Consumers are increasingly using payment cards at vending machines, and the owners of the devices are reaping the benefits through higher ticket sales and increased transaction volume.
Moreover, the performance of machines that accept cards improves the longer they are deployed, according to USA Technologies Inc., whose e-Port Connect Knowledge Base has identified the vending-payment trends. For its 2012 market-study research, the database service tapped into and evaluated payments information from approximately 57,000 U.S. vending machines on USA Technologies' e-Port Connect service across 39 different channels and customer types.
Across those machines, cashless purchases now represent 27% of overall transaction volume, double the rate four years ago and still growing, Jim Turner, USA Technologies vice president of deployment services, said in an interview.
"There's no indication that consumers aren't going to continue that trend," he says.
U.S. Bancorp's Elavon processes the card transactions initiated on USA Technologies' 154,000 vending machines, Turner says. USA Technologies provides customer hardware and software support, customer service, reporting and processing connectivity. It also submits weekly detailed data to owners on machine performance and transaction activity, including the card-processing rate applied, he says.
Debit cards represent about three-fourths of the cashless transactions initiated on the machines studied, driven primarily by younger consumers who tend to pay as they go instead of incur credit card debt, Turner says.
About 60% of young consumers want to use their debit cards "for everything," Turner says, adding that about 30% of consumers don't cash carry with them.
"Some operators are putting in their cashless system for just that reason alone," he says. "They can't afford to have 30% of their potential customers not being able to use their machines at all."
Profit potential also plays a role in supporting cashless vending, and the longer machines that support card acceptance are deployed the greater the uptick in sales, according to the Knowledge Base data. Machines deployed for more than a year generate on average 84% more in cashless sales than do those deployed for a shorter time. Over 12-month period, the average annualized cashless sales for each so-called "mature" machine is $3,615 compared with the $1,970 average for machines deployed for less than a year, the data show.
This finding was one of the biggest surprises Turner found from the e-Port Connect data.
"We didn't appreciate that time on the market provides so much extra in card usage," he says. "And the longer machines are on the market, the more consumers will use them."
The difference varies by channel. In the entertainment market, the mature deployments generate average annualized cashless sales of $3,144, 14% more than the $2,756 average for newer machines. The difference is wider in hospitality, where older machines tend to generate $2,734 in cashless sales per year, a 155% difference compared with $1,073 for newer machines.
Indeed, consumer awareness of cashless vending tends to vary based on exposure to the additional payment options, especially with regard to specific machines, Turner says.
In hospital waiting rooms, card use at cashless vending machines is relatively low because visitors aren't in such rooms often. But on college campuses, where students may constantly walk past such machines, their awareness – and use¬ – is higher, Turner says.
The average price of goods sold also affects cashless-vending sales, with the higher the ticket amount the greater the likelihood consumers will use a payment card to initiate the transaction. "Consumers are happy to get out a $1 bill and get change, but once you go above that amount it becomes more convenient to use some form of cashless payment," Turner says.
Across the dataset, annualized cashless sales as a percent of total sales per machine was highest for transactions of $2 or more – 34% – compared with 21% for transactions less than $1, the Knowledge Base data show.
Two-tiered pricing, similar to what oil companies use at gas pumps to provide discounts for cash transactions to offset card-acceptance costs, also is effective at generating more sales at cashless vending machines (see chart).
Whereas cash-only machines earn on average a net operating profit of $337 annually, new machines that support card acceptance and charge less for cash transactions earn $619 in net operating profit, a 27.4% difference compared with the $486 average for those that don't use two-tiered pricing. Mature vending machines that support two-tiered pricing earn $1,219 in net operating profit annually on average, a 25% difference when compared with the $975 average for machines that don't.
The difference between cash and card price usually is less than 10 cents, Turner says. "Just being able to have that 10-cent differential is increasing the incremental return on the investment by another 50%," he says.