As ISOs look for ways to expand their businesses, some of them are looking into providing "cashless ATMs," otherwise known as ATM scrip, and to participate in Visa's fast-food restaurant program.
Visa's fast-food restaurant program (also known as its quick service restaurant program) is part of an effort by the card issuer to gain acceptance of credit cards as the preferred payment vehicle in various industries where it isn't already preferred. The restaurant program is one of several that Visa has for specific businesses.
"We're promoting acceptance among all channels," said Mark Crager, Visa Vice President of Merchant Sales. "It's up to the acquirer to work with a lot of different brands, including McDonald's, Burger King, Wendy's, etc." Current card penetration at fast food restaurants, including Visa, MasterCard and other brands, is only 5 percent, so there are plenty of opportunities for acquirers and ISOs working with them, according to Crager. While Visa itself is promoting the use of its cards, appeal to corporate officials can only go so far. Of 13,000 McDonalds restaurants, for example, only 2,200 are operated by the corporation. The others are operated by franchisees. Some franchisees have only one restaurant, while others have several. Therefore, Crager advised ISOs to build relationships with individual franchisees if they want to take part in the expected growth in this market. Acceptance of the credit card is only one part of the process, according to Crager. Another critical element is using the right technology. In one pilot with Burger King franchisees, for example, the customer can swipe the card at the drive-through when placing the order. The pilot requires a technology with a fast connection, so that the customer doesn't have to wait for approval any longer than he has to wait for his order. The placement is also important, Crager said. Drive-through access is important because some 65 percent of sales occur at there, with the other 35 percent at the counter. "The faster [the fast-food restaurant] can service drive-through customers, the better," Crager said. "The customer places his order, gets his receipt and order and is gone. This saves time for the store. The restaurant owner can decide whether to require a signature." Offering faster service isn't just a customer convenience. It also means that the restaurant owner can serve more customers, earning higher profits. Credit card users tend to spend 50 percent more than cash users, Crager said. Additionally, fast food restaurants have high employee turnover. Therefore, theft of cash is a concern, one that credit card acceptance helps solve. These are all points an ISO can make when discussing credit card acceptance with a fast food restaurant owner. The ISO can get support materials from acquirers or directly from Visa, Crager said. "We have a broad array of POS materials. Acquirers have them, too. This would be a great starting point for any ISO wanting to target these businesses." These materials, known collectively as a toolkit, are available to ISOs at no cost from Visa, Crager added. The tool kit includes:
- Comprehensive information and statistics outlining the advantages of Visa payment card acceptance including convenience, competitive advantages,cost savings, and speed
- Case studies on Visa's programs with fast-food restaurants which demonstrate proven results
- Publication reprints which outline the acceptance opportunity for fast-food restaurants
- Outline of the marketing support that Visa will supply
Telephone Visa at (800) Visa-311 for further information.
Visa also targets restaurant owners directly by offering items like restaurant accessories, including tip trays and check presenters, to visually remind customers that Visa is accepted, though these products are aimed more at non-fast food restaurants. Beyond the support materials available from Visa, the credit card company is trying to increase penetration of credit card acceptance at fast food restaurants through an awareness campaign aimed at owners of these establishments, Crager said. "We're trying to build awareness so they can let customers know they have a choice of payment methods," Crager explained. "They need to get the customer in the frame of mind to use the credit cards." Though use of credit cards in fast food restaurants has grown very slowly over the last several years, it could grow very quickly in a short amount of time, according to Crager. "All it takes is one or two major players to set a tone for the entire market," Crager explained. "Once someone makes a big splash about accepting credit cards, everyone else will be in line to get in. Whoever gets there first will draw a significant crowd." Consumers already prefer cashless payment methods, according to Crager, who said that some consumers reject one gas station and drive to another if the first doesn't offer "pay at the pump". Visa is hoping to get good mileage in its marketing drive to fast food restaurant owners through a pilot program with 100 Atlanta-area Burger King outlets. During the pilot program, which ended Sept. 1, customers were able to use payment cards at participating restaurants. Pilot results weren't available before press time. While cashiers took the cards at most of the restaurants, three were testing a new technology at the drive-through window, which enabled customers to swipe their cards at the drive-thru order board before placing their food orders. By the time the customer drove up to the food pick-up window, the payment transaction had already been completed; reducing the amount of time the customer will have to wait. The payment technology is similar to that which customers already use at gas pumps across the United States. "The quick service restaurant industry has some very unique needs," Crager said. "The fact that Burger King Corporation and its franchisees have agreed to work with us on a pilot is a landmark step in our effort to explore the volume potential in this category and prove that cards can help quick service restaurants meet their business objectives." The test will determine which card solution will best meet Burger King Corp.'s overall needs and will be carefully monitored to determine speed and accuracy of transactions, overall customer satisfaction, average ticket size and other measures. "At Burger King Corporation, we believe in the convenience of payment cards and the benefits they can bring to our customers and franchisees," said Jonathan Fitzpatrick, corporate director of deployment. "We are excited to be working with Visa to generate awareness of card acceptance in our industry." More than 11 million customers visit Burger King restaurants each day, with the drive-throughs accounting for more than 60 percent of the Burger King business. According to Burger King corporate statistics, more than 90 percent of purchases are currently made with cash at drive-throughs that accept payment cards. Visa isn't the only issuer to target the fast-food restaurant business. American Express and Hypercom recently teamed up to accept credit cards at the drive through of a Long Island, N.Y. McDonald's franchisee. Hypercom's HFT 500 outdoor card payment terminal and American Express transaction processing makes this speed possible. The Hypercom terminal, measuring a compact 4.7 inches wide by 8.7 (high) by 4.3 (deep) is embedded directly in the drive-through menu board or as a standalone unit.� The high security payment device features a durable all-climate keyboard, and integrated pin pad. The payment terminal connects to the Hypercom ICE 500. Payment transaction details are handled by the in-store system or they can be transmitted directly from the terminal to American Express, theprocessor, for virtually instantaneous authorization. Small restaurants are one of the potential targets for ATM scrip machines. An ATM scrip machine enables a merchant's customer to swipe his or her bank/ATM card, enter a PIN number, choose a dollar amount, and then the customer receives a scrip/cash coupon, which can only be redeemed at the merchant's place of business. ATM scrip offers several advantages over traditional ATM programs, according to providers. With scrip, there's no need to replenish cash. The scrip machines are also less costly for ISOs to buy. Therefore, ISOs can sell these machines to merchants for less than a cash-dispensing machine and still make a good profit. Because they accept ATM or bank cards, the scrip machines can service a market that the cash-dispensing machines that require credit cards cannot. According to industry surveys, more than 71 percent of U.S. households currently use ATM cards, while over 80 million consumers can't qualify for a credit card. "I've already had a lot of calls," said Kirk M. McCrabb, owner of Protec Financial Services, and ATMscrip.com, Austin, Tex., who started his business earlier this year. "Merchants don't want to have to deal with an armored car guy [handling money for cash-dispensing ATMs." McCrabb added that he's had so many calls for the Nurit 2085 ATM scrip machine that he "hardly can keep up with demand." McCrabb added that numerous ISOs who have specialized in merchant services have contacted him about the possibility of offering ATM scrip. The presence of a cash-dispensing ATM also can raise a merchant's insurance premiums to go up, whether or not he ever experiences a theft at his establishment, according to McCrabb. While a criminal can get away with stolen money from a cash dispensing ATM, it wouldn't do him any good to steal scrip, which would need to be used at the merchant's business, McCrabb points out. In late August, three Chicago-area men carried away a cash-dispensing ATM from a small restaurant. The criminals were arrested as they tried to load the machine into the truck of their stolen car. This is just an example of the length criminals to go to in an attempt to get money. A clearly displayed sign that a machine has no cash can deter such crimes.
While the higher insurance premium may be a non-issue to a large merchant, many small merchants operate on shoestring budgets; so higher premiums could put them out of the cash-dispensing ATM market, according to McCrabb. With no effect on insurance premiums and lower initial cost, the ATM scrip machines are attractive for these small business owners. Among the merchants who are prime candidates for ATM scrip machines are:
- Convenience stores
- Liquor stores
- Movie theaters
- Bowling centers
- Night clubs or bars
ISOs who want to specialize in ATM scrip machines or who want to add that to their other lines of business (McCrabb also deals in cash-dispensing ATMs) should contact processors that offer ATM scrip services, McCrabb advised. Among the larger processors that offer ATM scrip programs are Transaction Solutions and National Processing Company. Smaller companies (including McCrabb's company) offer opportunities as well. Therefore, an ISO targeting this area should determine what size company best meets his needs. Individuals may want to work with a small company, while ISOs with larger operations may want to look to Transaction Solutions and similar firms. However, McCrabb cautions that many ISOs currently in the ATM scrip business have their systems set up wrong and could be risking thousands of dollars in fines. Another ATM supplier, who declined to be quoted, contended that the difference is enough that ATM scrip is really a misnomer. ATM machines and scrip machines shouldn't be considered the same, he said. If the ISO isn't certified by MasterCard and Visa, any ATM scrip machines he sets up need to be connected to the ATM networks as POS machines, rather than as cash-dispensing ATMs, McCrabb explained. However, some uncertified ISOs selling ATM scrip machines do so under the auspices that they can be made to appear to the network as cash-dispensing ATM machines. These ISOs are risking thousands of dollars in fines, McCrabb cautioned. The difference in how the machine is set up affects the interchange. If set up as a POS machine, the owner of the ATM scrip device (or ISO, depending on the merchant/ISO agreement) owes an interchange fee every time it connects to the network. If, on the other hand, the device can be connected as a cash-dispensing device (even if it has no cash), the owner of the machine (or ISO, depending on the merchant/ISO agreement), an interchange fee is received for each transaction. Typically, according to McCrabb, a small merchant, working with a small ISO, who has an ATM scrip machine set up as a POS machine, will collect about half of the $2 transaction fee, with the ISO collecting the other half and paying the interchange fee. Cash-dispensing ATMs (whether scrip or not) usually provide the merchant with the full transaction fee, with the ISO retaining the interchange, minus whatever the processor keeps, according to McCrabb. Though ATM scrip income tends to be lower for the merchant, the security and insurance issues mentioned earlier are increasing the demand for these units, providing ISOs with a growing income opportunity. On the other end of the spectrum from ATM scrip machines are Web-enabled ATM machines, which are starting to appear in some markets, including Boston, Mass., and Austin, Tex. These machines, offered by various manufacturers, are more costly, but offer more income potential through online sales of third-party movie tickets, etc. Due to the expense, sometimes in excess of $10,000, these units are beyond the means of some ISOs, though some larger ISOs may find additional opportunities by offering these high-tech units.