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What is Strong Customer Authentication (SCA) and how is it affecting the vending machine and kiosk sector?

By Paul Weston, Head of Merchant Payment Acceptance, Worldline UK & I


What is Strong Customer Authentication (SCA) and how is it affecting the vending machine and kiosk sector?

Vending operators are facing some major changes to the way they operate thanks to new legislation which came into effect in March which could result in a loss of revenue if vending and kiosk businesses don’t act.


New Strong Customer Authentication (SCA) legislation, which came into effect across the UK and Europe on March 14, 2020, which means that anyone making a fifth transaction – or when a cumulative spending amount of £150 on their credit or debit card, or £100 within 24 hours, whichever comes sooner – will not be able to simply ‘tap and go’ with a contactless terminal. Instead, they will have to provide another means of identification, normally the PIN number for the card. 

Although some sectors such as travel, parking, electric-vehicle charging and charitable donations are excluded from this legislation, the majority of vending machines and kiosk businesses are to be affected. 

Why is it important to act now?

The importance of acting now cannot be overstated. Business owners must ensure vending machines and kiosks have been upgraded to allow the contactless payment to fall forward to chip and pin to allow customers complete the transaction. The AVA confirmed that as of 2018, there were 412m unattended machines in the UK, from traditional vending machines to hot drink machines.  Any of these that have a contactless only payment terminal will need to be upgraded to ensure two-factor authentication is possible.

The aim of the new rules is to reduce the amount of card fraud across Europe, which in the UK alone in 2018 reached £671.4m, 19% higher than the previous year according to data from UK Finance. 

What are the risks of not complying?

The beauty of contactless payments is that they present a quick, easy and frictionless means of retailers and customers interacting. But the SCA rules purposely introduce an element of friction designed to prevent fraud. While payment services companies are working towards enabling these payments to be made with the minimum of friction possible, the requirement for another form of ID  and the ability to fall forward to chip and pin cannot be avoided.

The specific problem for vending machine and kiosk businesses is that without upgrading to allow these additional methods of identification, there is a chance you will see complaints to the sites where they are located. The buyer may assume your machine or kiosk doesn’t work, resulting in it being considered ‘out of order’. For the business, this would mean no longer generating revenue and potentially creating additional costs by unnecessarily sending out an engineer.

How is this affecting the market?

Around 3.6 billion products are vended each year at an annual market turnover of around £1.46 billion, so even a small drop off in the number of transactions because of payment friction could be costly. Moreover, operators also see an increase in transaction spend of 30% when using cards, representing 23% uplift vs cash. 

In fact, we are already seeing significant moves towards vending from luxury brands and even big high-street names as they increasingly see the benefits of dealing with their customers through vending experiences and kiosks over person-to-person interaction. Using vending as a medium for sales means many luxury brands and designers for example, can cut out the middle-man and be more prescriptive about the customer experience they deliver. 

The luxury brands are keen to operate in areas with high footfall such as airports, with vending reducing overall costs including staffing and retail space. This allows them to control the entire process from the way the items are presented, through the experience of interacting with their brand in situ and how customers are then able to access the items once they have made their choice.  

The need to use technology that allows the SCA regulations to be complied with and ensure no loss of sales is even more vital for higher-value sales. If you lose a customer on a low-value sale it is annoying but not necessarily so damaging. But for a high-value vendor it is much more costly in a number of ways.

What do businesses need to do?

Businesses in all the affected vending and kiosk sectors need to act to ensure they don’t fall foul of the rules or lose sales because customers cannot provide additional SCA details on purely contactless terminals. There are solutions in the market that allow for the simple changing and upgrading of the payment points from just contactless to ones that prompt for additional information to be compliant with SCA.

So, your business really cannot afford not to upgrade. Once you know the overall cost to your business to make the necessary changes to payment terminals, you can make the decision to move forward and avoid potentially costly fines and loss of revenue.

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