Rising Consumer Preference for Cashless Purchasing Creates New Opportunities

The vending adage, "no cash, no purchase" is being replaced with "no cash, no problem!"

Accompanying the public's increased attraction to self-service technologies and online applications is a growing interest in the implementation of alternative payment options for traditionally cash-based transactions.

While some parts of the vending industry already accept card payment systems, widespread interest in expanded opportunities for cashless transactions are beginning to become more prevalent. Innovative payment technologies, designed to reshape vending transactions, have emerged and are being adopted at an unprecedented rate.

Customers prefer cashless

In the past, much of the slow rate of adoption of cashless vending can be attributed to customer reluctance to use cards for small dollar (i.e., low value) transactions, a lack of operator experience with new technology, and its perceived high costs.

Much of the customer concern however, is being dissipated by the trend toward frequent use of cashless transactions elsewhere. For example, such technologies as ATM machines for banking, pay-at-the-pump for gasoline, retail store self-checkout, speed pass purchasing, and most recently, the adoption of credit/debit card acceptance at quick-service restaurants.

From a vending operator's perspective, the cost of hardware, software, and transaction processing have declined to render cashless a much more appealing payment option. Such conditions have started to draw the attention of full-line vendors, beverage bottlers, and nontraditional vending suppliers as evidenced by the frequency of documented stories of success.

With more than 8 million machines, the vending industry can be described as the largest cash business in America and certainly the most pervasive retail channel in terms of number of locations.

Cashless transactions rising overall

Over the past decade, there has been a steady increase in the preference for credit cards as a method of payment. Economists point to the fact that credit card transaction volumes doubled between 1992 and 1998.

In 2003, credit and debit card payments exceeded cash payments for the first time, thereby rendering card purchasing the preferred payment method of U.S. consumers. This trend is predicted to accelerate, with credit purchasing growing at a rate of 7 percent annually and debit transactions expanding at the unprecedented rate of 21 percent annually.

To date, the vending industry, which is dependent on convenience and service, remains the only major retail channel that does not universally accept cashless forms of payment. It is estimated that 2 to 3 percent of U.S. vending machines offer a credit card payment option. This capability is projected to 50 percent by the year 2009.

Vending: the last cashless frontier

The movement from physical currency to cashless payments is becoming more prevalent as advancements in automated banking, account management, and innovative reconciliation systems gain in popularity.

Basically, a cashless payment system is dependent upon specific instructions governing the transference of funds from one account to another.

The instructions can be paper-based (e.g., personal check or voucher system), or electronic (e.g., credit and debit magnetic stripe or radio frequency identification -- RFID), or stored value (e.g., prepaid or stored value smart card).

It is important to note that these categories are not mutually exclusive. For example, the innovative MasterCard PayPass card features a contactless RFID payment option while also supporting a magnetic stripe for credit card settlement.

Cashless speeds up transactions

When adding cashless to a cash-centric payment environment, there are several critical metrics that need to be evaluated. Among the first consideration is a comparison of transaction speeds. How much slower or faster are vending cashless transactions than cash-based sales? What is an acceptable time for transaction processing?