people. Some forward-thinking vendors are already demonstrating how all of these trends are currently unfolding.

Three Square, First There

micro market, Three Square Markets, vending, mobile app When it comes to micromarkets and mobile payments, Wisconsin's Three Square Market (32M) is widely regarded as the pioneer. As early as 2012, the company recognized that mobile technology would be the future of micromarket shopping and payments. The first kiosk-free, mobile-powered 32M locations went online that year. However, 32M chief operating officer Patrick McMullan cautions that the U.S. lags far behind international markets in the mobile shopping space.

"In our European micromarket locations, which now total more than 100, our smartphone transactions account for over 65% of purchases," McMullan said. "Our mobile purchases in the U.S. represent only 19% of transactions; but that percentage is 40 points higher than what it was a year ago. With smartphone-only stores opening at a pace of a half dozen monthly, we believe mobile self-checkout installations in the U.S. will grow to 25% by 2018."

Operators Embrace Change

Gator Vending (Orlando, FL), a three-route operation, was an early adopter of mobile payment technology. In 2012, owner Gary Arwin began providing customers the option of making vend purchases with their smartphones using a Bluetooth/Wi-Fi reader that authorized payments for both serial MDB machines and electromechanical machines. The device was installed on the front of the machine above the keypad.

Customers could download the app, select from a list of products and prices, and authorize a credit or debit purchase. If a customer selected a product priced lower or higher than the authorized amount, their accounts were credited or debited the difference.

Arwin paid the system provider, Coin Free Inc., $5 per month per device. The transaction cost was lower than that of cashless readers.

PayRange, Masterpass, vending machine, mobile payments Shortly after Arwin began offering the system, Coin Free went out of business due to insufficient funding. Arwin had about 15 customers using the system. Fortunately, it was around this time that PayRange came into existence with the BluKey, a Bluetooth device that allows patrons to use their smartphones to make purchases from vending machines. Best of all, machines don't need a cellular connection and there's no physical contact

"PayRange is a lot easier -- it's a lot faster and seamless," Arwin said. With the Coin Free device, he had to drill holes in the machine and mount it on the outside. PayRange's BluKey, on the other hand, installs inside the machine (it snaps in between two wire harness connectors). "The amount of time to install PayRange is extremely minimal," Arwin said.

Arwin offers PayRange for all of his MDB machines, which comprise the majority of Gator Vending's fleet. Half offer the ability to pay with a smartphone in addition to a credit card, while the rest only offer PayRange. The credit card device incurs a monthly charge.

"The ones that don't do as high a volume that can't justify the device for the credit card swipe reader, we don't put it on," Arwin said. "With PayRange, there's no monthly fee, just a percentage of the credit card itself."

Mobile Pay Lifts Sales

PayRange was the first cashless option for more than half of Arwin's machines. He has witnessed higher sales. "It has changed our percentage of customers using cash versus credit dramatically," he said. About 35% of his customers use mobile payments.

Another benefit has been higher price points in the machines -- Arwin is charging $2 to $2.25 for many products, shattering the $1 vending ceiling. "Now we're putting items in the machine that we didn't previously," he said. The capability also reduces the operator's resistance to price increases.

Arwin makes use of PayRange's discount rewards program, too. He doesn't have figures on how many customers are using it, but he estimates it to be around 30% of them.

The company also offers Apple Pay through USAT readers, but Arwin said he has no way of knowing how many of those purchases come from Apple Pay versus the card reader.

Kiosk-less Markets

Always on the lookout for new technology, Gator's Arwin has expanded into app-based, kiosk-less micromarkets. His store brand is Delicious Nutritious Markets, which relies on the Yoke mobile wallet that also has inventory-management support. Arwin operates three markets in locations with 100 to 250 employees.

"Our micromarket utilizes a tablet-based system to make purchases, but you can use your cellphone to make purchases," Arwin said. "Your phone is basically an extension of the tablet, where you can use it to make a purchase."

He provides the shelves and racks for these kiosk-less markets. The customer downloads the app from the iTunes store and enters their credit card information. However, Arwin has no way of knowing how many Delicious Nutritious Markets customers are downloading the app versus paying on the tablet.

Cantaloupe Systems, Yoke Payments, micro market
SEAMLESS: Cantaloupe Systems and Yoke Payments are piloting a user- and operator-friendly micromarket POS solution (shown in use, above) that combines Yoke's novel cashless payment and inventory control app with Cantaloupe's Seed Markets cloud-based mobile management system.

Boosting Sales In Tennessee

Leisure Time Vending (Knoxville, TN), a four-route operation, has installed PayRange units on its 120 MDB machines. "In some cases where I have them, I'm doing 30% to 60% of my sales on PayRange," reported owner Joe Hollar Jr.

Hollar gives customers the choice of a Crane Navigator cashless card reader or PayRange. Most customers opt for the card reader. He has not activated the Apple Pay function on his Navigator readers.

PayRange is easier and less expensive for the operator to offer, Hollar said. "It works better in some locations than it does in others," he said. Closed locations work better than public ones. "Where they're there every day, they are using it," he said.

Hollar has introduced two-tier pricing in some PayRange locations. He observed that if the location's manager gets behind PayRange, location customers are more likely to use it. And vend product manufacturers can offer promotions using PayRange.

He offers customers the first vend for free as an incentive for using PayRange. He also offers free vends after a certain number of purchases. "They've got some flexibility to work with that keeps people coming back to the machine," Hollar said.

USG Giant Step Forward

USConnectMe app, USConnect, US Connect vending Unified Strategies Group, a national vending buying group, recently introduced its USConnetMe app available from the App Store and the Google Play store to offer consumers rebate rewards for product purchases for both vending machines and micromarkets. There is also a USConnect payment card.

A distinctive aspect of USConnectMe is that it is usable for both vending machines and micromarkets. The solution accepts debit and credit cards in addition to prepaid USConnectMe payments through the mobile app.

USConnectMe users can review all promotions from the app, redeem rewards points, make purchases, review purchase history, and have one and a half of all purchases automatically donated to a charity of choice. The app allows users to pay at the machine (a receipt is emailed).

"We like the USConnectMe program very much," said Lisa Leuchter, co-owner of Snackworks Inc. in (Bradenton, FL). "As we install more and more markets, the usage increases."

Snackworks also offers mobile payment through its Crane Navigator readers in its vending machines, but they are not able to distinguish card payments from mobile ones, Leuchter pointed out. "But it's to our benefit to get them off cards and onto the app," she added.

Micromarkets Move Forward

Self-checkout market providers have also begun offering payment apps. Continental Cafe Inc. (Troy, MI) recently began offering the Avanti Markets payment app. Customers find the app easier to use than a payment card or a thumbprint reader, according to to Jim Belisle, senior vice-president and chief financial officer of Continental's vending, coffee and micromarket division.

The app allows Continental to track a customer's buying habits. Continental advertises the app on the kiosk screen. "If you have that, we don't have to buy the little market cards on the Avanti side, so there's a savings on that end," Belisle said.

"The biggest thing we'll be working on is the customer engagement piece so you're able to communicate directly with them, by email or tweet, whatever it is," he said.

Revolution At Hand?

A handful of kiosk-less micromarkets, meanwhile, are creating a new way to serve locations with less overhead than that in vending or kiosk-based micromarkets.

The Verii Market allows employees to scan and pay for product using the Verii mobile app. The location manager reorders product online, and the system automatically tracks the location's inventory and sends alerts when it is low. Verii's parent company is 356 Retail Markets.

A&B Vending Co. Inc. (Middleton, MA) describes Verii as an option for accounts with fewer than 150 employees. Prospective customers are instructed to go to the Verii website and create an account.

Chris Turner, a software developer in San Antonio, TX, developed an app-based, kiosk-less micromarket solution that includes a subscription-based snack delivery service called SnackDot. Customers who download the SnackDot app can order snacks in advance, have them delivered and pay using the app or a tablet in the breakroom.

Users establish accounts that allow them to pay with credit cards. No product barcode scanning is required, and checkout takes as little as 10 seconds. There is a loyalty rewards program, too.

Vending and refreshment service operators can subscribe to SnackDot for a $30 monthly fee and a 3% commission on sales. Locations can also subscribe to the service and manage it as a "self-op."

"If you got a box of snacks from Sam's Club and you put it on a shelf in our office, and you signed up for our service, and you print out our checkout sign, you're in business," Turner explained. "You don't have any money outlay except the snacks and our subscription fee."

Because the software can be used by both refreshment service operators and by locations managing their own employee snack operations, Turner marketed it to both audiences when he introduced the software last year.

"Through our development of the micromarket software, we learned that as we started to bring it to businesses, a lot of them wanted to know how they could get some snacks," Turner said. "As we sold that [software] product, we got a lot of requests for [snack] product."

Turner initially tried to partner with existing refreshment service operators to service his customers, but the operators to whom he reached out were not supportive. "They weren't responding on the timeline we needed to serve our customers well," he said. "We realized we could run the [service delivery] business pretty efficiently, so we decided to just do it ourselves."

Turner now operates a snack delivery service from a warehouse in San Antonio. He delivers nationwide by courier.

The SnackDot refreshment service sends the customer location a survey for employees to fill out. "Their staff votes on our snack catalog and they pick their favorite items," Turner explained. "We tally those votes, and based on the budget the company has selected, we send them custom delivery of snacks."

Customer locations establish a monthly budget and pay a monthly subscription fee for the delivery service. The minimum monthly service fee is $250.

"We can deliver as frequently as needed based on the number of people we're serving," he said. Deliveries range from weekly to monthly.

SnackDot also provides customer locations with a custom-designed maple wood snack display merchandiser. "They get our shipment of snacks and they put them in that box," he said.

Jumping Ahead

Lane Jumper is an app-based, kiosk-less micromarket developed by Miguel Florez, a self-checkout market operator. The operator makes a one-time license payment and pays a monthly fee for each market, which covers up to four "submarkets" in one location. There also is a fixed weekly fee, plus a percentage imbursement of weekly sales.

John Kearns, owner of A&R Services (Monument, CO), offers Lane Jumper to some customers. Kearns, who is also Lane Jumper's national sales manager, is testing the system with government contractors, call centers, warehouses and banks, among other locations.

The operator uploads the inventory for each market in an Excel file. Once the market is up and running, the location employees are invited to download their apps and use the market.

Location employees log into their accounts using a password. A screen illustrates the products that are in the market. They make their selections and add them to their cart. They scan product barcodes using their smartphones to pay for their purchases.

Lane Jumper users set up prepaid payment accounts. After they use it to pay, they can have a receipt emailed to them. They can also choose to pay with a credit or debit card for each purchase.

"It opens up an opportunity to put a micromarket in a much smaller location," Kearns said. He said there are 8.3 times more locations from the 50-person to 150-person range than from larger accounts.

Lane Jumper provides a solution for locations that do not permit micromarkets to use the location's Internet or go through their server. "They want micromarkets, but they can't have them because of their security IT," Kearns said. "The nice thing about the mobile app is it doesn't tie into their [IT] system at all."

"This not only opens up smaller locations, but it also opens up very large locations," including government accounts, banks and others, he said.

Lane Jumper recently integrated with LightSpeed Automation, the pick-to-light inventory prekitting system for vending and micromarket warehouses. Operators using Lane Jumper can send product orders directly to LightSpeed to have customers' prekits updated automatically.

The integration with LightSpeed also addresses the challenge of serving multiple areas within a location without incurring the costs of having a separate kiosk for each area. LightSpeed software tracks the inventory for each separate area within the location. Areas will have different service needs if the populations are different.

"That way you can have your prepacked boxes go straight to that floor," Kearns said. "You can pull those reports based on the volume that's going on in those stores.

"With Lane Jumper, you buy one license for that address, and you can get four 'stores,'" Kearns added. "You can use that same license for four floors/locations through that address."

The software allows the operator to keep track of product shelf life and product loss. "It's got a very powerful backend," Kearns said.

Lane Jumper markets can be set up quickly. "If you have LightSpeed, you send the order to LightSpeed. You pick it the next day, you stock the account, and you're done," Kearns said. With kiosk systems, it takes three to five days to set up a market. And Lane Jumper can suggest sources for shelves, racks and coolers.

One concern about the kiosk-less micromarkets is controlling theft, according to Aaron Speagle, chief executive of Breakroom Provisions, a micromarket kiosk provider. "There's no true way now to control theft with mobile shopping," he observed.

In a traditional micromarket, the customer pays at a kiosk and is recorded by the kiosk and often other cameras. "We are actually [recording] the transaction as it's going on," he said. With a kiosk-less system, "I don't see how you capture the transaction," he added.

Speagle argues that mobile payments are not yet a viable option in accounts with theft problems. Tablets in such locations could address monitoring for theft, he said. Additionally, he points out that some employers do not allow smartphones in the workplace, and that some locations have weak or no cellular signals.

Nonetheless, Speagle predicts that mobile payments will become more prevalent in refreshment services. Breakroom Provisions users can pay with Apple Pay and Google Wallet.

The app-based kiosk-less markets demonstrate the versatility that mobile payments technology can bring to refreshment services. As mobile shopping goes mainstream, opportunities for new customer conveniences and operating efficiencies will continue to emerge.

Vending machines are expected to be the big winners in mobile. When Apple Pay rolled out in 2014, cashless vending leader USA Technologies Inc. immediately began collaborating with the mobile tech giant on enhancing NFC payment solutions for the vending industry. With more than 500,000 connections at unattended locations, most of them vending machines, USAT has increased its focus on bringing mobile products and capabilities to operators on its ePort Connect platform. In one of its newest initiatives, USAT has paired More, its loyalty and payroll deduction program, with Apple Pay.

In a six-month study of transactions at vending machines, USA Technologies found that targeted point-of-sale advertising of Apple Pay delivered a 37% increase in overall sales and an almost 5% rise in total transactions. Additionally, the study found that the number of NFC or contactless mobile wallet transactions -- triggered when consumers hold their smartphones up to ePort screens -- increased by 135% on machines with targeted messaging.