The Self-Serve Future

Vending, as well as unattended payments, is evolving into a more-encompassing retail setting and bringing digital payments along.

Few merchant segments have been as well-suited to contactless payments as vending and unattended payments. And now, spurred by changing consumer habits during the pandemic, contactless payments are driving cashless payments
in vending.

By October 2021, according to data from Cantaloupe Inc., a specialist in vending and unattended payments, contactless transactions accounted for fully 43% of total cashless transactions, up from 18% in January 2020.

With contactless habits firmly established among consumers—45% of consumers rank contactless payments a preferred payment method, say S&P Global Marketing Intelligence and 451 Research—and self-serve retail and checkout much more commonplace than they were prior to the pandemic, the vending and unattended payments segment may be ready for another transformation. One big change: it is becoming self-service commerce.

That is the direction in which Ravi Venkatesan, chief executive of Cantaloupe, sees this market heading. “Self-service commerce is going to continue to grow at a fast pace, and within segments we haven’t seen before,” Venkatesan says. “In fact, we no longer think of this business in terms of being ‘unattended,’ but instead are calling it self-service commerce, as it is broader than just unattended.”

The Pandemic Effect

Myriad factors have moved the industry in this direction and could help create more potential for payments.

“Nowadays, self-service commerce is everywhere you look, from airports to office buildings, libraries, [electric vehicle] charging stations, amusement parks, hospitals, concerts, sports arenas, gyms, and more,” Venkatesan says, driven by consumer demand and innovation. “For the vending industry specifically, it’s always been about providing convenience.”

Indeed, according to a Cantaloupe-commissioned study by Michigan State University’s Broad College of Business, 69% of all sales in Cantaloupe’s network were cashless in the first six months of 2022. And 48% of these are made using a contactless payment method. The College estimates that, at the end of 2022, more than two-thirds of all vending-machine transactions were cashless. The average cashless transaction total was $2.30.

The pandemic’s impact is familiar to many in the payments industry. For vending and unattended, it drove consumers to find more self-serve opportunities. Consumers also have learned to navigate self-checkout in other venues, “which has provided a sense of control to their self-checkout experience and lets them make payments quickly and efficiently,” Venkatesan says.

These and other factors will likely contribute to more growth for vending and unattended payments. The increased use of contactless and digital payments, which took on even more momentum during the pandemic, is one factor, says Thad Peterson, strategic advisor at Aite-Novarica Group, a Boston-based financial-services advisory firm. The increased availability of unattended commerce that accepts card-based payments is another element, he says.

The third factor speaks to Venkatesan’s note about self-service commerce. “The expansion of unattended retail beyond simple vending machines, including attended retail (Amazon Go), expanded vending machines and spaces to accommodate higher-ticket items,” will influence the segment’s potential, Peterson says.

“One interesting use case is the availability of cashless vendors in gyms,” he says. “Consumers may not have their wallet or purse when they’re working out but they nearly always have their phones, so they can buy a drink with their phone while working out.”

Challenges

An aspect that may also fuel growth in the segment is a problem that has plagued most organizations over the past two years or so. “Another potential driver of unattended cashless commerce is the acute shortage of retail service personnel,” Peterson says, “which is driving merchants to automate functions previously done by service people.”

Examples include the ordering kiosks in many McDonald’s restaurants. And, in 2021, Steak n Shake, a regional quick-serve chain, moved to a completely self-service ordering and payment model, using kiosks in lieu of wait staff.

“From a business perspective, offering more self-service options at checkout makes sense for a number of reasons,” Venkatesan says. “Many retailers are facing labor shortages [and] wage inflation, and supply-chain pressures are driving up the price of consumer goods. Offering self checkout can save money and manpower for retailers who need to preserve crucial resources and protect profit margins.”

Most consumers have made vending and unattended purchases, with 90% in one 2021 Cantaloupe study having done so. The segment is not without challenges, though.

Rapid growth is one challenge, Venkatesan says. “More advanced points of sale, telemetry, and connectivity are needed now than we’ve ever seen before,” he says. “Self-service commerce is going to continue to grow at a fast pace, and within segments we haven’t seen before.”

Malvern, Pa.-based Cantaloupe took another step along that path with the 2022 acquisition of Three Square Market, a $41-million deal that will be a springboard for expansion and improved profit margins. Three Square Market, known as 32M, specializes in micro-merchant and vending operations. Beyond its U.S. operations, it does business in the United Kingdom, Sweden, and Romania.

32M opens more opportunity to cross-sell and upsell Cantaloupe services to the newly expanded client base, Venkatesan says. The company was a customer of Cantaloupe’s Seed Markets platform, a service that helps with route scheduling, warehouse pre-packing, and reporting tools.

‘A Huge Opportunity’

At least in Cantaloupe’s situation, it may be more than consumer payments that advance the company. Subscription tools such as Seeds Market and other variations of Seeds could go a long way to aiding Cantaloupe.

“We believe the key to margin expansion is continued growth of high-margin subscription revenues,” Christopher Kennedy, an equity research analyst at William Blair & Co. LLC, writes in a research note about Cantaloupe. “Key initiatives to drive growth of subscription include the increased penetration of Cantaloupe’s various software offerings, new product rollout, and growth of the newly launched subscription model, Cantaloupe One.”

The Cantaloupe One service debuted in early 2022 and is a bundled model for Cantaloupe’s ePort hardware and Yoke POS software. The Blair note says Cantaloupe has more than 25,000 customers and 1.15 million active connections, “while also increasing its presence in both adjacent verticals and internationally.”

This could entail further expansion into higher-ticket transactions. “While the lower, vending machine end of the category is well-defined and being used a great deal, it’s still an open issue how more complex or higher-end offerings, like unattended stores and unattended ‘store within a store,’ will ultimately roll out and scale,” Peterson says.

William Blair estimates the value of the overall self-service commerce market in Cantaloupe’s current and targeted geographies of North America, Europe, and Latin America at $6.4 billion. The self-service notion could drive a lot of growth. The overall vending-machine market is will reach $26.4 billion globally by 2028, forecasts the IMARC Group, a market-research firm.

“The growth of self-service commerce is a sign that retail is changing from a destination to a service thanks to overall shifts in consumer behavior, technology innovation, and global economic trends,” Venkatesan says.

“Traditionally,” he continues, “it’s been thought that retailers should drive the customers to a physical location, but merchants are now figuring out how important it is to reach the consumers where they live, work, and play. Vending and micro markets in a place of business are now commonplace and they will become more ever-present, bringing goods to convenient locations throughout the world. This represents a huge opportunity for self-service commerce.”