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Wednesday, June 23, 2010

Bringing Cashless Vending Into Focus, by Alicia Lavay-Kertes

Issue Date: Vol. 50, No. 6, June 2010, Posted On: 6/21/2010

Bringing Cashless Vending Into Focus

Alicia Lavay-Kertes
Alicia@vendingtimes.net
National Automatic Merchandising Association, NAMA, Bank of America, cashless vending, vending, vending business, vending machine, coin machine operator, vendor, vending news, bulk vending, coin-op, coin-op games, coin-op news, Vending Times, Alicia Lavay

The industry is talking about the National Automatic Merchandising Association's new Cashless Solutions program. For readers who are not familiar with NAMA's newly formed relationship with Bank of America Merchant Services, you can read more about it elsewhere in this issue.

If you are aware of it but are still confused, I have a sneaking suspicion that you're not alone. Don't get me wrong. I truly believe that this is a real game-changer, just what we need to revitalize the industry. We have recognized for years that offering patrons the ability to pay with their debit or credit cards can overcome much of their resistance to $1-plus vend prices. And we have known that alert use of today's technology can allow us to devote more attention to spending patterns and better meet patrons' desires, while learning more about those patrons. So why isn't everyone doing it? Because it costs money. Perhaps worse, it involves a great many parts, and it's not easy to see how they fit together.

The good news is that NAMA has been able to negotiate attractive processing rates with BAMS for the new Cashless Solutions program. Those who have been on the fence, wondering whether (or when) to adapt or purchase new vending equipment, now see several paths that they can follow. Access to the details gives shape to the imagination; people can envision the steps involved in getting from here to there.

For this reason, suppliers should be aware that a great many operators now will be drafting plans, even if only in broad outline, and those plans will include hardware and software preferences. Now is the time to make themselves and their products visible and desirable.

To understand the opportunity, we need to understand the choices. The NAMA program is a good place to start, because it is detailed and transparent. It is an excellent source of questions to ask prospective service providers.

When I took a step back, I recognized that my confusion largely was caused by the number of participants involved in a cashless transaction. NAMA does a good job of explaining this. In broad outline, there are four, including the cardholder. Completing the transaction involves looking to see whether the card is valid, then sending the charge to an acquiring (or merchant bank) for settlement and to an issuing bank, which issued the card and bills the cardholder. This basic structure predates wireless networks and even the networked merchant terminals used in retail stores. Underlying it was (and is) a supervisory body - a "card association" or something that does the same things - to establish and enforce rules, and to route transaction data to the cardholder's bank.

Automated transaction processing at high speed has slashed the cost of doing all this. It has made accepting cards attractive to retailers selling lower-price merchandise. For that to happen, though, more components had to evolve. These include a secure wide-area communications medium or channel (in vending, almost always a wireless network), a "payment gateway" to receive the transaction request, retrieve the data and generate reports, and a "payment processor" to receive data from the "gateway" and route it through the card association to the acquiring bank.

This complexity makes it hard to tell who is doing what, and to whom; but it does encourage competition and so widen choice, spur progress and keep costs down. Variety offers operators the ability to choose, or assemble, a program that meets their needs most closely.

This point isn't often made, but I think it should be. If one giant organization controlled every part the system, including the communications medium, and allowed no competition, it would have little reason to improve and it could charge what the traffic would bear. As it is, we have a fruitful mix of competition and cooperation that has expanded the playing field.

Another point worth making is that every advance in vending payment has imposed a cost, but also has increased sales volume and made it possible to sell a wider variety of merchandise. The ability to offer major credit and bank debit card acceptance can strengthen the appeal of "closed" (hosted internal) cashless systems in the many locations that can benefit from them. This is good for operators, suppliers and locations alike. It broadens the range of available options that operators can adapt to their locations' needs.

And, unlike coin changers and bill validators, cashless terminals give vending access to a new world of retail promotional opportunities. They represent another step (and it is a big one) in vending's long journey toward the retailing mainstream.

Operators now can, and should, study their particular situations carefully, evaluate their options, and adopt the new technology they need when they need it.

The worst thing to do would be to ignore opportunity when it knocks. We cannot let the world pass us by.

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