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Vending Network Technology Enables Cashless Payment

Posted On: 4/25/2002

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LAS VEGAS - As the information technology revolution continues, it becomes more difficult to distinguish between payment systems, sales analysis tools and security and control procedures. The potential of cashless vending to boost sales and enhance marketing flexibility cannot be considered without taking into account the other advantages, and difficulties, offered by cashless payment technology.

This complex situation was discussed by a panel of experts at the National Automatic Merchandising Association Spring Expo here. Moderated by Dr. Michael Kasavana, NAMA endowed professor at the School of Hospitality Business, Eli Broad College of Business, Michigan State University (East Lansing, MI), the panel included Michael Lawlor of USA Technologies (Wayne, PA), Greg Westnedge of Marconi Online (Atlanta, GA) and Warren Philips, Validata Computer & Research (Montgomery, AL).

The landmark study conducted by the Hudson Institute for NAMA in 1986, "Vending to the Year 2000," envisioned more rapid development of cashless payment systems than actually occurred. Dr. Kasavana summarized the benefits that noncash transaction capability confers: greater convenience leading to increased transaction volume and a greater incidence of multiple purchases; the ability to offer products at higher price-points, and to increase pricing flexibility by eliminating the need to price in nickel increments. Operators also will benefit from enhanced controls as a byproduct. All of these benefits will increase revenues, the moderator said.

Overall, Dr. Kasavana pointed out, the technical goal of implementing a cashless payment system is to gain a competitive advantage by increasing productivity. This is the same objective as is sought by automating data collection in the warehouse, in the money-room and on the route, and much of the enabling technology also is the same.

USA Technologies' Lawlor described the variety of cashless payment systems used in retailing today. These range from credit cards and bank debit/check cards to proprietary online systems , the multipurpose student cards issued by universities, hotel keycards with multiple uses, and the like , through smart cards to such applications of smart-card technology as proximity (RFID) media that identify the user to a retail terminal without physical contact. There also are mobile or "m-commerce" systems based on the use of cellular telephones or RF-enabled "personal digital assistants" to make a purchase and transfer funds to the seller.

"There's no one 'right' cashless payment system," Lawlor said. "None will work well everywhere."

Credit and bank debit card systems, popular with consumers, require a wide-area network, the USAT principal explained. The merchant terminal that reads the customer's card must communicate through a network server to a card-processing facility, which authenticates the card and sends back a purchase authorization. This system offers good accountability with remote access, but is still challenged by $1 transactions, because of the processing costs.

Lawlor observed that there are four issues to keep in mind about these card payment systems. First, consumers like them, and are making more and more use of them for everyday purchases. Second, today's consumers readily accept cashless self-service applications like automated teller machines and intelligent gasoline pumps. Third, processing costs are coming down as volume increases and technology advances; and, fourth, equipping vending machines to allow patrons to use a popular payment option can confer a competitive advantage on the operator , smaller competitors are not going to do it.

There are more than 1.3 billion credit cards in the hands of the U.S. population, accounting for purchases worth $2.24 billion annually. Lawlor said that card transactions now represent 28% of all consumer commerce, and Nielsen research predicts that this figure will increase to 49% by 2010.

Cards are not only widely used and popular, but also relatively easy to implement in vending, Lawlor noted. He predicted that this will be driven by consumer demand, as bill validators were two decades ago. Like other cashless payment options, cards can increase volume (tests suggest 5% to 15% more traffic), boost average purchase value, often by encouraging multiple purchases; eliminate traditional vending barriers to price elasticity; and offer complete sales tracking and accountability. Coupled with the ability of some machines to permit remote uploading of DEX data, this can present a powerful tool for increasing sales and reducing losses.

Marconi's Westnedge pointed out that wireless data transmission is a logical "integration point" for cashless payment systems in vending. A wireless system consists of a communication device in the vending machine and a DEX (vending industry data transfer standard) interface. The vending version of the DEX store computer protocol dates from 1986, Westnedge said, and has evolved steadily. It deals with information in three groups: cash, "columns" and errors. Machines without onboard DEX capability usually can be retrofitted with a third-party device to capture this data.

A data collection device is necessary to prepare the file for transmission, and a communication device then can transmit it. That communication device is the "integration point," the Marconi executive explained.

In use, the machine then can transmit cashless transaction data across a wide-area network for authentication and processing. At the same time, it can provide detailed sales and audit information, relay data on machine status, and even communicate with the new electronic locks. This capability allows the operator to audit all door openings by the identity of the keyholder, time and date. Permissions can be changed whenever necessary, controlling access "windows" and minimizing the danger associated with lost or stolen keys.

The in-machine systems are supported by management software in the office, and Westnedge suggested that it is useful to divide these into two types. "Desktop applications" include report writers, programs that use sales data to prepare and update planograms, fault notification routines, access control programs and accountability software. "Dispatch applications" deal with information needed in the field, such as load reports, route cards (or their electronic equivalents) and driver itineraries.

Fully implemented, a wide-area vending network will include machines able to communicate with a financial services computer for cashless payment processing, and also send transaction, inventory, functional status and entry information to the operator's headquarters. The office computer system will receive payment, inventory and status information from the network, and route information from the office staff. It will generate route instructions and reports.


Westnedge observed that, once such a system is in place, it offers a very wide range of options. These include loyalty discounts, coupon promotions, support for in-machine video displays and Internet-based services.

Finally, he added, operators should keep an eye on "m-commerce," nowadays generally effected by cellular telephones. Such systems generally involve placing a phone number on the vending machine for the customer to call, enabling the transaction. In Australia, such a system has boosted vending sales by 20%. The diversity of cell phone systems in the U.S. has impeded implementation of this sort of service, he said; in Europe, the service provider generally handles transaction processing directly, while in this country at present, consumers must enroll in online programs to set up accounts that they can debit with their mobile phones.

Validata's Warren Philips observed that these are exciting times. He has been looking at technology in vending for 25 years, he said; "and what's exciting today is that the pieces that work well alone are beginning to work together." This cooperation now is being fostered by technology suppliers, he said.

Advances are being made steadily by integrating new capabilities into the traditional route accounting and management systems that vendors use, the Validata founder pointed out; the object is to make the transition to the next generation of high-volume vending sales technology as "seamless" as possible. Operators should bear in mind that they do not confront "all-or-nothing" decisions, he emphasized; it is possible to make a smooth transition.

Handheld route computers are a good starting-point for this transition. They may be used as route cards, receiving data entered manually or uploaded automatically from the machine with a DEX connection. The information returned in them can be used by the host computer for all the traditional support functions, including management of truck and machine inventories, cash-to-merchandise reconciliation and the preparation of management reports.

Once this system is in place and working, it can do much more, Philips said. Data can be supplied to online services like "VendScape," which in return supply detailed sales analyses for use in 'benchmarking" machines, accounts or routes to determine where improvements are needed.

True category management can be implemented, on the basis of current, detailed sales data. This also offers improved "inventory pipeline" control, Philips noted. The ability to increase sales while decreasing inventory and administrative costs is a powerful incentive to use this technology, he added. And cash and cashless payments can be consolidated, providing swift reconciliation.

The key to obtaining all these benefits is interoperability, Philips emphasized. For this reason, NAMA's Vision Committee is striving to obtain agreement on a variety of standards to assure that the pieces will fit together and work in synchronization. The committee is bringing together machine manufacturers, producers of pricing and credit systems and software suppliers for this purpose.

In the ensuing question-and-answer session, an operator asked about the problem credit-card issuers seem to have with small transactions.

Lawlor explained that the problem is not with the card companies, but with the processing services. Specialized financial companies, like USA Technologies, often can negotiate better rates on the basis of streamlining a large volume of transactions.