Cashless Solutions: Effective Models are Emerging

Cashless systems have been available to the vending industry in some form or fashion since the mid 1980s. These systems have offered a variety of ways for the consumer to purchase products from a vending machine without using hard currency, utilizing student ID cards, RFID keys, hotel keys, employee badges, and standard credit and debit cards. Some systems even allow the consumer to be identified using simply a PIN number or a fingerprint (like the security system built into my latest laptop).

Cashless systems have gained traction in several other markets like gaming, laundry, self-serve kiosks, and certainly credit and debit cards are accepted virtually everywhere, even at most fast food restaurants. Cashless is much more widely deployed in Europe and some estimate that 70 percent of all vending equipment in Italy is outfitted with cashless technology.

What has hindered widespread adoption of these systems in North America? Are cashless solutions profitable for vending operators? In what types of locations does the cashless model work for operators and consumers? Does the technology work and can it be easily deployed today?
In reviewing the performance of cashless vending to date, I found some remarkable instances where cashless has not only vastly increased the profitability of the operator, but the success has led to the elimination of all hard currency payments.

After talking to cashless providers and their customers, I believe that most operators could benefit from deploying certain types of cashless systems in specific targeted types of machines. More importantly, I believe selectively offering cashless systems in competitive bids could allow operators to win bids without offering the lowest prices or highest commissions.

This article will examine the different types of cashless systems, focusing separately on closed systems for special applications and credit and debit card systems that are suitable for increasing sales at public locations. It will also examine how advances in technology have solved most of the problems associated with deploying cashless solutions.

Different types of systems: Closed and Open
A cashless veteran will speak of many different types of cashless systems and their architecture, but for most vending operators, cashless systems can be considered in two broad categories.

Closed cashless systems are suitable for closed environments like factories, universities, prisons, or hotels where the consumers are known in advance and have cards, ID badges, keys, hotel keys, or even their fingerprints that are used instead of hard currency to purchase goods from vending machines. Closed cashless systems come in two categories.

Stored value closed cashless systems store the value of money in a chip on a card or key that is read when swiped or inserted into the vending machine.

Online closed cashless systems only need to identify the consumer somehow (i.e., thumb print, PIN, employee ID badge, university ID, etc) during a purchase. The system contacts a central computer over a wired or wireless network to authorize payment. The value of the money in a user's account is stored on the central computer rather than with the consumer.

Open cashless systems refer to standard debit or credit card accepting systems which can be installed in any vending machine to give consumers a common alternative to cash when purchasing goods from a vending machine. These are also "online" systems, but the central computer is the credit card issuer's bank. This article will reference these systems as standard credit/debit card systems.

While these are the two primary types of systems, it is important to note that many cashless systems available today actually provide "hybrid" functionality between the systems. For example:

Most stored value closed cashless providers offer a "recharge" station that can recharge the keys using standard bills or standard credit cards.
Students in a middle school may be able to use their student ID at the vending machines, but these charges may ultimately be charged back to their parents' bank accounts using Web-based software provided by the school foodservice system.

How do cashless systems install in vending equipment?

A vending machine with cashless equipment installed looks like other vending equipment, except that it includes the cashless equipment in addition to (or instead of) a bill validator and coin mechanism.

The cashless equipment may include a card reader, a slot for an electronic key, or a PIN pad for the user. Most cashless systems also include a 2-line display that works with the vending machine's display to make the experience simple for the user.

Cashless systems can be installed in any modern vending machine that supports the Data Exchange (DEX) and Multi Drop Bus (MDB) standard NAMA protocols. MDB allows the cashless system to communicate with the vending machine controller (VMC) and credit the system with cash value during a consumer purchase.

Most new equipment today supports later MDB protocols that also allow the consumer to recharge stored value at any vending machine that accepts currency.

DEX allows the VMC to communicate the cashless and cash data to the operator's software system via a handheld computer or remote monitoring system for cash accountability purposes.

Costs vary depending on functionality
How much does cashless equipment cost on a per machine basis? It varies, even by each provider, depending on the options chosen. Operators should plan on spending $250 to $650 per machine for the in-machine hardware.

For closed stored value systems, additional costs are generally required for programming equipment, cards and keys, and recharge stations.

For closed, "online" systems, a software-based server is generally required and some type of networking is required for communication between the machines and the server.

For credit/debit card systems, monthly networking fees and processing fees are required.

How has technology helped? Advances in technology have paved the way for easy adoption of cashless technology despite challenging issues in the past. The chart on the opposite page lists several challenges and solutions related to cashless deployment and technology.

Closed Cashless Systems
Closed cashless systems are perfect for environments where there is a captive audience that is best served by enabling another form of payment besides cash.

I suggest the following guidelines when choosing a stored value system versus an online system. Both systems can be used with foodservice point-of-sale terminals.

Choose a stored value system when:

  • Cost and complexity are factors. Stored value systems are very cost effective and easy to install because no wired or wireless connection is needed between machines.
  • You want to enable consumers to try "credit card" vending, but at a lower cost to you. A single recharge station can serve several banks of machines, and because money is transferred in greater quantities to the cashless system, (typically $10 or more), credit card processing fees are minimized.
  • You want a system that will be easy to maintain.
  • Using the cashless provider's "key" or "card" is convenient to the end users. The keys are typically very small and can be stored on a keychain or worn around the neck.

Choose Online systems when:

  • You desire to support an existing consumer ID system (magnetic card, ID badge, hotel or resort key) and the cashless provider can provide this support.
  • Seamless integration into other software systems is needed and must be done in real time, such as a hotel system with billing to the room, or a factory where an ID card is used for automatic payroll deduction.
  • Part of the solution involves restricting what can be vended based on the identification of the consumer, such as a middle school student whose parents only authorize organic foods.
  • The account is willing to provide connectivity (Ethernet or Wi Fi) for you to use at each machine.
Cashless vending: challenges and solutions
Challenge
Solution
Systems are incompatible or difficult to install in
vending machines.
The NAMA MDB standard allows cashless systems to be compatible with all modern equipment that supports MDB.
Cash accountability is nearly impossible because cashless data is often provided monthly to vending operators.
Modern VMCs separate cash and cashless transactions in DEX data, and software and remote monitoring systems like Streamware’s VendMAX and Cantaloupe’s Seed separate this data and provide it in daily reports to the vending operator.
Closed system’s data is hard to get into point of sale, property management or other software systems.
Cashless providers offer professional services and team up with vertical point of sale and software companies to provide integrated solutions.
Vending consumers have to carry separate cashless
cards or keys.
Cashless systems provide more options to support existing keys, student ID cards or employee badges. Most recently, PIN badges and biometrics can be used so consumers don’t have to carry anything to make purchases.
Cashless systems are hard to integrate into vending equipment that still supports cash.
Equipment makers have added more space in newer machines. MEI and Coinco make “combo” bill validators that accept cash or standard magnetic stripe cards through the same slot.
Wireless connection issues make early credit and debit card systems unreliable because of network connection issues.
Standard cellular data networks have been built providing vastly improved coverage.
Monthly “network” charges are still expensive for credit and debit card systems.
Providers have worked to support Ethernet and Wi Fi as less costly alternatives to connect machines. Remote monitoring firms will partner with cashless providers to share networks and deploy machine “banking” solutions that further reduce costs. Shared network costs between cashless and operational data for scheduling and pre-kitting further improve return on investment.
“Settlement” processes with card and cash transactions are time consuming and hinder timely reports.
Credit and debit card providers have provided “live” Websites and integration into operators’ systems to provide timely settlement data

Vending and Food Service in Industrial Locations
Stored value and online systems have been successfully deployed at numerous industrial locations.

Barb Stork, president of Midwest Provisions, Inc. of Sioux Falls, S.D., provides foodservice and vending to several companies in South Dakota using a unique business model. Five years ago, her company operated like most providers, accepting only cash for foodservice and vending transactions. In 2003, she partnered with cashless provider eSecure Peripherals to change her business model.

Stork noted, "We felt that we could offer a more convenient solution to the end consumers by allowing them to utilize a payroll deduction system based on the ID badges that the employees were already carrying, so we designed a system where the ID badges would be accepted as ‘cash' at all our foodservice and vending locations. Eliminating all cash handling at Midwest was just a bonus."

Stork and eSecure worked with several companies to forward the purchases made with the system so they can be automatically deducted from the employee's payroll checks.

Cashless system providers: product summaries and contact information
Provider Summary System type Contact Information
cStar Technologies Proprietary wireless machine
communication systems for
networked machines
Closed online 416-739-8484
www.cstartech.com
Debitek/Heartland
Payment Systems
Full credit and debit solutions Closed stored value and online;
credit and debit with HPS
800-332-4835
www.debitek.com
eSecure Peripherals Integrates with school
and payroll deduct systems
Closed stored value and online 888-377-9282
www.esecureperipherals.com
Microtronic Multiple solutions Closed stored value and online 800-879-3586
www.microtronicus.com
PaykeyUSA Several large deployments Closed stored value 864-527-4408
www.paykeytech.com
TNS Largest payment gateway
in credit processing
Credit and debit online 800-240-2824
www.tnsi.com
USA Technologies Operational data forwarded
to software systems;
simple pricing
Credit and debit online 800-633-0340
www.usatech.com
ZipKey
(Vendors Exchange
International Inc.)
Many peripherals and options Closed stored value 800-321-2311
www.zipkeyusa.com

Cashless improves sales
The results have been beneficial for everyone, and it has allowed Midwest Provisions to gain new accounts. Since implementing the cashless solution four years ago, the statistics speak for themselves.

Year-over-year December sales increased 18 percent when they switched to cashless.

A debit card system was provided in case employees did not want payroll deduction. Stork noted that 90 percent of the sales come directly from payroll deduction; only 10 percent choose to recharge debit cards at recharging stations.

At one location that services outside truck drivers and visitors, Midwest Provisions has two identical soda machines side by side, and the machine that only accepts cash does 20 percent of the volume of the machine next to it that is only cashless.

Higher Sales and less vandalism
cStar Technologies, Inc. has a proven solution that works for the hotel operators and guests alike. The Genie™ system allows hotels and resorts guests to use their room key to purchase products directly from vending machines with direct billing to the guest's room.

Venicio Rebelo, general manager of the Ambassador Conference Resort in Kingston, Ontario, implemented the cStar solution two years ago at the resort and later at a Four Points by Sheraton with great results. "At the first property, we saw an increase in profits of 67 percent with an additional 17 percent increase in the second year. The removal of cash from the vending machines has eliminated four to six vandalism incidents per year."

This online system is fully integrated with the system's property management system for automated customer billing.

PayKey USA provides a closed stored value system that has seen wide acceptance of the system in statewide prison systems.

"Before PayKey, inmate visitors could only carry $15 cash inside the visitation room, greatly limiting the amount of money spent by the visitors," said Alex Kiriakides, president. Now, they are allowed to take up to $50 inside on their key. Sales have increased by as much as 30 percent and cash handling and refunds have been greatly reduced.

Next month, we'll review the performance of standard credit and debit card systems.

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