Terminal-Tapping in Texas

Most of the retailers at the leading edge of contactless payment acceptance tend to be mammoth chains like McDonald’s and CVS. But a Dallas quick-service soup and rice bowl shop has found that the payment option speeds up the time it takes to serve its customers – and is encouraging them to spend more.

When Kuai Dumplings & Soups was first approached by its payments processor, Boston-based Merchant Warehouse, about a no-cost beta test, it was a “no brainer,” according to Chris Harris, owner of the Asian fusion restaurant. The hardware was installed for free, “and the idea of faster service fit in with our business strategy.”

Contactless cards have a special microprocessor chip embedded in them. When customers tap the cards near a credit card terminal, information about the card account is transmitted via radio waves to the terminal where the transaction can be processed. In many cases, customers don’t even have to take their cards out of their wallets in order to transmit the data.

And customers reportedly like the fact that the card never leaves their hands. The whole process is faster than credit cards swiped in traditional terminals — and even faster yet than cash in transactions in which the clerk has to make change.

Initially, few Kuai customers had the correct cards. But after JP Morgan Chase and American Express began more aggressive rollouts of contactless cards in the Dallas region, the number of customers waving rather than swiping began to rise.

Nationally, estimates put the number of contactless cards at about 20 million, but growing rapidly. ABI research estimates that sales involving contactless cards were approximately $200 million in 2007 and are expected to grow to $820 million by 2013.

At Kuai, customers using contactless cards can be serviced about three seconds faster than customers with other cards, Harris says. During the peak of the lunch rush, the restaurant services between three and four customers per minute, and “any time you can cut the service time on 10 customers by 30 seconds, you can get more customers through the line,” Harris says.

That is particularly important because Kuai operates in a busy food court in a downtown Dallas office complex: if its lines are long, customers are likely to go to another restaurant in the food court.

Having the right cards
Much of the success in getting customers to adopt and use contactless cards came from observing others. The only problem was that many of the people trying to tap their cards didn’t have the right cards (only a handful of banks in the Dallas region had issued cards with the microprocessor that facilitates contactless payment). Harris and his staff have learned to recognize the cards that can be used and will inform customers whether or not they can utilize contactless payment.

Still, the benefits are such that Harris plans to move forward with the system. He is opening a second location in another Dallas office building, and plans to purchase two terminals capable of accepting contactless payments. “The customers who can use this like it,” he says. “We find if our customers use it once they want to keep using it. I’ve had some people who begin tapping their cards even before I can ring up the order.”

Kuai Dumplings has priced all its meals so that tax is included in the menu price and all meals are rounded to the nearest 50 cents to avoid making a lot of change. Even so, Harris says, the only instances in which cash transactions are faster than those involving contactless payments are when the customer has the correct change. “If we have to make change at all, the contactless card is faster,” he says.

And the ease of use encourages customers to pay with the cards, which typically means a bigger ticket. At Kuai, credit and debit card orders are typically around 16 percent bigger – an average of $1 more – than with cash.

The biggest obstacle to adoption is the lack of education and marketing regarding the cards, Harris says. A few area banks have promoted the concept to their customers (Wells Fargo Bank, for instance, has a promotion in which customers receive an account deposit if they use their contactless cards three times).

But many customers still don’t know that they can use their cards for contactless payments – and worse yet, customers without the proper cards grow frustrated when their cards don’t work. Additionally, contactless cards from several banks in the region don’t work correctly.

Harris has become familiar with the cards that have the problem; when Kuai employees see a customer tapping one of these cards to no avail, they quickly take the card and swipe it in the terminal, explaining the problem to the customer.

Customer loyalty
Contactless payment is an atypical feature for a quick-service restaurant that is only now opening its second outlet. “You usually only see contactless readers in the big-box retailers because the small to mid-sized chains have not been sold on installing the terminals,” says Henry Helgeson, co-founder of Merchant Warehouse. “The number of cards in the market is still an issue. [In] some areas of the country there is a decent penetration, but even here in Boston you still don’t see many cards.”

Still, that has not stopped some large retail chains from rolling the terminals out in select markets, and Helgeson believes their presence will filter down to the smaller retailers. “These cards can really speed up the lunch line and that is a big deal to smaller retailers who don’t want to risk losing a customer because their lines are too long.”

And as the cards become more popular, customer loyalty will become a factor, he says. Customers used to swiping their cards at the big chains will seek out other retailers that accept their cards, and retailers that don’t have contactless devices will be at a competitive disadvantage.

As store owners begin to use the cards themselves and see consumers use them in other stores, “they’ll start to realize how beneficial these cards are and a light bulb will go off as to how these cards can help their business as well,” Helgeson says.