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TNS Expects To Fit 10,000 'Pepsi' Venders For Cashless Transactions

Posted On: 6/14/2005

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- Transaction Network Services, one of the largest data communication firms focusing on the payments industry, is accelerating the deployment of its cashless vending system. "Synapse," a wireless transaction data communications platform developed for Pepsi-Cola's vending operations, is slated for installation in 10,000 cold drink machines by the end of this year.

TNS is the exclusive provider of wireless transaction services for Pepsi-Cola North America. At the end of May, there were 750 machines online, most of them in high-traffic locations in Chicago, Las Vegas, Memphis and Orlando, FL.

According to TNS, adding cashless payment capability has helped Pepsi win key accounts and negotiate premium price placements in these markets. At the Memphis Zoo, cashless capability was the deciding factor in awarding the contract. In a Las Vegas hotel, Pepsi increased vend prices from $1.50 to $2.00 for 20-fl.oz. bottles; TNS reports that the cost of upgrading the machines was recovered in three weeks.

For Chicago-based Levy Restaurants' contract foodservice business, Pepsi machines equipped with "Synapse" have experienced a 17% volume lift. Pepsi and Levy have agreed to a two-year trial of 150 cashless machines vending 20-fl.oz. juices, water and other premium cold drinks.

"TNS spent a lot of time with Pepsi bottlers to prepare for the launch," said TNS president and chief operating officer Brian Bates, a 20-year veteran of the telecommunications and point-of-services industries. "Pepsi has been pleased through the 'Synapse' pilot and production rollout."

Last year, TNS acquired certain assets of U.S. Wireless Data Inc., a provider of wireless transaction services that filed for bankruptcy protection under Chapter 11 in March 2004. Among those assets was the "Synapse" platform, which was starting the production phase for Pepsi after completing successful beta testing.

"TNS was interested in the vending technology," Bates told VT. "The 'vending space' is a perfect fit for wireless transaction processing, and the next logical step for TNS to grow its wireless transaction business."

TNS regards its "Synapse" technology as the optimal one-stop solution for cashless vending enabled by a wireless network. The wireless method, Bates pointed out, offers several benefits: there's no need to hardwire equipment and no impact on local area networks. While wireless coverage and penetration are improving, there still are installations in which radio cannot be used reliably; the "Synapse" system is flexible enough to accommodate the necessary workarounds in these situations.

As an interface, "Synapse" seamlessly connects merchant acquirers, card processors and their customers. TNS moves data between machines and acquiring banks that provide merchant services, which contract with the vender; it is independent of the banks.

Pepsi bottlers can install "Synapse" on any machine they own, and each bottler can determine whether to make those machines available to third-party operators, and on what terms. And operators can work directly with TNS to get "Synapse" on machines supplied by a bottler. Of course, TNS cannot deploy on Coca-Cola Full Service equipment.

Installing "Synapse" requires just 15 minutes, TNS said. The main components consist of a box, called the "enabler," and an antenna. The enabler, which mounts in the vending machine, "talks" to the vender's DEX-capable crediting device. The antenna sends and receives data.

"Synapse"-enabled machines work with MEI's "Series 2000 Combo" validator, which accepts cards and also is equipped with the popular "Series 2000" bill reader. The credit-card interface is a rugged, debris-resistant "swipe" system.

Pepsi has about 1.2 million vending machines in the U.S., TNS estimates, and some 800,000 are of sufficiently modern design to support the "Synapse" platform. The system works with the latest Pepsi venders manufactured by Dixie-Narco, Royal Vendors and SandenVendo. TNS and Pepsi field personnel can retrofit venders on location. At Pepsi's request, TNS is working with cold drink machine manufacturers to offer "Synapse" in original equipment.

"Synapse" supports credit and debit card media. After a card is swiped, data is sent to the enabler and then transmitted to the card processor for authorization. The process to authorize a vend takes three to four seconds, and the sale is reconciled just like a transaction with a coin or bill.

According to Bates, lower transaction costs have made cashless vending feasible. "The card associations have established a lower rate for vending compared with the retail sector," he said. "And availability of cashless systems is increasing sales , on average, Pepsi is seeing a 17% increase."

He reported that the cashless option on machines installed to date is, on average, capturing between 20% and 25% of sales. In some locations , the Las Vegas Convention Center, for instance , cashless sales have increased to as much as 50% of the total.

TNS is planning this month to introduce a major upgrade to the "Synapse" system, the addition of GPRS technology. GPRS, which stands for General Packet Radio Services, is a packet-based wireless communication service that promises data rates from 56 Kbps up to 114 Kbps and continuous connection to the Internet. GPRS is based on Global System for Mobile communications (GSM), and will complement existing services such as circuit-switched cellular phone connections and the Short Message Service (SMS).

Bates explained that the GPRS wireless protocol is global, and has become the standard outside the U.S. "Broader coverage and greater bandwidth are two of the benefits of GPRS over existing wireless protocols," the TNS president said. "Synapse's" existing networks, specifically Mobitex (Velocita) and Datatac, will continue to work and will be used to supplement the GPRS enabler where appropriate, he added.

The enhancement also will enable the company to expand its vending network internationally. TNS is active in 13 nations, and has especially large market presence in the UK and Australia.

Beyond greater data capacity, TNS is already developing "contactless" payment solutions for "Synapse." At the "Synapse" vending lab in Palmer Lake, CO, TNS is testing several RFID products, Bates reported. "We are committed to supporting any and all payment types for our vending customers," he said.

The company is planning to roll out its wireless cashless technology for snack, coffee and food machines, as well as for laundry and copier equipment. "Our direction is part of the greater machine-to-machine market," Bates said. "We're going to take cashless all the way, and we believe that it'll be widely accepted in vending."

Transaction Network Services was founded in August 1990 by Jack McDonnell, who recognized a need for a communications network focused on the needs of the point-of-sale transaction processing industry in the U.S. The company completed an IPO in 1994, and expanded into other network services areas before its sale to PSINet in late 1999. In March 2001, GTCR Golder Rauner agreed to acquire the Transaction Solutions subsidiary of PSINet, in partnership with a team of executives led by McDonnell. The company recently reverted to its former name, Transaction Network Services (traded on the NYSE: TNS), and is organized into four divisions: Point-of-Service, Telecom Services, Financial Services and International Systems. TNS processes $10 billion in transactions annually in the U.S.