This week’s launch of Apple Pay – a mobile payment system and digital wallet app linked to the new iPhone 6 and Apple Watch – is expected to bring “contactless” transactions into the mainstream after years of slower-than-expected adoption among smartphone users.

And when the shift happens, Coca-Cola will be prepared.

More than 70,000 Coke vending machines in the U.S. are currently equipped to process Apple Pay transactions – as well as purchases with other Near Field Communication (NFC) solutions like Softcard and Google Wallet – via contactless readers that let consumers buy a drink by holding up their phone. 

“We process thousands of contactless transactions each week, but it’s still a drop in the bucket compared to what we think it will be,” said Rick Kanemasu, vending technology strategy, Coca-Cola. “Mobile payments today account for from less than 1 percent of our U.S. vending transactions, but we expect that number to grow to 10 to 20 percent of by 2020,”

Coke’s contactless efforts extend beyond its flagship market. The company is also trialing mobile payment solutions through its equipment fleet in Japan, a market at the forefront of both wireless and vending technologies (Coke owns more than 1 million machines there).

Chicken or the Egg

While people have used their smartphones to shop online for years, “tap and pay” transactions have been a tougher sell. Consumers have shied away from mobile payments because a limited number of stores accept NFC, and only a few credit card companies are onboard. Merchants and banks, meanwhile, have been hesitant to play because consumer adoption has been low.

“It’s a chicken or the egg scenario,” Kanemasu said.

Until now, iPhone users have not had a mobile payment option. Google Wallet and Softcard are Android-exclusive. Whether or not Apple’s leading share of the U.S. smartphone market, partnerships with banks, credit card companies and retailers, and breakthrough security technology can speed use of “tap and pay” transactions remains to be seen. 

In order to accept mobile payments through Apple Pay and other solutions, merchants must upgrade their readers to comply with new mobile payment standards designed to increase security and reduce fraud. The standards, already in effect across in Europe, replace cards with magnetic strips with embedded microchips that store and protect cardholder data and require a PIN instead of a signature to process an encrypted transaction.

Major players like McDonald’s, Walgreens, Macy’s, Subway and Whole Foods are onboard, but many retailers – especially mom-and-pop operators – have been reluctant to pay the upgrade costs of up to $1,000 per checkout terminal.

High-profile breaches have kept security concerns top of mind, too.

“When it comes to security, the facts are on the side of this new technology,” Kanemasu said. “For starters, if you lose your phone, someone will need your PIN to access your digital wallet. And if when you call your carrier to report a lost or stolen device, everything in your digital wallet is frozen, as opposed to having to call multiple banks and credit card companies.”

A Similar Trajectory

Coke is banking on the mobile payments trend following a similar trajectory seen with credit card use. Today, 80,000 Coca-Cola vending machines in the U.S. accept credit and debit cards, up from 14,000 in 2011. On those machines, credit cards are used for 40 percent of purchases, compared to 20 percent in 2011. 

“When we add a card reader to a vending machine, we see a 6 percent volume lift, on average,” Kanemasu added.

That’s because only one in two people who stops by a machine has correct currency (either coins or a dollar bill) to buy a drink. Millennials are even more likely to eschew cash and, if trends hold, eventually plastic.

Kanemasu says vending machines provide an ideal opportunity for consumers to ease into the world of mobile payments.

“We have to make it easy for consumers to experience and adopt these new technologies in low-cost purchasing scenarios,” he adds. “People aren’t buying $2,000 TVs with their phones... they’re trying out this new payment method at McDonald’s or CVS. We have vending machines in Verizon machines so people can test out Softcard technology right after they buy a new phone.”

From the Point of Sale to the Point of Thirst

Coke is using the mobile wallet to go beyond payments into loyalty – a value-add the company says will help accelerate use of the technology. More than 40,000 Coke vending machines include a touch screen linked to the My Coke Rewards program. A membership with 30 points comes preloaded in the Softcard Mobile Wallet. Consumers can enjoy their first drink — and every 10th drink after that — for free, while racking up points to be redeemed online for merchandise and special offers.

“The ability to layer in offers and rewards is what will help push consumers to start using mobile wallets,” Kanemasu said. “The real carrot for the consumer for switching will be around loyalty and location-based couponing.”

According to Pam Basciani, director of commercial leadership, Coke plans to use mobile vending technologies to connect with teens through music, sports, gaming and other passions. New developments will deliver back-end efficiencies, too, including the ability to measure performance of individual units.

“We have a continuum of connectivity solutions that will enable us to drive vending transactions, build stronger relationships with consumers, and provide benefits to our system through productivity gains,” Basciani adds. “For a long time, we focused on putting screens on our equipment assets, but now we realize that from a business perspective, it makes more sense to focus on the screens that are already in our consumers’ hands.”

Tom Daly, Coke's director of global connections, adds, "Mobile is the closest you can get to the consumer, so that four-inch-by-two-inch screen is critically important for us. We’re creating impulse and enabling desire by using a phone in one hand to put a Coke in the other.”