Cracking the Vending Code: Telkey Solutions
By D.J. Murphy, Editor-in-Chief, CardNotPresent.com
Before 2007, Swedish mobile payments company Telkey Solutions was nothing more than a few patent applications and an idea to enable consumers to use their mobile phones to make purchases at vending machines, car washes, laundromats and a host of other self-service machines and kiosks. Founders of the company, based in the Stockholm suburb of Täby, had a notion that devices equipped with NFC would be widely available in a few short years, but “we were way too early,” according to CEO Niklas Magnusson.
Luckily, the company’s patent pending technology didn’t (and still doesn’t) rely solely on NFC to transmit information between devices. Telkey, and its CoinCode product, can use a number of mobile technologies—including SMS, Bluetooth or WiFi—for its mobile temporary access codes (mTAC) to work in the coin-operated machine space. Magnusson says, while it was early days for mobile payments, the vending industry in Sweden at the time was ready for CoinCode because consumers were beginning to pay for transit using SMS. Awareness that you could use your phone to pay for things was growing. And, the company offered an easy hardware upgrade for machine operators. Simply installing an inexpensive PIN pad on the machine enabled it to accept payments via text message.
“Instructions on the vending machine tell a customer to send a text to a short code with a unique machine ID and how much they want to purchase,” Magnusson explains. “It goes into our servers and we charge the mobile account or prepaid SIM card. If that succeeds, it produces a one-time code in a return text message. The user enters the code on the PIN pad. The pad can understand it is the right code and that it’s valid only once—all without being connected. It’s totally offline. It’s the enabling feature that allows us to leapfrog other technology that would enable cashless payment (e.g. credit or debit cards) in these machines.”
Magnusson notes that the PIN pad is offline. Unlike other cashless methods (e.g., machines that accept card payments) that use a modem, it doesn’t need any Internet connection to function, so installation is easy and inexpensive, he says.
From SMS to Tap-to-Pay
In the years since its introduction in Sweden, the company has introduced technology that adapted CoinCode to smartphones, which consumers can use with an app to tap at coin-operated machines for a quicker transaction and more seamless experience. And now, in the midst of securing a large funding round, the company is ready to target the U.S. and its multi-billion dollar coin-operated market.
“Due to the presence of Ericsson here and Nokia in neighboring Finland, Sweden is a very good country to test new technologies, but of course, it’s not a very large market,” Magnusson says. “In the U.S., I’ve heard figures anywhere from 4 to 11 million vending machines with up to $100 billion in cash passing through them. The potential is quite interesting.”
Telkey uses the same PIN pad to perform tap-to-pay as it does to complete SMS transactions, Magnusson notes, so the process for machine operators is the same. For consumers using the machines, however, the experience is slightly different. For SMS users—thanks to a partnership with direct-carrier billing provider boku—the transaction is charged to a user’s mobile bill and takes about 30 seconds to complete. For smartphone users, after initially downloading the app and choosing a payment method, a typical transaction takes only three seconds. Consumers can choose from several different ways of paying including all major credit cards, PayPal, Square Wallet, Google Wallet or Visa’s V.me. Both methods of transmitting the one-time access code from CoinCode to the mobile device rely on the same mTAC patent-pending technology. Using the app and a smartphone automates the process, resulting in a quicker transaction.
Benefits for Owners
For coin-operated machine owners, tapping the cashless consumer is becoming increasingly important. Missed revenue opportunities, security concerns and the inability to communicate with customers are all problems operators can address with CoinCode, Magnusson says.
Equipping a vending machine to accept CoinCode immediately increases revenue by 30 percent, he says. In addition to enabling consumers who don’t carry cash to make purchases, Magnusson explains that consumers who don’t use cash buy more. He also notes an operator’s costs are reduced because they don’t have to handle as much cash, which is very expensive, and they are able to address many customer complaints remotely (e.g., if a cash customer calls gets a bill or coin jammed and calls from in from of the machine, the operator can send them a code that works on the PIN pad, saving the sale).
Magnusson also notes that taking cash out of the equation enables machine owners to put them in places that was considered too much of a theft risk when the machines were full of cash.
“They can place totally cashless machines in these areas and therefore expand their business, he says.”
Perhaps most importantly, when customers pay with mobile, owners have the ability to establish relationships in place of what used to be completely anonymous transactions and turn one-time customers into repeat customers. Aggregating payment and usage data from the device (along with the consumer simply having the device itself) enables machine owners to communicate hyper-targeted promotional offers via SMS.
From Europe to the U.S.
The CoinCode app is available on Android and iPhone devices and the company is actively working on adding more payment options. Magnusson says the company is looking at perhaps integrating Square Wallet, Dwolla and others. He points out that CoinCode is running on about 500 machines in Sweden currently and is leveraging a partnership with SEGA in the U.K. to do pilots there with arcade games. The company is working on finalizing its partnerships with U.S. carriers and expects to begin pilots this year and a full rollout in 2014. Magnusson also notes the company is in the final stages of securing financing that will fund its U.S. launch and expects to close on that soon.
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