Acquirers are encouraging vending machine operators to add card and mobile electronic payment acceptance, which could represent a whole new category of transactions.

There are challenges, however, as vending machine operators are not like other retailers. Unlike retail point of sale terminals, for example, vending machines move around—up to 10times each during their operational existence—thus requiring constant attention. Wireless and other connectivity issues also pose potential complications.

ISOs venturing into vending face considerable upfront and continuous work building and retaining relationships, said Stacey Finley Tappin, senior vice president of North America sales and marketing communications at Scottsdale, Ariz.-based Apriva, whose tokenizISed Apriva Vend product provides e-payments gateway services for vending operators. “It takes a lot of investment up front if an ISO wants to get into this,” she says. “It’s not an easy market; it’s complicated.”

Just as ISOs should build a knowledge of vending, vending operators should learn more about the payments industry. ISOs thus can serve not just as e-payment service providers, but also as advisors, much as they were when many traditional merchants still were accepting primarily cash and checks and knew little about card acceptance, not to mention interchange and discount rates.

The vending market essentially represents a new frontier for e-payments, as the vast majority of machines accept only cash, thus providing considerable opportunity for ISOs. In 2013, revenue from vending totaled $19.69 billion, according to the National Automated Merchandising Association (NAMA), citing annual research data from Automatic Merchandiser magazine. However, only 10% of the 4.85 million vending machines last year had cashless readers. That’s not many statistically but still a significant increase from the 4% that did only two years earlier.

Such growth in cashless-payment acceptance, including cards and contactless mobile transactions, represents progress, said Mike Kasavana, an NAMA endowed professor at Michigan State University. “The main thing is we really have moved that thing forward quite a bit," he said. "But on the opportunity side, there’s still lots of machines that are not accepting electronic payments that should be.”

ISOs could find willing customers, as e-payment acceptance can generate potential growth in vending machine sales volume, according to NAMA, citing 2013-14 data from USA Technologies Inc.’s Cashless Knowledge Base. During a recent 12-month period after installing cashless vending, the company found total monthly vending transactions increased by 22.8%, with no decline in cash-sales volume.

“It’s not cannibalizing cash but actually represents new business because so many people don’t carry cash today,” Kasavana says. “It’s a lot easier to make sales with e-payments than with limited currency or coin.”

As of June 30, USA Technologies’ ePort service connected to 266,000 machines, handling some 170 million transactions totaling $300 million during the fiscal year. Some 86% of the company’s connections come from traditional vending customers, Dave DeMedio, USA Technologies chief financial officer, noted during a recent fiscal fourth quarter earnings call with analysts.

Pricing plays an important role when targeting the vending market. Because many vending operators are not familiar with e-payment acceptance, they want pricing to be simple, industry insiders agreed.

USA Technologies, for example, charges a flat percentage rate, which equates to about 5.5% to 6% on an average $1.50 transaction. The rate varies by market, and it goes down as the debit or credit card transaction amount rises.

For its part, Apriva has negotiated a 2.2% plus 2 cents interchange rate with Visa, though what vending machine operators pay ISOs as their fee is somewhat higher, Tappin says. Her colleague, Rinaldo Spinella, Apriva executive vice president of strategic accounts, estimated the typical discount fee on an average $1.50 transaction is 9.6 cents.

ISOs will require considerable volume to make vending a viable target market, Tappin said, noting the low end in the range of machines such organizations are willing to take on initially can vary. “Some channels have 50 to 100 machines, and they’re happy because they’re making a little money there and learning the market,” she says. “Some say they don’t won’t want to touch the market with less than 1,000 machines.”

 

 

 

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