The Components Of Credit Card Vending

The phrase, “cashless vending,” can encompass a wide spectrum of payment options. One may think of mobile phone payment, loyalty card programs, closed campus systems, closed network cards, pre-paid cards, Internet based systems, or biometric identification. Of course, the most common application of cashless vending is credit card and debit card payment.

For the purpose of this discussion, the subject matter is limited to credit card and traditional debit card vending applications using cellular technology for data transfer. The goal of this article is to provide an understanding of the structure and options related to cashless vending.

Specifically we will cover:

• A definition of cashless vending.
• The flow of information from vending operator/bottler to credit card processor.
• Equipment requirements and options.
• Service requirements and options.

It is fairly easy to set up a brick and mortar retail credit card processing account. Equipment and banking programs are available at warehouse clubs or through the business owner’s local banker. Cashless vending, however, is a different animal. The vending application is unattended; a telephone line or Internet connection is generally unavailable and the amount charged is usually classified as a micro-transaction.

What does this mean to the vending operator? You guessed it; a little more effort to get started and a few more dollars.

The good news is that costs are coming down to build a cashless vending application. The reduction in cost is coming from each area: hardware, transaction fees and monthly network charges.

The flow of information for a credit card transaction begins and ends the same way as a cash transaction: the customer presents payment to the machine and the transaction eventually is reconciled in the vending management software system. What happens in between is what makes the cashless transaction so unique. We will examine each component.

POINT 1: THE MACHINE CARD READER

The machine card reader is where it begins with the consumer. A cashless payment is presented in the form of credit, debit, or prepaid card. The card is recognized through a magnetic reader (swipe/plunge) and/or a proximity reader. Proximity readers are the wave of the future, as credit card issuers have embraced this technology by installing RFID chips in many new credit cards. A newer credit card will have a wave, indicating the sensor used for “tap ‘n go.”

The benefit of proximity readers resides in the speed of the transaction at traditional retail establishments.

MasterCard, VISA and American Express have all embraced this technology with the brands, PayPass, payWave and ExpressPay, respectively.

Each vending machine reader requires a special embedded antenna for proximity cards, and this technology will add cost to a vending machine card reader. However, the rate at which the card companies are issuing proximity cards to consumers should be a reason to consider the extra, one-time hardware cost.

POINT 2: THE MACHINE TRANSMITTING DEVICE

Once the card reader has read and encrypted the card data, the next step is to transmit the information from the vending machine. Due to the nature of vending, the most practical way of getting the data out of the machine is through a cellular modem that can send the information along the way. The machine transmitting device is commonly referred to as a “telemeter.”

A Wide Area Network connection (WAN) is needed to transmit the encrypted card data from the vending site so that the transaction can be confirmed and completed. A WAN cellular connection works in the same way as most cell phones, via a “SIM” card. However, sometimes it may be desirable to network multiple vending machines together to create a Local Area Network (LAN).

A LAN may be desirable or necessary, depending upon the application. As we have all experienced, cellular signals have “dead” zones, sometimes within a building. Using a form of wireless LAN technology, it may be possible to “reach” a machine and connect to a WAN unit with a solid signal. In fact, there may be 10 or more machines using LAN technology that connect to one or two machines equipped with WAN/LAN.

Another reason to implement a LAN network would be to reduce costs. LAN-only hardware is less expensive than a WAN unit. Also, several companies are reducing the monthly cost of a machine with LAN, compared with a machine transmitting with a WAN device. The one-time hardware cost savings could be as much as $75, and the monthly charges could save $3 to $5 per month, per LAN transmitter.

POINT 3: THE PAYMENT GATEWAY

Now it’s time for the data to leave the vending site. The card transaction data is transmitted through the WAN connection to a payment gateway. The gateway will have a sophisticated data processing center that receives the encrypted data. The credit card data is captured and sent from the gateway to a credit card processor for the approval process.

Depending upon the file sent from the vending machine WAN unit, the gateway may receive more than just credit card data. Some machine transmission devices can send along the entire DEX data stream from the vendors or a subset of the DEX data stream.

Some gateways can split off the sales data and use the information to provide dynamic routing or sophisticated route forecasting. Another application is the use of alarm codes in the DEX stream to automatically notify the vending company of service issues. At its core, the payment gateway exists to securely pass the credit card data to the processor for a go/no-go on the credit card or debit card.

However, the additional services offered by the gateway can help a vending company to operate more efficiently. When properly implemented, the ancillary benefits of avoiding sell-outs, dynamic routing, and service notification can more than justify the costs associated with cashless vending.

The payment gateway will charge a monthly fee for each WAN and each LAN device. The cost per month of a WAN connection is around $10 per month (plus or minus a few dollars). The cost per month of the LAN connections is usually several dollars less per month than the WAN connection.

POINT 4: THE CREDIT CARD PROCESSOR

The credit card processor receives the payment clearing request for the gateway. The processor is the approval point for all credit card and debit card transactions. The credit card processor clears the transaction, and a signal is sent back to the vending machine through the payment gateway. The vending machine now knows whether to accept the card or deny the transaction.

Once a purchase has been made at the vending machine, the sale will be posted to the consumer’s credit card. The exact price of the selection will ultimately be charged to the patron’s credit card.

However, an interim charge that is larger than the actual vend transaction may be posted to a credit card. This higher credit card charge may happen on some transactions until final settlement in 24 to 48 hours. This is the same thing that happens when one checks into a hotel with a credit card — a projected charge is “held” against the account until the customer has completed check out and the hotel settles all balances.

PROCESSOR PLACES A ‘HOLD’ CHARGE

A credit card unit in a vending machine that is in pre-authorization mode will act similarly. When in pre-authorization mode, the vending transmission device will initiate a call for approval as soon as a card is presented. The approval amount will be for the highest priced item in the vending machine.

If multi-vend is turned on, the approval will be for the highest vend price multiplied by the number of multi-vends allowed. Therefore, a machine with a $3.50 energy drink that allows for multi-vend in increments of three will place a hold on a credit card sale of $10.50.

If a customer checks their credit card within several hours of purchasing a $2 water, they will find a hold charge of $10.50. However, when the processor clears all transactions with the vending operators bank later that day or soon after, the charge will be settled at $2.

The situation as described above happens when the transmission device is set up in a pre-authorization mode. A way to avoid the temporary charge on a customer credit card is to have the telemeter set to post-authorization mode.

Post-authorization mode will initiate a call to the gateway after the customer has made a selection. It may take a second or two longer for the card to be cleared with post-authorization, but it avoids the call from an angry college student that cannot buy a pizza because he has several temporary holds on his debit card from smaller purchases with your vending machines.

TRANSACTION FEES VARY

The credit card processor charges a fee per transaction. The percentage charged may be a fixed rate, say 4 percent. Or, the percentage may fluctuate based upon the vend price: purchases below $1 would be above 4 percent and slide down a percentage point and more as the sale tops $4. As more credit card processors hook up with payment gateway solutions, the price is becoming more attractive to the vending operator.

Keep in mind that a brick and mortar retailer may have a transaction fee below 2 percent, but that retailer is also paying a flat fee per transaction that can average around 20 cents.

RECONCILIATION OF THE SALE, MACHINE AND ROUTE

Now that the credit or debit card sale has happened, the sale needs to be reconciled in the vending management software (VMS) system. When a collection happens, the driver returns with notes, coins, refund information, spoiled/damaged product, meter readings, DEX information and/or any combination of the above.

When using a VMS system with handheld units, all the information is fed into the main system at the end of the day when the handheld unit is docked. However, credit card transactions are missing from the processor or gateway. As of this writing, there is no known interface whereby the payment gateway passes credit card transaction details by machine directly into the machine field of the VMS system.

Therefore, credit and debit card transactions must be added through a manual method to reconcile a machine and a route. Without an automatic interface, it is very hard for a vending operator to install a large base of card readers. However, if the increase in sales is significant, it is easier to deal with the manual entry component of credit card transactions. There is a NAMA standards committee that is tackling this subject and will hopefully have a solution later this year.

Although it may seem like a cumbersome process, your hardware provider should be able to take care of each piece along the way — up until the reconciliation with your VMS system. If you have not set up any credit card machines, you should install some so that you are familiar with the process.

The requirement for credit card readers is occurring in more bids and it is important to understand the challenges and opportunities before you are forced into it. If you are concerned about the price of installing a card reader, don’t pay for it now; just put it on your credit card!