Alternative Payment: Tokens to Technology

Locations that give employee perks know how much their staff enjoy the free soda at an event or the gift certificate presented for good performance. Employers often choose their refreshment services based on who can offer these promotions, which means vending operators have a great opportunity when they provide alternative payment options. Tokens and coupons can be used in lieu of commissions, refunds, added value, etc. Technology is adding even more possibilities.

The options

The most established payment option — coupons — is very secure, printed with special inks that cannot be copied. Each bill acceptor manufacturer provides them as added value or service.

One advantage of coupons is counting; typical bill counters even with no special features will separate them from bills. However, the cost per coupon is high, and counters cannot distinguish between different coupons, so manual sorting is also needed. One reason the cost is higher is the limited life of the coupon. One operator reported his generic coupons lasted 15 vends.

With the world moving cashless, online and stored value technologies could replace coupons and token programs. With many advantages, like unlimited use, additional applications, technological novelty, and reasonable price, the keys and fobs for these systems are growing. The drawback, as with other cashless options, is the high cost of transaction fees and service, as well as the need for new equipment.

Alternatives ideal for free vend

Bob Yeomans, owner of Central Vending, Janesville, Wis., quickly saw the benefits of coupons for his company. He had several accounts that wanted periodic free vend for beverage machines during the lunch hour. "I was excited about less labor involved for events," he said. "I had to have a guy go out at noon and turn on the free vend. Then go back at one."

By selling coupons to the location, he didn't need to temporality place the machine on free vend. Hence, he eliminated those trips to the location to activate and deactivate the free function. This saved him labor and time. Not only is he not paying the employee to go to and from the account, but that employee is spending the time doing something more productive.

When Yeomans met with his vending location client to offer the coupons, he mentioned the benefits they would receive.

First, the alternative payment eliminated the charge from Central Vending, for going to the location twice. Secondly, free vend had allowed less scrupulous employees to take multiple beverages — more than they could possibly drink. This charge was passed on to the location, costing them extra money. If a single coupon was given to each employee, it was still free, but the location could control the cost. Plus, the coupons could be distributed by the company at other times, as an additional advantage. Yeomans' locations enthusiastically agreed.

Alternatives become added advantage

Depending on the location, the use of coupons can actually increase sales. Yeomans has vending machines at a hospital that rewards ambulance drivers for coming to the hospital with coupons to the vending machines purchased from Central Vending. "I'm sure it's increased sales in the hospital. Certainly not every driver would buy something if they did not receive the coupon," said Yeomans.

Billy Whitacre, COO, Food Express, Inc., Greensboro, N.C., originally interviewed in a 1996 Automatic Merchandiser article about his coupon use, is still using them. He uses a lot at companies' catering events, for free vend or to reward employees, with some companies ordering thousands of coupons at once. "They call us all the time for coupons," he said.

Whitacre will also carry coupons to give away when he visits a location. Which leads to one of the real benefits of coupons. According to Whitacre, "When you give away a $1 coupon, you're really only giving away the cost of the product, which might be 48 cents, instead of a dollar." The patron is receiving more perceived value than the cost to the operator.

Whitacre definitely uses the fact that his company offers coupons to win business. "It's more of a sales tool or marketing (tool) for us," said Whitacre. "To sell a location, we tell the customer we have coupons, then suggest how we can use them, how they can use them, etc."

Whitacre said some operators are using coupons instead of cash for refunds, although his company is not doing this. It counters fraudulent refunds, especially when business gets tight, but it can be a tough sell.

Having partnered with Coin Acceptors Inc. (Coinco) back when coupons were first being developed, Whitacre has fine tuned some of his practices when using the non-cash payment. He use to allow different locations to customize the coupons, using their logo. "We got away from that because the (bill) counters won't separate by company," said Whitacre. The machines simply separate the coupons from cash. Whitacre decided to just have a standard coupon.

"We don't charge a fee for printing a coupon anymore," added Whitacre. Now the charge is simply the face value of the coupon, either one dollar or a free vend.

Yeomans at Central Vending hasn't started using coupons for refunds because the coupons only come in dollar amounts or a free vend, which tends not to match the cost of the refund. He also finds companies don't want to foot the bill for personal logos and are satisfied with a generic coupon. A trend he's noticed is the move to one-vend options. "The bulk of coupons used are for soda sales," Yeomans said. "As we move (higher than the) $1 price point, these (one free vend coupons) are better solutions."

Dominic Macerola, president, Rome Refreshment Services, Houston, Texas, uses generic Coinco coupons for larger customers. He has also found them to be a good selling tool. "When you're targeting companies interested in good equipment and quality service, they do appreciate that (the coupons)," he said. He's even provided them to a school, which purchased the coupons from him to provide to students as rewards; they allowed students to get snacks and beverages from the machines.
Macerola never used tokens, believing coupons are easier to work with and look more appealing.

Overland, Kan.-based Treat America Inc.'s president John Mitchell Jr., has been using generic coupons from both Coinco and MEI for several years as options in lieu of commissions. About 5 percent of customers take advantage of his coupon option, but these customers typically end up buying more coupons over time when they see what they can do with them.

"It really becomes a source of opportunity for our clients to do all sorts of fun things," Mitchell said. "The clients who use them like them a lot." It isn't unusual for clients to use coupons as rewards for various types of achievement, such as following safe practices. According to Mitchell, one client stands at the front of the building in the morning, passing out coupons for a free soda to all employees who come in on time that day.

Manufacturers have multiple generics

Generic coupons do differ from each other, so there is no cross usage between vending operators' machines. Tom Mattingly, national service manager, Coinco, said Coinco never gives the same generic to more than one operator in the same area. Generics run about 10 cents apiece with a 1,000 minimum order. Custom coupons are also available, but are more expensive with $3,000 for development of 4-color graphics, which mean upwards of 60 cents a coupon; less with big orders and fewer colors.

Coinco also sells the handheld programs needed to program the validators for its coupons. One unit, which will do infinite machines, is approximately $135. Mattingly said, "I'd say right now it (coupon usage) is on the upswing." He attributed this largely to Canteen's recent push.

Crane Merchandising Systems/NRI sells coupons, a free vend version with the JCM DBV 301 machine and three different values (free, $1 and $5) for the new Cashcode validators. According to Chuck Reed, CMS' vice president and general manager, the non-cash payment systems are being included in bill validators because of the interest, but usage remains low.

MEI uses third parties to make both coupons and tokens for use in the MEI machines which require no special programming unit.

Craig Lewis, marketing communications manager, MEI, also sees a low penetration for the sites that use alternative payment options. "I'd say 5 percent or so take either coupons or tokens," said Lewis. Still, he noted that coupons are ramping up.

The case for tokens

While most operators are talking about coupons and using bill validators to accept these options, Lewis argued that operators are missing out. "If you have a token, that's something people like to collect," he said. "A coupon isn't the same." A token can be a calling card. Lewis refers to them like Las Vegas poker chips; the $5 business card. Tokens are also often cheaper to customize, especially since they last forever. At the end of the day, a token can be below 25 or 15 cents each. To get that cost for coupons, the quantity would be triple. A coupon must be programmed for a dollar amount or a free vend. A token can be specified for any amount, including cents. This gives operators added flexibility.

Jim Wahl, owner of Wahl Marketing Communications — a business-to-business marketing communications firm that has written frequently on token usage — and representative of Tokensdirect, a division of Osborne Coinage, argues that tokens are marketing tools. "When someone reaches into their pocket and sees the token — it's a little more branding," he said. Also, when major events come to town, such as the Olympics in Atlanta, Ga., the vending operators can take advantage of "souvenir" nature with tokens. Many operators in Atlanta had coins made up with special pictures commemorating the Olympics, and the coins got saved instead of used, said Wahl.

He has a customer who runs a bank of 40 vending machines at his self-serve car wash. He runs everything on token vend. Wahl argued that machines that use only tokens are less tempting to crooks since they'd get tokens, not money, if they broke in.

This is especially true if a cashier exchanges cash for tokens, not a machine, although extra security could be placed around just the exchanging machine.

According to Wahl, advantages to tokens are not just their durability and collectibility, but also counting. "You can do a lot more in automatic weight counting with tokens," he said. Knowing the weight of X number of coins, the operator is able to determine the number of tokens by a scale.

John Fourquerean, president of Gallins Foods Inc., Winston-Salem, N.C., offers customers the chance to use tokens in lieu of part of their commissions, which covers the costs. The tokens have Gallins' logo on one side and the customer's on the other, along with a safety message. These tokens carry either a $1 or one-vend value.

Consider counting equipment

Lewis with MEI added that before purchasing these alternative payment options, operators need to be aware of their counting systems' limits. Many smaller counting machines handle only pennies, nickels, dimes and quarters. "But bonafide machines carry all U.S. currency and tokens," he said. Another concern is settlement protocols. When an operator only uses money, the money bag comes in and the dollar amount should match the product sold. When using coupons and tokens, the operator has to separate those out and account for them in revenue from the location.

Yeomans agreed that he chose to use coupons due to his money room equipment. "The coupons go through a bill validator and are kicked out as not a bill," he said. Tokens pose a problem because Yeomans' coin counter doesn't have a spot for them.

Mechanisms programmed easily

For both modern coin mechanisms and bill validators, programming has been made simple. With certain coupon options, a programming unit is required, but manufacturers have made these very easy to use and available to operators for a cost. The operator allows the machine to "read" the coupon or token and assigns a value to it. Then the machine is programmed and ready for the end user to pay with coupons or tokens.

Security of tokens and coupons is comparable

Two different operators cited choosing coupons over tokens due to the counterfeitabiliy of tokens; however, it's unlikely that one form of payment option is more secure than another at this point in time. "They both have high security," said Lewis.

According to Lewis, tokens got a bad name because about 20 years ago there were problems with slugs and electrical mockouts. But current recognition systems on coin mechanisms have eliminated that. Now the mechanisms are based on thickness, diameter and metal composition. "And the interesting thing about tokens," said Lewis," is they actively try to make no token the same size as a U.S. coin."

As for bills, the special ink used makes them secure. "The security ink is not available on the street," said Lewis, "and it's very expensive."

Cashless offers a new payment option

Security from internal theft is also an advantage of cashless systems, which many operators and suppliers call the way of the future.

Scott Guardino, general manager of Paramount Automated Food Services Inc., Pompano Beach, Fla. uses the PayKey system to serve the same purpose as the coupons previously offered. "It (the coupons) was a great way to sell an account," said Guardino. But interest from locations waned. Now this "offline" cashless system — PayKey — is the selling tool. Customers can load employees' fobs with value that can be used to purchase products from the machines. Paramount can also use the keys to provide refunds to employees who lost money, as well as for promotions.

Alex Kiriakides, president, PayKey, said the stored value system offers another benefit. With its partnership with USA Technologies, PayKey offers a revalue station which takes credit and debit cards in order to recharge PayKey fobs. A bank of vending machines can then be cashless, said Kiriakides, and the operators only has to pay the fees on one machine.

According to Kiriakides, a single vending machine cannot have both a credit card reader and stored value system since the MDB only allows one such reader.

Tom Swimmer, product manager for cashless systems, VE Global Solutions LLC, said cashless systems are able to take the place of token or coupon programs an operator might already be offering. The details of the program are simply added to the software of the cashless system.

"If someone is using tokens today," said Swimmer, "it can be written automatically into our Zip system." Swimmer gives an example of an end user being given three free vends a week, previously in the form of tokens. With the Zip system, three vends will be given to that user's key at the beginning of the week. The customer can use them as normal, and the next week, three vends are once again added, automatically.

Another advantage of the cashless technology is that it allows the operator flexibility. "The operator can set limit by value or machine," said Swimmer. The value goes in penny increments, allowing any denomination vend. Also, prices are not limited to nickel increments. The Zip allows machine-specific limits, so a certain free vend virtual "token" could only be used in the coffee machine, not the snack machine, for example.

Key Fobs offer alternative for cashless

Nathan Rager, vice president, Rager's Food Service & Vending Inc., Van Wert, Ohio, decided to use the Zip system in a new account because he was interested in getting into cashless. He has been pleasantly surprised by the results.

Charging $6 per key, each key loaded with $5 for the employee to use, creates only a dollar of investment for Rager per key. "We feel we're getting a return for it," he said.

The employees at the account can recharge the keys at a recharge terminal that accepts credit and debit cards with an MEI reader. The credit processing is handled by USA Technologies, which charges a 35-cent processing fee for every $10 worth of credit. The authorization is done via a wireless connection. The keys must be recharged in increments of $10.

After two months, the machines at the location have processed 100 Zip key transactions, accounting for 30 percent of the sales. "I can see that people are into using the cashless system," said Rager. "I was impressed. I've got credit card acceptance without putting credit card acceptors on each machine."

The key fob system has advantages over money because it prevents the operator from having to empty a coin mechanism, said Reed with CMS. "The fact that we (in the U.S.) have a dollar bill changes the dynamic of the vending market," he said. If the dollar coin ever replaces the bill, like in Europe, people will be forced to carry more change — which is heavier. This will make cashless even more appealing. Also, the key fobs are inexpensive. They are molded plastic over a chip that maybe costs a nickel, said Reed. Not to mention employees consider being able to buy things with fobs a perk, he added.

Special applications for stored value

Ben Diaz, owner of Bayco Vending, San Francisco, Calif., services the vending account for the San Francisco Mint. "They're not allowed to carry any coins into the Mint," said Diaz. Bayco Vending instead installed eSecure's stored value technology which includes a key that can be recharged with bills for credits on the key. Then the machines are equipped with readers that the key is put into, displaying how much credit is on the key. "They wanted this system because it's worked in other mints," said Diaz, "There are others out there, but we found this (eSecure) was the best for what we needed."

According to Diaz, coupons were dismissed because they didn't last long enough. The plastic keys are durable. Diaz gives a key to each employee and only charges if the key is lost. "I'm not making any money on the keys," he said. The cost of the key is $4 and that is what he charges the end user if it's lost.

Diaz compares the cost of the eSecure system to a dollar bill acceptor. According to Diaz, those run about $600. The reader for the eSecure systems costs a little over $900. "But in the end, your not counting any money; there's no dollar bill jams or coin jams," said Diaz.

For other locations, Diaz said the keys help control the foodservice budget. Locations that subsidize the products in the machines can instead let the operator determine prices, then give a credit to each employee on their key. For example: "The employees get $10 each week, and if they go over, they have to use their own money," said Diaz.

Software for the cashless technologies can do a lot for the customer company, from crediting its employees for promotions, rewards, deducting vending purchases from their payroll, streamlining refunds, and more, but for the operator, the cost remains high with the hardware and software, monitoring, internet/data transfer service, transaction fees, etc.

Coupons and tokens remain the cheaper options, which can replace more costly services like employees turning on and off free vend. All options can give operators one more additional service in order to sell their service to an account and promote themselves.

Credit/debit versus stored value

According to Jim Turner, vice president of intelligent vending, USA Technologies, it really depends on the account whether credit/debit readers or a stored value system would be better. "Stored value is a good application for blue collar applications," Turner said. At these locations, historically, fewer people carry credit cards and even fewer use them for small purchases at vending machines. Also, at some locations, employers don't want to promote credit card use. However the trend for white collar locations is the opposite, ripe for a credit/debit card reader. "We've had good success at office and businesses where everyone carries a credit card. It's convenient for them," said Turner. "About 95 percent of our business today is regular credit or debit."

In the future, Turner sees these two technologies becoming one. Card companies have brought out their contactless card systems, and over the next few years they intend to replace the magnetic strip cards with the contactless technology, said Turner. In the contactless chip is the capability for stored value. "They will use their new contactless cards to deliver that system as well," said Turner. It will have the same functions, but in a new wireless, contactless technology.

Funds can be added to the contactless chip, via debit transactions or direct transfer from bank account to bank account — to keep fees low. The funds then reside on a network/server, in case the card is lost or stolen. It's a whole different way for consumers to use credit.

For more information:

CashCode Co. Inc., 905-303-8874, cashcode.com
Coin Acceptors Inc., 800-325-2646, coinco.com
Crane Merchandising Systems/NRI, 800-325-8811, cranems.com
eSecure Peripherals, 888-377-9282, esecureperipherals.com
JCM American Corp., 800-683-7248, jcm-american.com
MEI, 800-345-8215, meiglobal.com
PayKey USA, 864 527- 4408, paykeytech.com
Tokens Direct, 800-514-6312, tokendirect.com
VE Global Solutions LLC, 800-321-2311, veii.com

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