Card-Using Customers at Vending Machines Apparently Aren’t Miffed at Cash Discounts

Vending machine payment-network operator USA Technologies Inc. has instituted a two-tier pricing option that gives machine owners the ability to offer discounts for cash. But the Malvern, Pa.-based company says early results show many consumers still prefer card payments even if paying by cash would save them some small change.

“Customers want to pay for convenience,” a spokesperson tells Digital Transactions News. “People don’t have cash.”

USA Technologies introduced two-tiered in January for owners who wanted some way to lower their card-acceptance costs. The company isn’t the only one offering cash discounts for vending-machine payments, but the scale of its USALive wireless network, about 136,000 devices, mostly vending machines, could give such an option a real boost should machine owners take a liking to it. Discounts for cash are permitted under payment card network rules, but traditionally they’ve been hard to implement and offered mainly by gas stations.

The USA Technologies spokesperson would not say how many machines offer a cash discount, which is part of the company’s ePort Connect processing service, but she says it’s attracting inquiries. Machine owners can offer cash discounts in the amount of their choosing as long as they’re in 5-cent increments. Pricing can vary by individual machine.

USA Technologies generally recommends 10 cents as the standard discount, saying initial field research shows customers will accept that spread on common purchases. For a very small sale, such as a candy bar, the discount might by as low as a nickel, while with some higher-priced items, such as cigarettes, it could go up to 75 cents, according to the spokesperson.

The company makes signs available for owners to attach to machines informing customers of the pricing options. There is no charge to the owner to implement the service for the first 12 machines; after that USA Technologies charges a one-time set-up fee of $10 per machine.

USA Technologies recently analyzed data from 450 machines spread around the country to get a read on early consumer response. Data were examined from two weeks before and two weeks after a machine began offering cash discounts. The company would not divulge specific results, but says the percentage of cashless sales to total sales grew in the two weeks post deployment, as did the number of cashless vends. “The point was that it [the percentage of cashless sales] went up, and even if it stayed the same it would have been good,” the spokesperson says.

The early results seem to show that lower prices for cash aren’t causing those who plan to use a credit or debit card to simply forgo a purchase because they will not get a discount. “You have more comfort that it won’t turn people away,” the spokesperson says.

The unattended small-ticket sector, which gets a large portion of its non-cash sales through debit cards, got a jolt in late 2011 when both Visa Inc. and MasterCard Inc. adopted the Federal Reserve Board’s debit-interchange cap of 21 cents plus 0.05% of the transaction as their new small-ticket debit rate. The Fed’s cap, a result of the Durbin Amendment in 2010’s Dodd-Frank Act, lowered interchange costs for merchants on larger transactions involving debit cards from regulated issuers, those with more than $10 billion in assets. But the Visa/MasterCard small-ticket strategy had the effect of actually raising acceptance costs for vending-machine owners and other merchants with a preponderance of low-value transactions.

In response, USA Technologies managed to negotiate with Visa a one-year extension of its pre-Durbin rates. In November, however, the company stopped accepting MasterCard debit cards, which accounted for only a small portion of its network sales, because it couldn’t strike a similar deal with the No. 2 card network. USA Technologies has not resumed accepting MasterCard debit cards and has not had any negotiations with the company recently, according to the spokesperson.

While vending-machine owners are concerned about the costs of accepting payment cards in light of the rise in small-ticket costs over the past year, many of the industry’s forward thinkers ultimately want to get rid of cash, according to the spokesperson. “I think as an industry, it’s in a huge transition and it’s early on,” she says.