Posted on: Tuesday, May 29, 2001
McDonald's tries electronic payment
By Melanie Carroll
Associated Press
BOISE, Idaho — McDonald's wants to make fast food even faster.
The Oak Brook, Ill.-based restaurant chain is monitoring closely a marketing test that lets its patrons use a tiny, gray plastic wand to pay for meals, instead of cash.
The concept, while novel, is by no means new, but McDonald's, which is testing it in 26 locations in Boise, thinks it might be a good idea.
More than 2,000 people have signed up for the program, which, essentially, gives them the convenience of waving the wand in front of an electronic sensor to pay for a meal. There's no fumbling for loose change or looking for smaller bills.
"Fast food is not fast anymore," says Jerry McVety, the president of McVety & Associates, a Farmington Hills, Mich.-based food service consulting group.
If the concept sounds familiar, it is. The same technology is increasingly used to let commuters breeze through toll plazas.
A version called E-ZPass has garnered more than 6 million users in and around New York City. The system, much like the one McDonald's is testing, lets users roll through toll plazas at 5 mph.
E-ZPass transponders, which deduct tolls from a prepaid account, are affixed to the windshield behind a vehicle's rearview mirror. They are now used in seven states including Pennsylvania, West Virginia, Massachusetts, Maryland and Delaware.
On the George Washington Bridge that spans the Hudson River between New York City and New Jersey, 78 percent of drivers use the cashless system, says Walter Kristlibas, E-ZPass director for the Port Authority of New York and New Jersey.
Consumers often resist new technologies, but if they save time, they tend to become popular. Electronic toll payment systems have caught on from the Oklahoma Turnpike to Argentina.
The McDonald's trial electronic payment program in Chicago, which McVety says has proven popular, works with Speedpass, a system developed three years ago by Mobil for use at its gas pumps and which the company is now offering other businesses.
Participants wave a tiny, barrel-shaped Speedpass transponder at the cash register, or at a drive-through window. Each Speedpass then charges a purchase to a credit or debit account.
The system is similar to that being tried in Boise by McDonald's, which was developed by Pennsylvania-based FreedomPay, Inc. Inside the FreedomPay wand, a microchip contains a customer identification number read by the sensor. The information is electronically transmitted to a computer server where the customer's account is charged.
Using a credit or debit card, participants can "load" their FreedomPay account via the Internet or over the phone. McDonald's isn't limiting its testing to Chicago or Idaho.
In Orange County, Calif., McDonald's uses FasTrak, a system originally designed to be used like E-ZPass. Company spokeswoman Lisa Howard says the test is slated to expand from four to 50 California McDonald's.
"When they did it in Orange County, they found that people spent more," said Peter Oakes, a restaurant analyst for Merrill Lynch in New York. "When it's already paid, people are less hesitant and focus less on price and more on the food."
McDonald's also plans a test with E-ZPass at several restaurants in Suffolk County on New York's Long Island early this summer, said the Port Authority's Kristlibas.
If McDonald's, which has 28,000 restaurants in 120 countries, adopts the system, the technology could catch on elsewhere, too.
"Eventually it will have a big impact," Paul Sagawa, an analyst for Sanford Bernstein in New York, said of cashless systems.
And it helps if the program adds incentives.
"One thing we like about FreedomPay is that it combines loyalty with a cashless program," said Howard, the McDonald's spokeswoman. When someone initially puts $15 on their FreedomPay wand, they get a $5 bonus. Additionally, users get some discounts and free food. Oakes believes the key to this new technology is, as with most, generational.
"It's going to be like an ATM," says Oakes, "younger people will see the convenience right away and adopt to it more quickly."
McDonald's is not the first fast-food chain to test cashless systems.
"We tested a smart card technology in several areas," says Burger King spokeswoman Kim Miller. "We had very mixed results."
Ultimately, the plan — which used microchip-based debit cards with preloaded dollar amounts — was scrapped.
After five months of testing ending about a year ago, Burger King "concluded we did not believe the research justified expansion," Miller says.
Still, the second-largest fast food chain is watching to see what happens.
"We're keeping an eye out," Miller added.
