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| Cashing Out |
January 4, 2005 |
By Trevor Marshall
THE GREAT MAJORITY OF RETAIL TRANSACTIONS INVOLVE CASH, BUT WITH CONSUMERS HURRYING FROM PLACE TO PLACE, MORE ARE TURNING TO NEW COMMERCE TECHNOLOGIES.
IS IT TIME WE KILLED OFF BILLS AND COINS?
Almost everybody has one. Men may keep theirs on a dresser in the bedroom, women might have theirs where they dump out and repack their handbags.
It’s a change jar, that receptacle of each day’s collection of coins, overflowing with pennies and quarters and the occasional toonie.
They’re everywhere now, but they may be gone soon. Cashreplacement technologies, such as a solution developed and marketed by Toronto-based Dexit, replace all that metal with a single tag, either a fob that hangs on a keychain or a sticker that attaches to a mobile phone or PDA. The tag uses Radio
Frequency Identification ( RFID) to authorize payments for small purchases, such as coffee, newspapers, gum, cigarettes and lunch. Renah Persofsky, president and CEO of Dexit, believes the market opportunity is huge. “Ninety per cent of all transactions, of less than $20, today still use cash,” she said.
HOW IT WORKS
Dexit operates a bit like a prepaid mobile phone. Consumers set up an account into which they can transfer money from regular bank accounts. The Dexit tag itself carries no financial information and can be used for up to $100 worth of transactions per day.
By mid-2004, 32,000 people in the Greater Toronto Area had set up Dexit accounts.
Consumers touch their tag to a reader in a convenience store, food court, gas station or other retail establishment and the cost of the purchase is transferred from the prepaid account to the merchant, and buyers are on their way in seconds. The purchase is logged and the user’s account can be managed from the Web.
“People who value their time tend to be our best customers,” Persofsky said.
Merchants also benefit, as the tags reduce the time customers wait in lines, which in turn reduces the numbers who abandon their purchases and walk away. “Retail is all about the speed of turnover, so the more people you can move through your cash, the more money you’re going to make,” said Dave Pupo, an analyst who follows the sector for Dundee Securities Corp. in Toronto.
Pupo said people using cashless payment systems such as Dexit tags tend to spend more. “There’s a convenience factor, and using a key fob (instead of cash) seems to overcome psychological spending barriers,” he said. “Consumers know the money is in the account as opposed to being limited to the cash in their pocket.”
NO-CASH BABY STEPS
Cash-replacement technologies are still in the early stages of deployment and unless you work in downtown Toronto, there’s a good chance you haven’t yet encountered these systems. Canadian drivers have been exposed to a similar RFID-based payment option since 2001, in the form of Imperial Oil’s Speedpass. The chief difference with Dexit is that Speedpass is a closed system: it works at Esso stations but can’t be used to buy gas at a competing chain, let alone a cup of coffee at a quick-service restaurant.
Dexit’s solution, launched in September 2003, can be used wherever there’s a terminal. Right now, that means about 300 merchants, including chains such as Burger King, Dairy Queen, Druxy’s, McDonald’s, Mr. Sub, PharmaPlus Drugmarts, Rexall Drug Stores, Second Cup, Subway, Tim Horton’s and Timothy’s World Coffee.
Most of these Dexit-equipped merchants are in the PATH, the network of underground plazas that run under the core office towers in downtown Toronto. But in April, Dexit inked a deal with Bell Canada that should help introduce the system across Canada. As part of the agreement, Bell becomes the exclusive
supplier of merchant terminals and installation services.
“We’ve been looking at this area of the business for quite some time,” said Ken Gouveia, marketing director for enterprise business solutions at Bell Canada in Toronto. “When you look at the applications out there in the market, voice is the predominant application that drives networking across all our customers, but the second biggest application is in the area of payments.”
NATIONAL DEPLOYMENT
Dexit announced in September that it had expanded out of Toronto’s core to install merchant terminals in a number of institutional locations in and around the city, including two hospitals in Scarborough, two universities, a college, and three corporate cafeterias. But Persofsky said Bell intends to increase the number of Dexit-accepting locations across Canada to about 4,000 in 2005. “[Bell’s] vision is to take our 300 locations and expand that tenfold in the next year,” she said. “Bell has existing relationships with more than 500,000 merchants and it has the ability to leverage those relationships to deploy Dexit across the country.”
Gouveia said Bell will expand the Dexit merchant network using a two-pronged approach: adding merchants in areas where Dexit has already been deployed and encouraging national merchants to deploy Dexit. “We’re engaging large retail merchants that have large brands and loyal followings, because they will help us make this service a success,” he said. “We have to get it into the larger chains, and get a lot more merchant density” in areas where Dexit is already being used.
Pupo said widespread deployment of merchant terminals is critical to the success of any cash-replacement technology.
“The (approach) has to be penetration into the retailers followed by consumer use, because the card is useless if there’s no place to use it.”
Gouveia said adopting a single standard will be critical to the successful introduction of a cash-replacement system, which is why Bell is backing Dexit. “From a Bell perspective there is only space for one low-value payment standard in Canada,” he said.
“We’re a relatively small country and we’re pretty much focused in the 10 major cities, and for us to have different standards just wouldn’t make sense.
We’d have to issue all these devices and people are not going to walk around with multiple devices.”
KNOW THY CUSTOMER
For merchants who need more convincing, Pupo said Dexit’s system can generate useful sales data.
Retailers have long collected customer data, that’s why they embrace everything from Air Miles to Club Z Points. But for small transactions that are traditionally conducted using cash there has been no way to capture data. A coffee merchant may know, for example, that it sells 200 cups of premium blend per day, but if those cups were paid for with cash there’s no record of who bought those coffees. Was it 200 people buying one cup each, or 50 people feeding a four-per-day habit? And do those same people come back day after day?
A system like Dexit’s “is going to enable retailers to use data that’s never been available to them before,” Pupo said.
“Merchants are excited about that…(but) more excited about the potential to use Dexit to enable loyalty programs,” Gouveia said.
“The comment I get back from merchants is if they can find a way to make sure the customer who just made a purchase would come back and make more purchases, that would be a big benefit for them.”
BEYOND RETAIL
While the focus has been merchants, a cash-replacement solution like Dexit’s could have several applications outside of the cash register, from paying for transit fares and bridge tolls to making purchases from vending machines and Web sites. “As customers get out there with a prepaid account that has funds in it, the ability to tie micropayments — a payment online, for example — to an account they already have money in is definitely something we intend to pursue,” Gouveia said.
Regardless of how it’s used, Persofsky is convinced RFIDenabled payment systems like Dexit’s are poised to replace coins.
“You hold onto coins and you say, ‘This is crazy: there isn’t any difference to what I’m carrying now than there was to carrying shells 2,400 years ago,’” she said. “Where we are now, everything has gone electronic and we’ve automated everything, yet we might as well still be carrying shells (to pay for things) — there’s no difference.”
Web micro
Dexit http://www.dexit.ca
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