McDonald's Tests Cashless Fast Food

B O I S E, Idaho, May 29, 2001 -- McDonald's wants to make fast food even faster.

The Oak Brook, Ill.-based restaurant chain is monitoring closelya marketing test that lets its patrons use a tiny, gray plasticwand 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 agood idea.

More than 2,000 people have signed up for the program, which,essentially, gives them the convenience of waving the wand in frontof an electronic sensor to pay for a meal. There's no fumbling forloose change or looking for smaller bills.

"Fast food is not fast anymore," says Jerry McVety, thepresident of McVety & Associates, a Farmington Hills, Mich.-basedfood service consulting group.

E-ZPass, Easy Meal

If the concept sounds familiar, it is. The same technology isincreasingly used to let commuters breeze through toll plazas.

A version called E-ZPass has garnered more than 6 million usersin and around New York City. The system, much like the oneMcDonald's is testing, lets users roll through toll plazas at 5mph.

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, WestVirginia, Massachusetts, Maryland and Delaware.

On the George Washington Bridge that spans the Hudson Riverbetween New York City and New Jersey, 78 percent of drivers use thecashless system, says Walter Kristlibas, E-ZPass director for thePort 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 havecaught on from the Oklahoma Turnpike to Argentina.

'Load' Your Account

The McDonald's trial electronic payment program in Chicago,which McVety says has proved popular, works with Speedpass, asystem developed three years ago by Mobil for use at its gas pumpsand which the company is now offering other businesses.

Participants wave a tiny, barrel-shaped Speedpass transponder atthe cash register, or at a drive-through window. Each Speedpassthen charges a purchase to a credit or debit account.

The system is similar to that being tried in Boise byMcDonald's, which was developed by Pennsylvania-based FreedomPay,Inc. Inside the FreedomPay wand, a microchip contains a customeridentification number read by the sensor. The information iselectronically transmitted to a computer server where thecustomer's account is charged.

Using a credit or debit card, participants can "load" theirFreedomPay account via the Internet or over the phone. McDonald'sisn't limiting its testing to Chicago or Idaho.

In Orange County, Calif., McDonald's uses FasTrak, a systemoriginally designed to be used like E-ZPass. Company spokeswomanLisa Howard says the test is slated to expand from four to 50California McDonald's.

"When they did it in Orange County, they found that peoplespent more," said Peter Oakes, a restaurant analyst for MerrillLynch in New York. "When it's already paid, people are lesshesitant and focus less on price and more on the food."

McDonald's also plans a test with E-ZPass at several restaurantsin Suffolk County on New York's Long Island early this summer, saidthe Port Authority's Kristlibas.

The Next ATM?

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, ananalyst for Sanford Bernstein in New York, said of cashlesssystems.

And it helps if the program adds incentives.

"One thing we like about FreedomPay is that it combines loyaltywith a cashless program," said Howard, the McDonald's spokeswoman.When someone initially puts $15 on their FreedomPay wand, they geta $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 peoplewill see the convenience right away and adopt to it more quickly."

McDonald's is not the first fast-food chain to test cashlesssystems.

"We tested a smart card technology in several areas," saysBurger King spokeswoman Kim Miller. "We had very mixed results."

Ultimately, the plan — which used microchip-based debit cardswith preloaded dollar amounts — was scrapped.

After five months of testing ending about a year ago, BurgerKing "concluded we did not believe the research justifiedexpansion," Miller says.

Still, the second-largest fast food chain is watching to seewhat happens.

"We're keeping an eye out," Miller added.