New Business Opportunities
Payment Cards Represent an
Increasingly Popular Choice
on the QSR Menu

by Fred P. Gore

   Perhaps you have been among those in line at a bustling quick service restaurant (QSR) with customers woven around the front counter like a human ribbon. Among the customers is a harried, working-mother who arrives straight from daycare with a tired toddler on her hip and a cranky first-grader with a firm grip on her hand. Like others in line, she is behind schedule and wanting to be home.
   For merchants in the QSR industry, the scenario is all too familiar. They know that today's busy consumers dine out more frequently than they have in the past. And when they do patronize restaurants, surveys show that they prefer good food served fast and without hassle. To meet the growing demands of their customers, payment solution providers are teaming up with the QSR industry to provide simple and fast payment solutions.
   Although QSRs in the United States have achieved varying degrees of payment card acceptance, electronic payments are posting impressive increases in adoption among both company-owned and franchised establishments. Today, 26 percent of the top 100 QSRs in the United States are accepting payment cards.
   Analysts project by the end of 2002, more than 40,000 fast-food restaurants will accept payment cards, nearly double the 24,000 locations taking credit, debit, or prepaid cards in 2001. That opportunity makes for exceptionally robust growth potential in the QSR category for those in the payment solutions arena. Acquirers and ISOs, as well as merchants, consumers and payment processing operations all stand to benefit from this huge growth opportunity.
   The increasing number of debit and credit payments might be news, but it should come as no surprise. The National Restaurant Association (NRA) reports that 2000 marked the food service industry's ninth consecutive year of growth. This growth, however, has been coupled with increasing consumer expectations, making the delivery of good prices, great values and convenience, more challenging each year.
   For instance, the NRA says that 48 percent of adults believe restaurants are an important part of their lives and 39 percent of adults report cooking fewer meals at home than they did two years ago; 29 percent feel takeout is essential to the way they live; and 61 percent indicate that carryout or delivery services give them more time to spend on other activities.
   The convergence of consumer demand and growing adoption of new payment solutions has created significant opportunities for independent sales organizations (ISOs) and acquirers, which take on important responsibilities in meeting the needs of merchants. According to recent statistics, the top 50 U.S. QSR chains will generate sales of more than $87 billion through 100,000 locations in 2002. Furthermore, system-wide sales grew nearly 6 percent among the top 50 chains, which topped $87 billion in 2001 according to recent industry research. These statistics highlight a significant opportunity for a segment that has maintained sales momentum despite an uncertain economy.
   Typically slower to embrace technology than most other retail categories, members of the QSR industry increasingly realize that people are accustomed to having the convenience and speed of electronic payment options whether it is debit, credit, or pre-paid cards.
   According to our research, the population-at-large is more inclined to use debit or credit cards today, with 8 percent reporting they write checks less frequently and a whopping 40 percent using cash less often. This reinforces our data that reveals meal purchases at QSRs average $4 when customers do use cash. But those same customers are inclined to "super-size" portions or add dessert and spend an average of $7, or 75 percent more, when buying with a payment card.
   Still, accepting payment cards remains a relatively new checkout option at QSRs. At some chains, franchisees have taken the lead with payment card acceptance, while other establishments have taken the plunge beginning with company-owned stores. As the category has grown more competitive, company-owned operations as well as franchisees are looking to drive business and keep the restaurant down the block from luring customers away. Besides meal bundling, operations improvements, value pricing and drive-through output, merchants report they see card payment as a means of achieving that goal.

Delivering Greater Speed, Service and Convenience with Payment Cards

   MasterCard has studied convenience-oriented businesses where the speed of the payment transaction is critical to the sale, and we're leading the charge to service the QSR industry. We've designed a program called Quick Payment Service (QPS) to address growing demand for efficient payment solutions in segments such as quick service restaurants. When a customer pays by card at a qualified quick service restaurant under guidelines of the MasterCard QPS program, typically no signature is required and special procedures minimize point-of-interaction risk. As a result, quick service restaurant workers won't have to handle change because every payment is exact. Consumers also need not fumble for cash or hustle to the nearest ATM with kids in tow.
   A number of merchants have launched payment card acceptance programs to simplify the dining experience. MasterCard has taken an active role with key merchants to expand their payment card acceptance promotions, which will help bring customers in the door.
   After all, consumers are often looking for new ways to pay, in addition to the variety of meals found on the menu. At Pizza Hut, for instance, management is focused on providing customers outstanding menu choices for whichever dining experience is chosen delivery, dine-in, take-out, or online ordering. Pizza Hut has found that customers appreciate and want the variety and convenience of payment options to go along with the dining experience.
   Because using a payment card at a QSR is a fairly new concept, it's important for merchants to spread the word about card acceptance. Some QSRs have used sweepstakes or promotional giveaways. Other possibilities include offering a two-for-one special on a popular high-margin item when using a payment card. Additional options may include a free tradeup to a large-size item, or $1 off of a transaction. Research shows merchants can lift payment card sales by up to 100 percent when using aggressive advertising. After promotions, 50 percent to 70 percent of payment card sales increases are retained, reflecting the benefits of repeated use.
   For example, KFC took notice of the consumer trend toward card purchases and picked up the pace in acceptance penetration. The joint efforts helped increase awareness of card acceptance throughout the system with promotions like the Tailgate Feast. The 11-week promotion offered special price-points and sweepstakes opportunities to KFC customers using their MasterCard card.
   Likewise, Domino's Pizza made it a company standard to accept credit and debit cards and launched a sweepstakes event with MasterCard to enhance awareness. During a recent Super Bowl Sunday traditionally the pizza company's busiest day of the year Domino's Pizza unveiled "The Best Seat in your House" where anyone who made a purchase at Domino's with a MasterCard card during the select period of the contest qualified to win a 40-inch Trinitron flat-screen television. The promotional deal included signage and advertising support online and in store locations. Today, Domino's reports a steady increase in the percentage of its customers making purchases with a payment card.

QSRs Test Next-Generation Technologies

   As new payment technologies develop, merchants across the country are beginning to explore a variety of cutting edge cashless payment options based on radio frequency identification devices (RFIDs) and the QSR industry is taking notes.
   In fact, MasterCard has heard from numerous QSRs that they are actively seeking cost-efficient, easy-to-implement solutions for enabling cashless payment technologies. In an effort to minimize wait times for customers in line at the retail location and at the drive-thru where speed is essential, QSRs are taking a serious look at non-cash alternatives.
   According to recent reports, numerous pilots based on RFID technology have taken place in a variety of QSR outlets. These new payment systems, often involving a key chain wand or key fob, speed up the payment process by automatically charging a registered payment card every time the RFID transponder is waved over specially-equipped terminals. A code representing a customer number not the customer's payment card information is transferred to a central processing center, which then requests authorization from the card company.
   Yet, no single cashless payment solution has emerged as the industry favorite. Many merchants, especially smaller franchisees, have cited the potential high costs associated with building the acceptance infrastructure for RFID payments as a challenge to wide-scale adoption.
   MasterCard is actively working with its member financial institutions to create and introduce a wireless payment solution using radio frequency technology that leverages our existing acceptance network and infrastructure. Once deployed, the radio-frequency based payment solution could provide QSR customers the simple and fast payments solution they demand and provide the faster customer throughput desired by the merchant community.
   Forrester Research says it believes RFID technology can give customers the convenience they desire, but also afford retailers an abundance of useful information, including customer-specific sales data to determine customer profiles and purchase patterns and easily link transactions with loyalty programs.
   With more people dining out and high-tech advancements helping make the experience more convenient, the opportunity within the QSR industry has yet to reach its peak. Those in the payment card processing business can do their part by helping restaurateurs speed up transactions and ultimately increase sales. We know that quick services makes for happy, repeat customers who spend less time winding through checkout lines and more time doing what matters to them.