A new generation of Internet-connected vending machines could make digging for spare change and fiddling with uncooperative dollar bills a thing of the past. At a growing number of locations, customers can now pay by credit card and mobile wallet.

The market for so-called smart vending machines that accept credit cards and other payment types is growing quickly, presenting a revenue opportunity for payments companies. Today, only about 10 percent of the world’s 17 million vending machines are Internet-connected—a figure that is expected to reach 20.3 percent by the end of 2020, according to the business intelligence firm Berg Insight.

“The vending machine market is growing aggressively, and right now many of those payments are generated in cash, so it’s a big opportunity,” says Dawn Dickson, founder of Solutions Vending in Columbus, Ohio.

The company started in 2012 as a smart vending solutions manufacturer and now makes smart vending machine software to retrofit traditional machines. The software allows machines to accept a variety of payment types, including Apple Pay, Android Pay, credit, debit and prepaid cards. Bitcoin will be supported later in 2017, and within the few years customers will also be able to pay using facial recognition, Dickson says.

Byte Foods, a smart vending machine supplier in San Rafael, California, doesn’t even accept cash in its refrigerator-like machines, according to Lee Mokri, co-founder and head of sales and marketing.

Instead, customers pay for restaurant-quality fresh food with their credit, debit or prepaid card. Payments using mobile wallets and bitcoin are in the works for later this year, Mokri says. “People aren’t carrying as much cash today. We’re using the payments tools that people already have.”

To be sure, the allure of smart vending machines goes beyond payments.

For instance, with an app on their phone, customers can locate certain Internet-connected vending machines, according to Phani Pandrangi, chief product officer at Kii, a Toyko-based IoT company that creates software solutions for industries such as vending. Customers can also use the app to determine what items local machines stock, whether they are currently working and which payment options they support. “Smart vending is going to be a pretty integral part of lots of venues going forward,” he says.

For vending operators, smart vending machines are invaluable because of their inventory management tools. They keep track of sales in real time to help vendors more efficiently keep them stocked. Analytical tools also help vendors identify popular and unpopular products as well as purchasing patterns and customize their offerings accordingly. Smart machines also allow operators to identify malfunctioning machines quickly—sometimes even before problems affect customers.

The ability to offer digital coupons and special promotions to customers who opt in presents another potential revenue-generating opportunity.

Some smart vending machines also have the ability to make product suggestions based on biometric data. For the past few years, for instance, U.K.-based Costa Coffee has been using cameras to discern things like gender, estimated age and mood and make recommendations accordingly, says David McCarthy, director of products at Bsquare Corp., a Bellevue, Washington, IoT software solutions firm that works with Costa.

Smart vending machines are also showing promise for the cannabis space, which now relies heavily on cash transactions.

Dickson of Solutions Vending says her company hopes to someday use its technology to help cannabis dispensaries accept other forms of payment. The machines would use biometrics to verify the identity of customers and ensure they have the proper credentials to purchase cannabis products. Once verified, customers could pay for the products using credit card, debit, prepaid, mobile wallet, or bitcoin.

Smart vending may also open doors to niche payment types. Pandrangi of Kii predicts many more opportunities to come, such as vending machine in college dorms that accept student ID cards as payment.

“This is a new frontier,” says McCarthy of Bsquare. “People have been using smart vending technology for a few years in different ways, but it’s still in the early days.”

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry