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August 2005 • Volume 10 Number 8
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Feature of the Month Paying with a Wave, Tap and 'blink': Contactless Payments in the U.S. Contactless payment adoption faces the classic problem that any new payment technology faces. There needs to be a large base of consumers with contactless payment devices to interest merchants to add the capability to their point-of-sale (POS) systems and there needs to be sufficient merchants accepting contactless payment to interest consumers in trying the new technology. The good news is that the pilots are over, contactless payment devices are being issued across the U.S., and merchants are putting in place the infrastructure to accept the new payment devices. This article reviews the status of financial industry-backed contactless payment initiatives in the U.S. and presents some of the key benefits that consumers, merchants and issuers are realizing with the new technology. Contactless Payment Issuers Issuers representing the three major card brands - American Express, MasterCard and Visa - are issuing contactless payment cards and devices to cardholders.
In June, American Express began issuing new Blue cards with ExpressPay™ contactless payment technology in all 50 states. The ExpressPay feature will also be available on Blue Cash from American Express, Blue for Students® , Blue for Business® credit cards and Blue Cash for Business. [1] American Express had been testing ExpressPay since 2002, piloting key fobs with the ExpressPay feature in Phoenix and New York City. Earlier in August, Keybank announced that it will offer its customers debit cards incorporating MasterCard® PayPass™ contactless technology. [11] Key will be replacing its existing cardholders' debit cards with PayPass-enabled debit cards beginning September 1 and all new Key customers will receive a PayPass-enabled debit card when they open a checking account. According to Keybank, consumer and small business debit MasterCard cards, as well as KeyMiles reward debit MasterCard cards, will include the new PayPass technology. Also in August, Meijer Stores announced plans to offer a PayPass-enabled Meijer Platinum MasterCard card, issued by GE Consumer Finance, as well as accepting MasterCard PayPass as a contactless payment option at all of its locations. [13] The Meijer Platinum MasterCard will have the features of an in-store card - access to exclusive sales, promotions and loyalty rewards - as well as the benefits of a traditional bankcard. These contactless payment launches follow extensive contactless payment pilot programs. Visa and American Express piloted their contactless payment programs in the U.S. in 2002 and MasterCard launched its PayPass pilot in 2003. These regional pilot programs were successful in demonstrating the value of contactless payment for consumers and merchants, resulting in the major programs being launched this year. According to Patrick Gauthier, senior vice president of new product development, Visa USA, tens of millions of contactless payment cards will be in circulation and 100,000 to 200,000 merchant locations will accept the new contactless payment devices by the end of 2006. [15] Merchant Acceptance Contactless payment is being targeted to merchant segments where speed and convenience of payment are essential and where consumers still tend to use cash to pay for low dollar value purchases. Merchant categories that are expected to move to contactless payment include quick-service restaurants, gas stations, convenience stores, parking facilities, transit services, entertainment venues and unstaffed vending locations. American Express ExpressPay, Chase blink, MasterCard PayPass and Visa Contactless implementations are all based on the ISO/IEC 14443 standard and rely on the existing credit/debit card infrastructure to process contactless payment transactions. As a result, merchants are able implement a single contactless POS terminal that can accept all of the financial-industry-backed contactless payment devices, streamlining the process of upgrading POS systems and ensuring ease of use for the consumer. American Express, MasterCard and Visa have also agreed to a common contactless symbol t o communicate the acceptance of contactless payments, based on the ISO 14443 specifications, for global use at POS terminals. Both nationwide retail chains and regional businesses are upgrading their POS systems to accept the new contactless payment devices. Merchants supporting contactless payment include:
So What Are the Benefits? For contactless payments to succeed, there need to be real benefits for consumers, merchants, issuers and payments processors. The early indicators are promising. American Express, MasterCard and Visa have reported excellent results from the initial rollouts and pilots. The table below summarizes the key benefits reported to be driving the acceptance of contactless payments.
Conclusion Contactless payment shows great promise for being the fastest technology shift that the payments industry has experienced in the U.S. Major retailers who are recognized leaders in their markets are already engaged and are equipping their stores and drive-through windows with payment terminals that accept the technology. Major card issuers are also engaged. Chase is the nation's largest Visa and MasterCard issuer by card volume, with over 90 million credit cards in circulation. American Express is the largest issuer by charge volume and maintains the largest active smart card payment program in the United States, the American Express Blue Card. The industry has also been collaborating to agree on a standards-based approach and to work out compatibility issues so that retailers only need to purchase on POS terminal. With this environment - issuers that have solid field trial experience and the business clout and marketing power to make the roll-outs a success; retailers whose markets can reach millions of consumers; consumers who are seeing real benefits from the technology - expect U.S. consumers to be paying with a wave, tap or 'blink' for an increasing number of day-to-day transactions. References
The Smart Card Alliance web site includes a variety of resources on the use of contactless technology for payment and identity applications. The newly-formed Alliance Contactless Payments Council is focusing on projects that facilitate the adoption of contactless payments in the U.S. For more information on Alliance activities and resources, please visit www.smartcardalliance.org .
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In May, Chase Bank U.S.A. announced a broad roll out of "blink" MasterCard and Visa credit cards with contactless payment technology. Chase is now issuing cards to consumers, with approximately 500,000 cards delivered to cardholders in Atlanta and 1 million expected to be issued there by year-end. [7] As part of the launch, Chase is conducting an extensive marketing and advertising campaign to educate and excite local consumers and cardmembers about Chase cards with blink. Chase is also working with over 400 merchants in each of its initial markets, Atlanta and Denver, to ensure the broadest possible acceptance [3, 7]. 