Cashless expands, posing hard questions

The options for adding cashless vending have increased, and the quickening rate of adoption among operators raises some important questions. A key question is how soon the “tipping point” will arrive, that time when the offering has become prevalent enough that operators must consider using it for competitive reasons.

Industry observers hold different views on how close the “tipping point” is, but most agree that the rate of investment has picked up significantly this past year, the recession notwithstanding.

Industry observers estimate the number of vending machines equipped with “open” cashless readers at about 100,000 in the U.S.

Against a total universe of 5.3 million machines in the U.S., based on the Automatic Merchandiser State of the Vending Industry Report, about 1.8 percent of machines have “open” cashless capability. (The 2010 State of the Vending Industry Report noted

2.3 percent of machines in 2009 have cashless readers, but this figure included stored value, closed loop readers.)

The percent of installations may seem low, but cashless system providers estimate the number has nearly doubled in the last year alone.

Factors to consider

This article will examine the factors that vending operators should consider about expanding into “open” cashless vending. “Open” cashless refers to the ability to use credit and debit cards issued by financial institutions in vending machines.

Vending operator surveys have indicated that most operators recognize the benefits “open” cashless will bring to the vending industry. Surveys have also confirmed most believe that cashless will at some point be prevalent.

“Open” cashless is an evolving development. As more cashless readers are installed, operators are learning more about the locations, price points and operational support systems that work best.

In addition, the market continues to change in ways that affect operator success. Product price points continue to rise, and consumers are becoming more inclined to use credit and debit cards for smaller transactions.

Most of these developments support the case for cashless. However, “open” cashless is not an easy business to understand for persons not familiar with the way credit and bank debit transactions work.

One contributing factor to the increasing rate of investment is the National Automatic Merchandising Association (NAMA) cashless program, introduced this year, which is designed to offer favorable processing rates for cashless transactions. The NAMA cashless program is a networked end-to-end solution that is hardware neutral and works with qualified communication suppliers and card associations for payment reconciliation and account management.

The NAMA initiative has received a lot of interest, based on the number of visits to their cashless solution section of the NAMA Website.

The Website includes several pages that provide a good overview for operators who want to understand the different components of “open cashless.”

The NAMA Website features a cashless calculator designed to help operators determine if a cashless solution makes sense. The calculator requires operators to estimate what percent of all transactions will be cashless, what percent of incremental sales increase (if any) they anticipate, and what percent of cashless sales are likely to be divided between credit cards and debit cards. The calculator incorporates special discounted Visa interchange rates available through select cashless payment gateways that are available to NAMA members.

Based on these estimates, the calculator helps determine annual net incremental operating profit per machine.

The NAMA program represents a partnership with Bank of America Merchant Services (BAMS), one of the nation’s largest processors providing both card processing services for cashless transactions as well as business-related applications. The NAMA cashless solution takes advantage of incentive-based fees and rates available through qualified gateways, noted Prof. Michael Kasavana, the NAMA endowed Michigan State University professor who helped develop the program.