It appears that even the smallest purchases (e.g., lattes, newspapers, bus fare and candy bars) are becoming easier to buy with a noncash payment than with bills and coins. Recently, research conducted by the consulting firm Ipsos-Insight revealed that 37 million Americans are willing to use a credit or debit card for transactions of $5 or less — normally referred to as micro-transactions — while nearly 6.5 million Americans reported they would be comfortable using noncash payments for transactions of less than $1.
While the convenience of cashless transactions is gaining traction in the vending industry, the next level of convenience has already arrived in the form of contactless cashless payment technology.
Purchase transactions are conducted with the wave or tap of a plastic card, flexible tag, mini-card or key chain fob; not the swipe of a magnetic stripe. Transactional data is exchanged through contactless linkage with a specially designed radio frequency equipped device.
Based on field testing, the transmission and receipt of radio signals between a contactless credit card and radio frequency identification (RFID) enabled vending machine reader has been shown to increase sales and enhance transaction speed as well as customer satisfaction.
While contactless payment technology is new to the vending industry, it has been used in gasoline retailing (e.g., Mobil Speedpass) and toll road operations (e.g., EZ Pass) for nearly 10 years. Part of its success is due to the fact that the data exchanged between the contactless media and the scanner is not account information, but an identifier that is fully encrypted to achieve much greater levels of security than conventional magnetic stripe cards that can be easily copied.
To vending operators, proximity payment systems represent an alternate form of cashless payment intended to accelerate the purchase process while ensuring secure transactional processing and the capture of comprehensive transactional data.
Epaynews.com estimates more than 35,000 domestic merchant locations will soon be poised to accept contactless payments. Wherever speed and convenience are important transaction metrics, proximity payment systems appear well suited and appropriate. Soon, alternate payment solutions including biometric payments and cellular phone payments will be available.
Cash out, cashless in
The Wall Street Journal reported that the push toward small dollar transactions is part of the credit card industry's continuing strategy of getting consumers to use plastic instead of more traditional forms of payment. Consumers already are moving in that direction. The number of U.S. electronic payments topped the number of cash and check payments in 2003 for the first time, according to a study conducted by the American Bankers Association and Dove Consulting.
Of special interest is the fact that the market for micro-transactions (valued at less than $5) accounted for $1.32 trillion in consumer spending in 2003, representing more than 400 billion transactions.
During 2005, the volume of cashless micro-transactions significantly increased and was sufficient to attract the attention of payment processors and card associations. The volume of transactions with a value of $5 or less accrued from online, transient and mobile commerce. From 2003 to 2004, micropayment transactions grew from $2 billion to $5 billion.
The benefits of contactless cards over contact cards are primarily due to the increased transaction speed and convenience.
Contact cards must be inserted into a specific slot on a card reader, and the magnetic stripe must be properly positioned and aligned for the swipe to successfully lead to electronic data capture; whereas a proximity card can be presented to a reader in any orientation.