USA Technologies: Conquering the Last All-Cash Business Opportunity (Transcript)

Listen to audio interview

PYMNTS.COM: This is Jenn Rubin for PYMNTS.com, and I’m joined today by George Jensen, chairman and CEO of USA Technologies. USA Technologies, which is based in Pennsylvania, is a leader in providing cashless payment technology and services for the vending, kiosk and unattended point-of-sale industries. George, thank you so much for being here with us today.

GEORGE JENSEN, CEO, USA TECHNOLOGIES: Jenn, it’s a real pleasure.

PYMNTS: USA Technologies definitely has the market cornered on what is considered to be one of the last all-cash business opportunities in vending machines, kiosks and unattended point-of-sale terminals. Tell us a little bit about your company’s business model and the inspiration behind your cashless payment technology.

JENSEN: In any business, it all starts with the people and your talent. We are just loaded with talent – ex-Pepsi and Coke, MEI, Way Systems – we’re just loaded with talent here. We came up with, after a lot of hard work, with the best products and the best services. We’re a one-stop solution. We have the hardware. We have the network. We have a turnkey program that’s easy to install. We kept everything real simple, and we made sure we had a business model that everybody benefits from.

Now from our standpoint, regarding the business model, we sell our hardware very competitively for a one-time sale. We have a one-time activation fee. But then we have a monthly service fee of roughly $10 a month and a credit card processing fee. The latter two are recurring revenue, and it’s roughly two-thirds of our revenue mix as a company. We do not even have to invoice for those revenues, which is just excellent from a business-model standpoint. The money goes from the consumer to the processor to us. We take out our entitlements, and every Friday, we EFT to our customers. It’s an extremely clean business model.

PYMNTS: It definitely sounds like it. How exactly though does the hardware work?

JENSEN: Well, it was designed for an easy install. First of all, the big market is the retrofit market. In the case of vending, it’s some 8 million vending machines and some $50 billion going through them. With our one-piece design – you just knock the little plate out – rectangle plate out on the vending machine, put our device in, and you’re up and running. You don’t have to go out and negotiate with the AT&Ts and the processors of the world and customer services of the world. It’s all there – one-stop solution.

Then, for the kiosk market, we have a software version that’s end-to-end encrypted that, any time you have a CPU, it just resides there. It’s an extremely attractive way for us to enter the kiosk market.

With our eSuds product, it’s the same situation. We retrofit to washer and dryers and provide all the back-end services and information through our USA Live network for our customers.

For our customers, they get the immediate impact of higher revenue, because credit card purchasing power always brings that. Then, they get data out of our USA Live network to run their business better. They have a huge point of difference to be more competitive – to gain new business, if you would – against their competition.

PYMNTS: Where have you seen the biggest areas of growth thus far? Do you expect those to change in the next several years?

JENSEN: We’ve grown rapidly to 109,000 connections, and we’re in our infancy. The bulk of them are in credit card vending, but we have several thousand eSuds in some 57 universities. We now are being OEM-ed into some desktop games. With a major player there, every one of them that’s being manufactured is coming with our software. We recently have put together a strategic alliance with a preeminent manufacturer, which is really going to open up things for us in the vending space. And we’re looking very keenly at the car wash industry as well.

PYMNTS: From universities to car washes to Laundromats, it’s very impressive how quickly you guys have grown.

JENSEN: Thank you very much. We just came off a record quarter, and it was our first quarter being EBITDA positive. We’re on a run rate of handling over $100 million of customer money and some 200,000 cashless wireless transactions a day, which might be more than anyone in America for the self-serve market. These are definitely exciting times at our company.

PYMNTS: Clearly, you have successfully pioneered cashless payment technology for the vending, kiosk and point-of-sale industries here in America. But are you exporting to other parts of the world as well? How big is the international opportunity here?

JENSEN: We’re already up in Canada with three very important customers, and that is our strategy – to go overseas and outside the U.S. in lockstep with a plan and a strategy with our customers and partners. We do expect to go into Europe and other parts of the world.

The worldwide market is huge. Case in point, there’s 8 million vending machines in the U.S., as I said, $50 billion going through these machines – the largest all-cash business here in America yet to go cashless. But worldwide, there’s 30 million machines and over $100 billion going through these machines.

Then, the kiosk market in the U.S. – with just a million locations –  there’s several hundred million dollars going through kiosks. That market has just exploded here as well as overseas. So these markets are huge, here in the U.S. as well as worldwide.

PYMNTS: Talk to me a little bit about your strategy when you first started to enter this market. Was your strategy for the U.S. different from that of your international strategy? How was your approach to igniting the vending, kiosk and POS industries to convert to cashless different, both here in the U.S. and abroad?

JENSEN: Well, first of all, the value proposition is something you can take all over the world – and let me talk about that – starting with convenience to the consumer, higher revenue from credit card purchasing power, data out of the machines to run your business better, data to potentially stop employee theft and to gain – also a program to gain new business. So that’s a value proposition to go all over the world, but how did we really break through here in the U.S.? We were loaded, as I said, with a lot of talent that knew the space, had a good idea what the industry needed and what we felt was the most affordable product, one-stop shopping with a robust network, where you get all your services in the most convenient, affordable way.

We were most fortunate to secure the help of the credit card industry. MasterCard, Visa, Discover collectively invested over $9 million seeding our space – literally unheard of – investing, buying our product and letting us give it away to the marketplace. We would have our normal recurring revenue of monthly service fees, as well as the credit card processing fees and the activation fees. We get paid for our hardware, but it came from the card companies. So, we caught a major break with them.

Now one of the motivations, Jenn, I think you’ll find interesting was, because our flagship product takes the new contactless credit card – tap and go. We have an invisible antenna inside the card, and it’s believed to be the next big wave. There was a little bit of a chicken-and-egg situation. You had to get readers out there for the consumer to use them, and the industry helped seed our flagship product.

Now, the reason I’m telling you a little bit about this is we think now the contactless movement is on the eve of potentially going mainstream. This is going to be a huge year. It’s because of the cell phone. NFC is being built right into the next-generation cell phones. You’re going to see it at Google and Apple. You’re going to see everybody come forward with their smartphones taking NFC.

You’re going to see the rise of the active merchant, if you would, where you can communicate to the retailer and to the consumer with electronic coupons and reward programs. As an example, you’re getting ready to walk in Bloomingdale’s. All of a sudden, GPS on your smartphone tells you where you are. There’s a big discount on ties. You tap your phone, and you bought the product – tap and go.

The cell phone is so unique as a dynamic electronic wallet that we think this is going to be huge, and we’re right in the middle of it. We have over 50,000 contactless readers out there on machines right now, and I don’t think anybody in America has more than that in the self-serve marketplace. So NFC and the cell phone, we think are going to really help our business.

PYMNTS: A lot of people in the industry are saying 2011-2012 is finally going to be the year for NFC.

JENSEN: Well, we tried to be ready for almost anything that would take off. We’re ahead of the curve on this one.

PYMNTS: Where do you see the major developments occurring in the vending industry in the next 12 months? Besides mobile, what are the pertinent trends that will be emerging, in your view?

JENSEN: We’ve got so many important customers. We’ve now got 1,400 customers, up from 700. There must be three million machines in our customer base that we just keep going deeper and deeper with, and the marketplace is becoming aware of all the benefits I have talked about.

It doesn’t take too much more. It’s going to be a must-have to stay competitive in the marketplace, just like the bill accepter 20 years ago was kind of out there, and then one day, it went vertical. It went to 100 percent penetration in the U.S. and then worldwide. It became just commonplace. We know young people today don’t carry a lot of cash. They love their debit card, and that’s the consumer of the future. It’s just inevitable that this space and other markets we’re working on are just going to open up and go mainstream.

PYMNTS: And where do you see your company in the next 12 months from now? In which other areas do you hope to your solutions expand – both in traditional and nontraditional vending markets and in other payment environments as well?

JENSEN: Excellent question. We have an 80 share, we believe, in credit card vending, with around 100,000 connections. Yet our industry is predicting 2 to 4 million machines get retrofitted over time of the 8 million base, and who knows how many worldwide.

We all know the kiosk market has exploded, and we now have a very enticing end-to-end software solution for that marketplace that’s going to open that up. We have maybe the only credit card solution for multi-family housing. We’re in a very important pilot there with a major player. We’re in 57 universities. We own 8000 washer and dryers with our eSuds product. That’s going to be exciting.

And the desktop gaming industry – these megatouch video games you see out there – there’s just tens of thousands of them. We think that market’s going to be very, very good to us with our software version of e-port. And as a matter of fact, one customer, Merit, the biggest manufacturer in that space, is OEM-ing our software in every new machine.

PYMNTS: George, it’s been a pleasure to speak with you today.

JENSEN: Thank you, Jenn.


 

George R. Jensen, Jr., Chairman of the Board and Chief Executive Officer

Mr. Jensen has been the Chief Executive Officer and Director of USA Technologies since January 1992. He is the founder, and was Chairman, Director, and Chief Executive Officer of American Film Technologies, Inc. (“AFT”) from 1985 until 1992. AFT was in the business of creating color imaged versions of black-and-white films. From 1979 to 1985, Mr. Jensen was Chief Executive Officer and President of International Film Productions, Inc. He served as Executive Producer of the twelve-hour miniseries, “A.D.”, a $35 million dollar production filmed in Tunisia. Procter and Gamble, Inc., the primary source of funds, co-produced and sponsored the epic, which aired in March 1985 for five consecutive nights on the NBC network. Mr. Jensen was also the Executive Producer for the 1983 special for public television, “A Tribute to Princess Grace.” From 1971 to 1978, Mr. Jensen was a securities broker, primarily for the firm of Smith Barney, Harris Upham. He was chosen 1989 Entrepreneur of the Year in the high technology category for the Philadelphia, Pennsylvania area by Ernst & Young LLP and Inc. Magazine. Mr. Jensen received his Bachelor of Science Degree from the University of Tennessee and is a graduate of the Advanced Management Program at the Wharton School of the University of Pennsylvania.

In the News

USA Technologies Named to Deloitte LLP’s FAST 500 List of Fastest Growing Companies in North America

USA Technologies, Inc. Reports Results for Fiscal 2011 Second Quarter

USA Technologies Exceeds 100,000 Connections to the USALive Network

USA Technologies’ Innovative “JumpStart” Cashless Vending Program Wins Continued Customer Acceptance