Seven years ago, Bruno Sementilli, president and CEO of Purchase, N.Y.-based Quorum Federal Credit Union (then known as Kraft Foods Federal Credit Union), was in a bind.
He wanted to add branches to boost the accessibility of services the credit union could offer its members, who are employees of the Altria Group that includes Kraft Foods, Philip Morris International, Philip Morris USA and Philip Morris Capital Corp. But the credit union's branches were limited to the New York Metro area and the Midwest, even though Altria's employees and the credit union's members were spread throughout the country.
The problem was, he could not figure out a cost-effective business plan that would work.
"We wanted to provide services in new branches, but because many were remotely located, it was difficult to [find staff]," says Sementilli. "We wanted to get our expenses down while still fully serving our members."
The solution became clear when Sementilli realized that multifunction kiosks could perform almost every service that the credit union's branches were offering. This included standard ATM functions such as cash dispensing and traditional, and more profitable, teller functions such as card dispensing and check printing. And they could support these services 24 hours a day.
After a successful 18-month trial of the kiosks at the credit union's 14 locations, in 2001 the organization began rebuilding its branches to focus customers' experiences around the kiosk.
Quorum's 21 Source Technologies 7-Series self-service kiosks have shaved 23% off the credit union's annual expenses, as they handle 85% to 95% of each branches' transactions. The savings have enabled Quorum to add seven more branch locations, and the credit union plans to add four more. Moreover, the kiosks, which cost $25,000 each, have added speed and convenience to customers' experiences, says Sementilli.
Organizations such as Quorum are finding kiosks can help appease customers and drive growth through greater efficiency. Still others have found the machines beneficial in supporting a variety of automated tasks, including selling products and paying bills. Could automated credit card approvals and issuance soon be in the offing as well? One expert believes so.
Indeed, despite the potential limits for kiosks because of their cost, Quorum's use of multifunction machines to bolster customers' speed and convenience suggests kiosks have moved from a "nice-to-have item to a must-have" for many financial-services institutions, and for retailers and municipalities, says Francie Mendelsohn, founder and president of Summit Research Associates, a Rockville, Md.-based kiosk consulting company.
Summit's research findings suggest that of the nearly 957,000 kiosks deployed worldwide as of the end of 2006, nearly 613,000 were deployed in North America, up nearly 40% from nearly 439,000 a year earlier. Of those deployed, the leading payment-accepting kiosks support retail uses, such as DVD rental, and bill payment.
With many kiosks primarily accepting debit and credit cards, they represent a booming opportunity for consumers to use plastic instead of cash, Mendelsohn says. In fact, she notes, a number of kiosk business models are built around that concept.
For instance, in November, Macy's department stores re-entered the consumer electronics market that it abandoned five years earlier when it deployed 150 Zoom Systems Inc. self-service kiosks ("Kiosk Vendor Puts Macy's Back on Consumer-Electronics Track," December 2006). The machines sell iPod MP3 players, as well as iPod carrying cases, travel speakers, headphones and other electronic equipment. And the VeriFone payment terminals within the kiosks accept only American Express, Discover, JCB, Macy's, Visa and MasterCard-branded credit, debit and charge cards.
The kiosks, which Macy's placed in high-traffic areas, are a low-risk way for Macy's to return to selling consumer electronics, according to Mendelsohn.
Another company relying solely on debit, credit and charge card payments is Oak Brook, Ill.-based Redbox, a provider of DVD rental kiosks. Redbox requires customers to use a debit or credit card to rent DVDs to avoid the cost of issuing membership cards and to provide a means to charge late fees if customers return their DVDs late.
CUSTOMER MAGNETS
"We accept payment options that are easily understood," says Greg Waring, Redbox vice president of marketing. "The fact that you can pay with any debit, credit or check card with a Visa or MasterCard logo is simple. We don't accept cash, but we feel that we give enough other options to make our kiosks inclusive."
McDonald's Corp. developed Redbox in 2003 to drive additional traffic to its fast-food restaurants. In 2005, the company sold off a minority interest in Redbox to Coinstar Inc., which deploys its own coin-counting kiosks in supermarkets across the country. The concept of $1-per-night DVD rentals located in high-traffic retail locations has helped Redbox find a niche between brick-and-mortar retailers, such as Blockbuster Video, and online DVD subscription services such as Netflix, says Waring.
Redbox, which allows customers to rent and return DVDs at any location deploying its kiosks, recently began allowing customers to search the availability of specific titles online, reserve a copy, then go to the location and pick it up. And with more than 2,000 kiosk locations, including at McDonald's restaurants, Walgreen drugstores and Giant grocery stores, and plans to add 4,000 new retailer locations this year, the company's business model is proving successful, says Mendelsohn.
"Unlike their [nonkiosk] competition, rental kiosks provide instant gratification," she says.
The reason for Redbox's rapid growth, according to Waring, is customers' increased comfort with self-service, coinciding with their increased use of credit and debit cards for small purchases.
"Customers generally have a higher level of comfort with automated technology today," he says. "We've seen the tipping point in the last few years because self-service happens everywhere in our daily lives, starting with ATMs. Now we check [ourselves] in at the airport and [self] check out at the grocery store. People realize automation makes for faster and more-convenient service."
Redbox's kiosks, which are manufactured by Milpitas, Calif.-based Solectron Corp., are serviced at least once a week so that customers can rent new releases by 12:01 a.m. every Tuesday. First Data Corp. processes Redbox's card transactions. Waring would not disclose how much the kiosks cost.
Despite a business model built around accepting small payments, the propriety processing model that Concord EFS developed for Redbox has "worked out to be very successful," according to Waring. (First Data acquired Concord in February 2004.) The model requires Redbox to immediately process customers' credit or debit cards for the first night's rental charge. When the DVD is returned, Redbox processes any charges beyond the first night fee.
But while Redbox's processing model does not include bundling transactions of repeat renters to save on processing costs, bundling has led to significant savings for DVDNow, a 19-month-old Redbox competitor. DVDNow bundles its transactions through small-payments processor Peppercoin, according to DVDNow CEO Scott McInness.
With DVDNow deploying nearly 50 kiosks per month at a cost of about $18,000 each, and plans to boost deployment to 100 machines per month this year, McInness suggests that bundling payments will save the company an estimated 30% in processing costs, since nearly one-third of the kiosks' users make multiple rentals each week.
Unlike Redbox, all of DVDNow's kiosks are individually owned and operated. As such, the DVDs must be returned to the same location from which they were rented. However, DVDNow's business model tailors kiosk locations to office buildings, locally owned grocery and pharmacy chains, and universities that receive steady repeat traffic. And McInness contends efficiency and the speed in which consumers can use the kiosks has helped generate repeated use of the machines.
"People don't get value from their interaction with a teller, video clerk or checkout person," McInness says. "If people can get more convenience at a lesser price point [with a kiosk], that ultimately works. ... Everyone knows what movies are out. The video clerk doesn't help you."
While Quorum has found purported success using multifunction kiosks, other financial institutions could find the machines worthwhile in a number of different areas, according to Zoltan Ambrus, an associate at the New York-based consultancy FischerJordan LLC and author of the white paper "Financial Services and the Evolution of Self-Service."
Ambrus envisions issuers' next potential boon to involve the deployment of kiosks that instantly dispense credit cards as an alternative to using direct-mail solicitations to attract cardholders.
Ikea Systems B.V., a Delft, Netherlands-based furniture retailer, already has experimented with such kiosks to sell private-label cards in a trial that Ambrus says was "very successful."
However, Ambrus believes that the true test of the kiosk model will occur by expanding it to issuing general-purpose credit cards. Potential deployment areas include airports, tony shopping malls and hotels where there is a lot of foot traffic, the urge to seek another credit card is relatively high and individuals using the machines are likely to be instantly approved for credit.
The kiosk would enable consumers to apply for a card by entering their personal information into the machine or by swiping another credit card or a driver's license that has a magnetic stripe. The kiosk would then electronically check the consumer's FICO credit score and, if approved, issue a temporary card within five minutes of the consumer's first input.
For consumers, the kiosks would allow them to pick up an additional line of credit when they need or want it most, says Ambrus. And for issuers, the kiosks would help them land consumers whom they otherwise could not easily reach through direct mail. Although some kiosk manufacturers and issuers have "hinted at interest," as of C&P press time, Ambrus was not ready to announce a pilot rollout.
COSTS RELATIVE
Ambrus envisions each kiosk to cost between $5,000 and $12,000, with occupancy rent paid to the hotel, mall or airport to cost between $500 and $1,000 per month.
But the costs are relative, he says. "In terms of hard numbers, the cost of acquiring cards through traditional channels is high for issuers," says Ambrus. "If a kiosk gets one application a day, ... it will be a viable option."
The key to any kiosk's success is its ability to simplify a task, says Ambrus.
And bill-pay kiosks, like card-issuing kiosks, can do just that, according to Hamed Shahbazi, CEO of Seattle-based Tio Networks, a multiretailer network of financial-services kiosks.
Tio Networks, which operates more than 1,100 kiosks nationwide, creates relationships with billers across a variety of industries to accept payments for their bills at the company's kiosks. Tio's machines are placed in such locations as Exxon Mobil Corp. stations, Circle K grocery stores and Dollar General Stores.
Presently, Tio's affiliated billers have more than 100 million consumer accounts. For the billers, kiosks help eliminate some of the need for cashiers to process payments. And Tio arranges a transaction fee for their services.
"By aggregating the bill-pay model in putting competing billers in the same interface in a neutral location like a grocery store, ... we've tried to add value to the equation," Shahbazi says. "We make paying bills more convenient."
One of the reasons for Tio's growth from operating 673 bill-payment kiosks in the first quarter of 2006 to an anticipated 1,442 by the close of this year's first quarter is that many of Tio's customers include the 50 million Americans who are "credit-challenged," as well as the unbanked, says Shahbazi. Since the bills are processed immediately, between 10% and 15% of the users are emergency users approaching their payment-due dates, says Shahbazi.
And with a recent TowerGroup report suggesting that emergency bill payments will become a $1.7 billion industry by 2010, Shahbazi is confident that Tio's business model is in line with consumers' demands.
While the majority of the kiosks' transactions are done in cash, Shahbazi has begun to see debit payments carve out a small niche in bill-payment kiosks. "Debit is displacing cash, credit and checks as people move to self-service," he says.
SINGLE-BILLER USES
For single-biller bill-payment kiosks, such as those installed at Atlanta's City Hall and in the city's North Fulton Annex, credit and debit cards are the predominant form of payment, says Melinda Langston, director of customer and government relations at Atlanta's Watershed Management division. In fact, the kiosks only accept checks and credit and debit cards. And there is no charge for customers since the cards are processed by Nova Information Systems using the same system that has been in place for a number of years.
Atlanta's kiosks allow residents to pay their water bills with immediate settlement. However, the city is looking at the feasibility of adding such services as looking up vital records, paying traffic tickets, renewing licenses and applying for building permits.
"The kiosks expanded our options for our customers' convenience," Langston says, noting that the machines can operate in a number of languages that cashiers cannot be expected to understand. "And it's accessible 24 hours a day-even after hours."
Langston adds that the kiosks allow the city to offer services in locations where it would be too expensive to operate a staff to collect bill payments.
In fact, that is the main goal of Texas' Dallas County, which on Jan. 1 launched a kiosk pilot with Desoto, Texas-based eTelcharge.com at several county-owned offices. The kiosks, which cost about $25,000 each and do not charge a transaction fee, accept property-tax payments and support such other services as looking up vital records, paying parking tickets and handling other small transactions.
"The county put forth an initiative to push more business to e-commerce so that they can pay at any time," says Dallas County Treasurer Lisa Hembry. "Some of our offices close during lunch. You don't have to wait. You can pay your ticket at anytime."
Thomas Smith, president of MontegoNet, the Portsmouth, R.I.-based supplier of Atlanta's kiosk, suggests that the key to any kiosk's success rests in the user interface to make paying the bill simple. "Our software is geared to the noncomputer user," he says. "As you walk through the interface, it's very clear how you pay the bill. When kiosks try to do too much, they lose their meaning."
Tamara Mendelsohn, a Forrester Research analyst who specializes in understanding how shoppers interface with retail technology, agrees. Not surprisingly, her research has found that technology-savvy consumers are far more likely to use a kiosk, as consumers who have bought products online are 78% more likely to use one.
As such, Mendelsohn suggests that bridging the technology gap by making the kiosk easy to use and introducing it with a human presence to help walk customers through the process helps successful rollouts.
For instance, when U.S. Postal Service in 2003 introduced Automated Postal Centers, it deployed postal-service greeters to help customers learn how to use the machines for the first 90 days of the rollout. The kiosks accept debit and credit cards and allow customers to weigh, calculate and apply exact postage, and ship Express and Priority Mail items, packages and first-class letters.
"If you help people get accustomed to the machine, next time they will be more comfortable," Mendelsohn says.
Yet despite all the hubbub, kiosks still represent a small segment of the payment market, she says, noting that her research shows that only 14% of consumers have used a kiosk, and far fewer have purchased anything from one.
"Kiosks can be part of a company's solution, but they're not a silver bullet," Mendelsohn says.
However, kiosk sales in North America now dwarf sales in the rest of the world combined, according to Summit's research. Summit's data, though, includes kiosks that do not accept payments.
Retailers and billers are finding that kiosks' speed and convenience is giving them a leg up on their competition. While kiosks likely will garner some attention from card issuers, it remains to be seen how broad the technology's footprint will stretch.
Worldwide Installed Kiosk Base
(in thousands)
Region 2005 2006* 2007* 2008*
Total 734 957 1,225 1,472
North America 439 613 820 998
Source: Summit Research and Associates Inc., 2006. *=Projected
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Do-It-Yourself Market Grows For Banking and Shopping.
February 01, 2007, 12:40 p.m. EST 14 Min Read
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