School cafeterias go electronic

September 24, 2013, 9:30 AM UTC

FORTUNE — For decades, it was one of the iconic images of childhood: the youngster dispatched to school with lunch money squirreled tightly in his or her pocket or backpack. But perhaps for not much longer: As inevitably as slide rules once gave way to calculators, school cafeterias are embracing technological change.

In recent months, the city of Chicago became one of the largest school districts to sign up for electronic payments. Beginning next year students in the Windy City won’t have to remember their lunch money — just a PIN or an ID card that’s linked to an online account, where parents can choose to automatically refill low balances, set spending controls, and review what food their offspring purchased that same day. Chicago joins public schools in New York City; Fairfax County, Va.; Denver; and San Antonio, and others in the latest electronic trend.

For parents and cafeteria managers in public school districts throughout the U.S., this type of payment service is a boon of convenience. For Heartland Payment Systems, the purveyor of point of sales systems, nutrition-related software, and online payment services in about 29,000 of the country’s 100,000 schools, lunch money is helping drive between $45 and $55 million in annual sales at the $2 billion (revenues) company.

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Heartland built its footprint in just the past two years by making a series of acquisitions. As a result, it owns two similar platforms — and — which allow parents to pay for and monitor lunch expenditures electronically. They can also be used to pay for things like books, field trips, and other school activities.

To win Chicago’s 600 or so schools, the company beat five other competing bidders, largely by offering a cloud-based software, and one that can be highly customized to suit such a big district. The Chicago schools dish out 74 million meals a year, but until now, they’ve relied on a payment system of cash, meal tickets, and sales totals entered on Excel spreadsheets. “It’s a very manual system, it’s very cumbersome, and it’s fraught with potential for error,” says Leslie Fowler, executive director of nutrition support services for Chicago Public Schools. She estimates that the district loses $1.5 million per year in uncollected meal charges.

Fowler expects that the new point of sales terminals and related technology will make quite a difference. “Being able to track who ate, what they ate, and when they ate — unequivocally — will help close the gaps,” she says.

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That goes to another important reason why school nutrition departments rely on this kind of technology: to meet stringent government compliance requirements, such as tallying the number of free and reduced-price meals they serve, and analyzing the nutritional content in cafeteria food. In order for schools to be reimbursed for their nutrition costs, they have to report to state agencies and the U.S. Department of Agriculture.

Heartland’s real growth strategy, however, is focused on moms and dads. Once the company has a foothold in a school system, executives believe they can appeal to more and more parents simply by providing a better way to pay for lunch. “We knew if we did that, parents would adopt it because of the ease of use,” says Michael Lawler, Heartland’s president for strategic markets, who oversees the company’s school solutions group.

Just ask thousands of parents in Volusia County, Fla., a school system of around 61,000 students that became a Heartland client when the company bought up an IT provider called School-Link Technologies. The central Florida school district first piloted back in 2008. Parents who sign up for the optional service pay a fee — typically $1.95 — each time they put money on the account. (Some school districts absorb that cost, but many, including Volusia County, let parents cover it). Even if parents choose not to buy meals using MyLunchMoney, they can still use the site to view their child’s purchases for free.

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Today, more than 10,600 Volusia users are registered with the service, and more than 7,400 use it to make payments, including Valerie Hansen, coordinator in the school system’s nutrition department, and a mother of two. “Even as a district administrator, I’d forget to write a check,” she says. Now she simply sets a weekly budget online for her 14-year-old daughter, who is allowed to choose how she spends it.

Hansen’s office, meanwhile, values that the payment-by-PIN keeps cafeteria lines moving and makes it easier to close out the register at day’s end. “We love it because it’s less cash that our schools are handling,” says Hansen.

Presumably, students armed with e-funds no longer have to worry so much about that proverbial childhood trauma: having bullies take your lunch money. For her part, Hansen is pragmatic when asked if her children love as much as she does. “It’s really no difference,” she says. “It’s, ‘Mom’s paying.’”