How credit card systems work
When installing credit card readers in vending equipment, each terminal must be connected to a public network so the credit card transactions can be authorized. This connection is rarely free, and most often is carried over a cell provider's data network that involves monthly charges that are incurred by the cashless provider.
In addition, there are fees involved in "clearing" the credit card transaction. These fees are passed on to the cashless provider who in turn must pass them on to the vending operator. While several variables determine the total fees, there seems to be a fixed component on a per transaction basis (estimated at 7.5 to 10 cents per vend), and a charge based on percentage of credit/debit sales of 2 percent to 3 percent.
These systems are more cost effective when the vend price is higher. Therefore, wider adoption of credit card systems in vending will depend on:
- Vending operators and bottlers being able to justify higher vend prices (on a par with convenience stores).
- Communications costs continuing to decrease.
- Lower transaction fees from credit card companies and merchant banks.
Largest deployment to date: USA Technologies
USA Technologies has the largest deployment of credit card readers and has worked with several Coke bottlers, Cadbury Schweppes, and numerous vending operators. The system costs about $600 for the hardware, $9.95 per month for network fees (cellular), and 5 percent of the cashless vending transactions as processing fees.
The company's research suggests that consumers spend 32 percent more per transaction when using their credit/debit card, in comparison to cash purchases. Other studies suggest that the higher the vend price, the higher the percentage usage of credit and debit, starting at 19 percent when the vend price is under $1 and topping out at 27 percent at vend prices over $2.50.
Chris Barnes, manager of corporate communications at Cadbury Schweppes Americas Beverages, noted that they have seen anywhere from a 5 percent to 35 percent increase in revenues from machines where USA Technology's e-Port credit/debit systems were installed.
As added benefits, USA Technologies provides customers access to the USA Live Website, and will send operational (DEX) data over their network to the operator's software systems. They currently are doing this with operators that are using Cantaloupe's Seed and Crane Streamware's VendMAX systems.
More partnerships emerge
TNS is the largest payment gateway in credit card processing, and has an ongoing partnership with Pepsi to provide credit cards in Pepsi branded vending equipment. The system is installed in the machine near the baggage claim area of the Oakland Airport in Oakland, Calif.
The details between TNS and Pepsi's agreement are confidential.
Debitek, now fully owned by Heartland Payment Systems, will be offering a full "end to end" solution this year. Stacey Cooper, director of product management, noted that "at Heartland, we eliminate the middleman, because we offer the in-machine equipment, we are the gateway, and we are our own merchant processor."
While he did not have specific pricing available, he suggested that the costs of doing transactions in vending "vary based on a number of factors, including volume, location, and average vend price. However, if our services are used at the foodservice POS terminals, we will roll the vending costs into the same contract at a lower price."
The Debitek solution will initially use Ethernet or Wi Fi for connectivity, so presumably the communication costs will be favorable compared to a cellular solution.
There is no doubt in my mind that cashless systems offer several opportunities for increased profitability in vending today.
Cashless gives vendors a new benefit to offer
Vending operators should think about including cashless systems as part of the bidding process. Operators should use cashless to justify higher prices and take the focus off of low prices and high commissions.
Credit/bank debit card systems work today in high price point/high volume locations, and operator costs will be driven down by competition, innovation, and the eagerness of the entire credit/debit processing system to get into micro-payments.