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Table of Contents

Lead Story

Self-service channel emerging

News

Industry Update

Industry afloat amid economic plunge

MasterCard rings in new year with fee hike

FACTA flags identity fraud

Comerica tapped for prepaid benefits

Features

SEPA: Will the promise be realized?

Tracy Kitten
ATMmarketplace.com

Sizing up merchant cash advance

Marc Abbey, Yuriy Kostenko and Myron Schwarcz
First Annapolis Consulting

Industry Leader

Holli Targan –
Lady of the law

Views

Interchange debate a wake-up call

Patti Murphy
The Takoma Group

Have passion, success will follow

Biff Matthews
CardWare International

Education

Street SmartsSM:
It's 'bons temps' with SEAA in New Orleans

Dee Karawadra
Impact PaySystem

Requirement 10: PCI's Everest

Michael Petitti
Trustwave

Landing pages: Convert interest to action

Nancy Drexler
SignaPay Ltd.

Acquiring compliance

David Mertz
Compliance Security Partners LLC

Merchant services hierarchy

Adam Atlas
Attorney at Law

Company Profile

Sonoma Technical Support Services

New Products

POS terminal cool to the touch

ST-A10 TouchPOS
Toshiba TEC America

Ensure health care claims at the POS

ImpactMD
Impact PaySystem

A quick-draw scanner at the POS

MS9590 VoyagerGS
Metrologic Instruments Inc.

Inspiration

Business travel made comfy

When the sandman is AWOL

Miscellaneous

POScript

Departments

Forum

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

January 28, 2008  •  Issue 08:01:02

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Self-service channel emerging

Want to bet on a horse? Pay your utility bill? Buy a ski lift ticket? Get a boarding pass for your flight? Buy groceries, perfume, a parking permit or order photo prints? Or, perhaps you would like to mail a package, rent a car or order a pastrami sandwich on rye from a deli.

Odds are, you'll soon find yourself doing all of these things without ever speaking to a human being.

Self-payment and kiosk technology has come a long way. Retailers can provide a kiosk or self-service payment system for all types of services at a cost effective price, allowing them to cut back on the costly process of hiring and training employees in high turnover industries such as retail or quick service restaurants (QSRs).

POS kiosks are hardware devices that work in combination with software equipped to handle self-service transactions. They allow customers to perform various functions in one spot by using a keyboard or touch screen.

The machines can include card readers, ticket and receipt printers, bill and coin depositors, and other devices designed for the types of services retailers determine their customers need.

Not only can kiosks be more cost effective, but they can also be programmed to upsell more reliably than human employees, giving customers the ability to purchase items at any time.

Products pass consumer test

Consumers are adapting to self-service payment options more quickly than some industry experts prophesied. Accustomed to automated teller machines (ATMs) and pay-at-the-pump service, many consumers feel they can process their transactions faster by doing it themselves instead of handing their card over to a clerk. And some feel it is safer to keep possession of their cards at all times.

Shoppers feel empowered throughout the self-service checkout process because of the active rather than passive procedure, according to research and consulting company IHL Group, a division of IHL Services Inc. that specializes in technology for the retail and hospitality industries.

"According to some estimates, in 2006, North American consumers spent more than $475 billion at self-checkout lanes, ticketing kiosks and various other self-service [POS] locations," said Melanie Broad, a Senior Analyst at Mercator Advisory Group and author of Retail Self Checkout: Providing Options For Merchants and Consumers.

"In 2007, those numbers are expected to increase by 33%," Broad said. "Other estimates anticipate that by 2009, consumers will spend $1.2 trillion in sales in retail stores via self-checkout alone. For these reasons, self-service at the [POS] is a compelling solution that serves many constituents of the payments and emerging technology space, including the consumer."

In 2005, Edgar, Dunn and Co. conducted research that showed the global market for unattended payment solutions stood at 7 million to 9 million devices, worth more than $5 billion.

Nearly half of them reside in the North American sector. Mark Beresford, Manager of EDC's London office, said the figure should be revised significantly upward to take into account current factors affecting marketability.

"We have seen the costs to manufacture terminal devices have fallen over the last few years, as manufacturing has continued to shift to low cost countries such as India and China," Beresford said. "Also, devices have become more standardized, and the consolidation of terminal vendors has equally impacted the cost."

Greg Buzek, founder and President of IHL Group, said the installation of self-checkout systems continues to grow in the double digits. "It's a way of life for high-volume transaction environments," he said.

Buzek added that the greatest growth is seen in super centers, warehouse clubs and smaller grocery stores, but once radio frequency identification replaces the bar code it will be common in all segments.

According to Buzek, the positive aspects of a self-service kiosk for merchants include the ability to:

Upfront costs still high

Buzek admitted, some merchants balk at the high upfront costs. He estimated the average self-service checkout machine costs $21,000 and has a typical lifespan of five years, compared to a traditional POS system, which costs on average $4,000 and has a longer life, typically nine years.

NCR Corp.'s FastLane is considered by Broad to be a leader in the self-checkout space. It is used by Wal-Mart Stores Inc., Home Depot U.S.A. Inc. and numerous retail chains. It costs approximately $20,000 per lane and offers a range of configurations. "NCR envisions a ratio of 1-to-8 being feasible in the near future as both consumers and staff become more adept at using these systems," Broad said.

IBM is also a leading supplier of standalone self-checkout solutions with more than 2.3 million machines installed worldwide. IBM self-checkout systems cost from $75,000 to $100,000 for a four-lane system with a manager's station.

"This is about 10% more expensive than a traditional checkout," Broad said. "But, as with many emerging technologies, that difference may decrease over time."

According to the U.S. Labor Department, the average salary of a grocery store cashier is $19,060 a year, so the merchant doesn't recoup costs very quickly.

But Broad suggested the direct return on investment (ROI) for some merchants may be better than it appears at first glance. "Assuming one's store was only open eight hours per day, and the need for cashiers [for the traditional lanes replaced by self-checkout] was eliminated, the ROI would be realized in some 21 months," she said.

"Self-checkout lanes can reduce merchants' costs by optimizing lower value transactions," Broad added. "With low dollar tickets, specifically those under $15, a typical supermarket does not break even on the transaction. However, with self-checkout, the ticket size at which merchants break even on the transaction is lowered to $12, thus increasing retailer profits."

Consumer purchases are typically smaller in self-checkout lanes than in traditional lanes, even smaller than in the express staffed lanes. According to IHL, most self-checkout consumers have an average of 6.6 items with a total of about $40.

Speed wins overall

Still, the selling point, according to many experts, is not price, but acceleration. And when doing their own checkout, customers perceived the line to go faster than regular employee terminals.

"The 1-to-1 [ratio of] checkout lane [to] cashier relationship is an obvious bottleneck," Broad said. "The amount of time required per transaction is dictated by the competence of the clerk and the speed of the technology in performing a payment transaction.

"This 1-to-1 relationship in a traditional retail setting cannot be altered. To speed up the number of customers you can process in a given time, you must add more cashiers to more lanes. Self-checkout systems aim to alter this ratio by enabling the consumer to perform his or her own checkout."

Speeding up transaction times appeals as much to consumers as it does to merchants. "According to national studies, approximately 80% of consumer complaints about restaurants are related to quality and timeliness of service," said Jeffrey I. Shavitz, Executive Vice President of Charge Card Systems Holdings Inc.

"Even an excellent dining experience can be negatively overshadowed by long delays during the checkout process."

In most cases, the customer must request a check, wait for the server to return the bill, surrender the credit card to the server and wait again for the hard copy receipt. Charge Card Systems' Self Pay Solution has proven to reduce the number of customer walkouts, Shavitz noted.

And an extended wait time is usually the quickest way to lose a customer - sometimes for good. "Research suggests that the majority of customer walkouts are a result of excessive wait times," Shavitz said. "With this solution, customers can self-pay using their key fob at any time without having to wait for a check.

"Merchants love [self-service kiosks] because it will expedite the number of customers frequenting their establishment. Plus, it will help reduce your staff overhead by approximately 30% with less time involved in managing the check-out process."

Paul Rasori, Vice President of Global Product Marketing for VeriFone, agreed. "Self-checkout options have been shown to generate a 40% reduction in average queue times, with increased throughput of up to 20%, enabling retailers to effectively cope with peaks and troughs of demand," he said.

Employees gain flexibility

According to Kathy Dawidowicz, NCR's FastLane Product Marketing Manager, floor space is key for retailers. And being able to utilize it as selling space is imperative. "Two assisted service lanes can be replaced by four self-payment lanes monitored by one cashier," he said.

Broad agreed one of the main advantages of these systems is the smaller footprint of each unit. "In retail establishments, any space freed by such a system can be devoted to selling," she said.

Broad mentioned that checkouts are vital, traditionally large and only arranged in parallel. "Self-service checkouts typically occupy 25% less space than conventional checkouts and allow a more flexible layout to be deployed, often allowing room for other functions such as enhanced marketing opportunities and the display of other enticing items," she said.

From her research, Broad found that retailers aren't laying off employees freed up by self-service terminals. Instead, companies are deploying staff elsewhere in the store to drive additional sales and enhance the shopping experience.

Monica Hachem, NCR's Self-Service Business Development Director, noted that in the past, retailers looked to kiosks to reduce labor. "But now I see them using kiosks to improve customer service or enhance the shopping experience," she said. "For consumers, self-service doesn't automatically translate to no service. In many cases, the employees no longer needed at checkout are offering more personalized service where it counts."

Opportunities keep coming

The shopping experience has changed dramatically since consumers came, cash in hand, to stores to leisurely buy goods and services. The birth of the Internet and new payment technologies have brought about the fastest and most revolutionary changes to the shopping experience.

The self-service market gives ISOs and merchant level salespeople (MLSs) the potential to enhance the consumer experience. "Innovative ISOs [and] MLSs, teamed with innovative merchants, will always find an opportunity to exploit a productivity-saving, consumer-pleasing payment technology," Rasori said. "This may open up new avenues for ISOs [and] MLSs to develop such as parking lots or vending machines."

The National Retail Federation's annual convention held Jan. 13 to 16, 2008, in New York featured X08 - Beyond the Walls of Retail, a show floor exhibit designed to demonstrate how technology will change the way customers shop.

Self-checkout and kiosk technologies figured prominently in NRA's exhibit. Even the least tech savvy consumers are now becoming adept at using self-service machines. According to IHL, anywhere between 25% and 50% of the daily retail transactions in the United States are now handled via self-checkout lanes.

Younger consumers use grocery self-checkout lanes more frequently than older ones, and men use them 17% more frequently than women. Many experts speculate that has more to do with the size of the grocery purchase (women with fewer items use the self-checkout lanes more than women with larger purchases) than with gender or age. Even baby boomers are swiping their cards at gas stations and airport kiosks.

"Self-checkout is becoming pervasive," Dawidowicz said. "It's already widespread in food and do-it-yourself retailers, but we're seeing a growing use of self-checkout in convenience stores, department stores and big box retailers, as well as car rental, health care, airports - all kinds of industries have started to embrace self-checkout."

Companies are striving to update self-service machines to offer the best product to merchants and consumers. For example, NCR's self-payment solutions "continue to evolve to address retailers differing operational needs as we penetrate these new segments," she said.

More knowledge required

Beyond grocery and do-it-yourself retailers, the self-checkout market is relatively untapped. But it takes some expertise to recommend the appropriate payment device and arrange installation and ongoing maintenance services. It almost invariably requires a more complex three-party (or more) deal.

Kiosks can be complex. They require state-of-the-art technology and a user-friendly - and extremely intuitive - interface. Unattended payment systems with PIN pads must adhere to Payment Card Industry Data Security Standard requirements specific to unattended PIN entry environments.

Kiosks placed outdoors or in unsupervised settings require additional security features and engineering for extreme weather conditions. Many ISOs and MLSs give a lot of thought to weatherproof or vandal-resistant equipment for a typical retailer POS system. With an outdoor or only partially protected kiosk, those features can add years to the service life of the kiosk. Other design factors also come into play. For example, the zone of security (so that bystanders cannot see the PIN when the consumer enters it) or accessibility affects things like the size and height of the keypad or the area lighting and keypad illumination.

And if that's not complicated enough, consider the communications module access. If systems are installed at the retailers' place of businesses (pay-at-the pump or an in-store kiosk), you can use fixed-line configurations such as a serial cables or a local area network connections. But if it is an outdoor or remote kiosk location, you may need to use Wi-Fi, general packet radio service or code division multiple access wireless for communications access.

Self-service and kiosk solutions give consumers flexibility, but they can also expose merchants to potential fraud from stolen cards. So mechanisms to authenticate cardholders and their payment cards are essential. Indeed, some self-checkout systems even give change at the POS, making the case for implementing security measures even more compelling.

Kiosks or other systems can often be programmed to upsell. For example, an airport ticketing kiosk can automatically offer to upgrade passengers to first class when they book coach. But those upsells must be well thought out.

Automated upsells tend to be reliable. Employees often forget to offer upgrades or intentionally neglect to do so when service lines get too long. However, opinions are divided as to whether an automated upsell is as persuasive as one given by an employee. A teller engaging in conversation with a consumer may be able to think of a way to personalize the upsell for a particular customer, for example.

Even impulse purchase decisions may vary in self-checkout lines compared to traditional ones. "The implementation of self-checkout lanes means a pronounced decline in the number of impulse items that are sold," Broad said. "While the decline in impulse buys at the [POS] is a gender-neutral trend, women's purchase volumes are reduced by a dramatic 50% and men's by 27.8%."

IHL agreed that most businesses are not effectively addressing the issue of impulse purchases at self-service lanes. It suggests that retailers look at the target audience to stock shelves. "If men are the predominant users of self-checkout, retailers should focus on providing more impulse items for men at the head of self-checkout lanes," Buzek said.

As with any other value added service, additional education and effort can pay off. "Have you ever wondered how brilliant the QSRs are?" Shavitz said. "You pay for your meal and then you clean up your meal. Where does it say in these restaurants that the customer must throw their food away in the garbage? It doesn't.

"Similarly, ISOs and [MLSs] within our industry have a unique opportunity to introduce this new concept and earn merchants' trust and business by acting as their consultant and not just reducing their credit card fees by a few basis points."

In the ever changing payments industry, the surge in popularity of self-checkout kiosks and other creative concepts could reward ISOs and MLSs with major profits.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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