InformationWeek

unchtime always seems to catch Sheli Pickholz, a nurse at New York's Mount Sinai Hospital, at the far end of the campus, blocks from the locker that holds her purse. So grabbing a sandwich in the cafeteria, or even a soda from the vending machine, used to require a long walk back for cash.

Not anymore. Mount Sinai last week joined a growing number of businesses that are accepting new substitutes for money. Pickholz now can charge lunch using a microchip embedded in her hospital ID card, which she wears around her neck.

A new system from CBORD Group Inc. keeps track of cafeteria charges for 5,500 employees and medical students at Mount Sinai and its sister hospital, NYU Medical Center. The charges are consolidated into larger amounts and deducted from users' bank accounts or credit cards. Soon, CBORD will offer to deduct the charges directly from paychecks. Boeing, DaimlerChrysler, and Walt Disney World have programs that let employees pay for lunches in a similar fashion.

After years of promise, micropayment systems may have found a niche. Micropayment technologies let consumers conduct small transactions--even less than $1--without using cash. Third parties typically deduct a lump sum from consumers' credit cards or bank accounts, then dish out small payments to the various merchants involved when customers make purchases.

Several point-of-sale vendors plan to test new products at company cafeterias, fast-food restaurants, and vending machines this summer. They're focusing on items people tend to carry with them: keychains, company ID cards, and mobile phones, which can contain chips or plastic radio-frequency identification devices.

Other systems make it possible to identify customers by their fingerprints and then deduct purchases from their charge cards. Within the next few months, some McDonald's customers will be able to charge Big Macs to their Visa cards simply by touching a finger to a screen. Visa USA in San Francisco and fingerprint technology provider VeriStar Corp. are in talks to roll out the system in Sacramento, Calif.-area McDonald's. Other McDonald's Corp.'s franchisees are testing everything from Mobil's SpeedPass device, a small black wand on a keychain that customers wave in front of a reader to charge purchases, to New York's EZPass, a windshield-mounted device that deducts tolls--or drive-thru orders--from a user's account.

The largest such experiment, launched this month, is being conducted with FreedomPay Inc., a micropayment vendor that's backed by Nokia Corp. Nearly 30 McDonald's restaurants in Boise, Idaho, are offering radio-frequency devices and charge privileges to customers who sign up for an account.

In addition to McDonald's, FreedomPay is teaming with Compass Group, North American Division, a global food-services vendor in Charlotte, N.C., that does $3.2 billion worth of vending machine sales a year, to equip 50,000 vending machines and cafeterias with radio-frequency capabilities. The companies plan to start with 500 locations in the next 90 days. Also, Nokia is embedding FreedomPay radio-frequency devices in 28 million cell-phone covers that it will give to consumers who sign up for FreedomPay's service. The cell-phone vendor is looking for partners to co-brand and distribute the covers, which will also go on sale in retail stores later this year; pricing has not been set.

The micropayment systems work as intermediaries that limit transactions pumping through banking and credit-card systems by consolidating small charges into lump sums. The consumer starts an account with, say, $25; when the balance is used up, the consumer's credit card, debit card, or bank account is billed for another $25.

With a traditional credit-card system, restaurants pay a set fee of around 15 cents to 25 cents per transaction, plus a percentage of the transaction. That means a $5 lunch charged to a credit card costs a restaurant about 30 cents--enough to make many in the business reluctant to accept credit cards at all. Micropayment systems charge transaction fees--that's how the third-party vendors make moneyżbut they hit the credit card only once for every $25 charge. Using a micropayment system, restaurants pay a total of just five to seven cents for that same $5 meal.

More important, merchants get detailed data on who bought what and where. To Tom Kearney, Compass' VP of strategic initiatives, the advantage of the radio-frequency solution--beyond doing away with handfuls of change--lies in that detailed data. The information will let him "communicate with consumers in what until now has been a very impersonal business." He envisions loyalty programs, coupons, and advertising campaigns that can't be tailored to anonymous, quarter-dropping customers.

Although credit-card systems have been around for years, Kearney isn't fond of them. "Our experience has been that they're very expensive and seldom provide the appropriate return on investment," he says. The new solutions, like FreedomPay's system, combine convenience with immediate point-of-sale marketing opportunities. "There's a huge pent-up demand," Kearney says.

Indeed, believers say the time is finally right for cash alternatives. The path to consumer acceptance has been paved by the success of radio-frequency devices such as the Mobil SpeedPass, which boasts 4.8 million transponders in use, and similar devices that have sped up bridge and tunnel traffic in cities nationwide. Proponents are betting that this summer's tests will yield a bumper crop of locations where cash-strapped consumers can buy food with a single, convenient swipe.