Transponders Make Fast Food even Faster
By Mark Frauenfelder, Tue May 15 00:00:00 GMT 2001

Cashless-payment system improves customer satisfaction - quick and convenient.


Most of us call them fast food joints. But folks in the restaurant industry call them QSRs (Quick Service Restaurants). And for a good reason. The words "quick" and "service" are of utmost importance in the cutthroat market of inexpensive burgers, drumsticks, and tacos.

Customers expect to receive their meal within seconds of walking into a McDonalds or Burger King, and if the lines are long or the service lagging in a particular establishment, they’ll remember not to patronize it in the future, especially if they’re in a hurry.

In Raleigh, North Carolina, "quick service" is no empty promise for 800 people participating in a cashless-payment system trial at two Taco Bell and KFC restaurants. Using Nokia cell phones with 5100 Series SmartCovers, customers can pay for a bucket of chicken or a bag of burritos by holding their phone in front of an in-store reading device, which instantly transmits a command to deduct the cost of the meal from the customer’s credit card account.

By making purchases with a mobile phone (or special keychain fob) instead of a wallet, customers are in and out the door of the restaurant faster than ever before.

This trial is being conducted by 2Scoot, an e-payment infrastructure company based in Kingston, New York, and Nokia, which partnered with 2Scoot to test its SmartCovers – clip on covers containing tiny wireless identification chips called transponders – that turn mobile phones into cashless payment devices.

The 2Scoot system does more than just speed up transactions, says TN Thompson, 2Scoot’s vice president of business development. “We’re doing two things here,” he says, “We’re acting as a payment platform and we’re acting as a CRM [customer relationship management] platform. We track spending patterns, offer cross-sells, and manage loyalty programs.”

Here’s how the system works: As customers enter a store or restaurant with a 2Scoot reader panel at the door, they’ll hold their phone or tag to the reader and continue on their way. Before the customer makes it to the cash register, the reader will transmit an instruction to 2Scoot’s central server to perform a credit authorization. Then, 2Scoot sends that authorization information (along with the customer’s stored preferences, spending habits, loyalty information, discounts, and coupons) back to the store. By the time the shopper is at the checkout counter, the 2Scoot system is ready to complete the transaction, applying any applicable discounts, without as much as a second’s delay.

“The value of 2Scoot for the consumer is putting your payment and loyalty system into a single device and being able to use that in multiple places,” says Thompson. “And if you’re the merchant, it allows you to increase your transaction speed, and to have more throughput.” Not only are 2Scoot customers faster than cash customers, they’re looser with their money, too. Thompson says that 2Scoot-enabled fast food purchases average $8, or about 30% more than the average cash customer spends.

The costs of installing a 2Scoot system in a fast food restaurant runs between $10,000 and $12,000, but that price is expected to go down to around $6,500 shortly. Retailers can buy the system up front, or pay for it in the form of higher transaction fees. While 2Scoot plans to make money by taking a cut from every transaction, it hopes to make most of its money by supplying CRM services.

2Scoot is just the latest company to enter the cashless-payment arena. One of the most successful transponder systems is the ExxonMobil Speedpass, which is used by 4.3 million customers who buy gas and items from Mobil convenience stores. Recently, SpeedPass users in the Chicago area started buying burgers, fries, and shakes from participating McDonald’s. McDonalds is also running a drive-through trial in Southern California for customers who have dashboard-mounted toll-payment transponders on cars registered with Orange County’s FasTrak system.

Commuters can purchase meals at McDonalds and pay for them automatically with the funds they’ve pre-deposited in their FasTrak accounts. Hoping to shave about 15 seconds off the 131 seconds that an average customer spends in the drive-through, McDonald’s has discovered that customers who use FasTrak to pay for their meals spend an average of $2.06 more than cash customers (which helps takes the bite out of the 25-35 cents charge that FasTrak charges for each transaction.)

The transponders used in both the McDonald’s and 2Scoot/Nokia trials are made by Texas Instruments. In essence, they are tiny radio stations that transmit unique identification numbers to the 2Scoot network. The transponders cost about $2 each, and there are currently 100 million in use all over the world. Some are implanted in pets and livestock to confirm ownership, some are attached to car dashboards to allow commuters to zip through tollbooths without having to stop and pay, some are attached to steel containers on freight vehicles so they can be tracked.

In the case of 2Scoot, the chip is used to uniquely identify an individual owner of a credit or debit card account. The transactions are secure, thanks to an authentication encryption system. When the reader detects the presence of a transponder, it sends an encrypted message to the transponder. The transponder then decrypts the message and sends it back to the reader. If the message is correctly decrypted, the reader then allows the authorization process to continue.

Since the credit card information is actually on 2Scoot’s central hub, not on the device, there’s no problem with fraud, because the actual credit card number never enters the store. Eventually, says Thompson, the transponders will be wired into the circuitry of mobile phones, which will improve the security of the system because it will require users to enter a pin number before they can buy anything. That way, if the phone is lost, no one will be able to make unauthorized purchases with it. As it stands today, customers who lose their phones or keychain fobs have to contact 2Scoot by phone in order to prevent a thief from using the device to go on a junk food binge.

Both McDonalds and 2Scoot plan to roll out more trials around the country in months to come. It looks like magnetic-striped credit cards could soon go the way of buggy whips and lamp oil.

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Mark Frauenfelder is a writer and illustrator from Los Angeles.