New credit cards promote
flash over cash

As fiercely as Visa and MasterCard compete with each other, their strongest competition is still cash. And in the coming months, Michigan retailers and consumers will be steady targets of the giant card issuers’ campaign to promote the use of their “contactless cards” over cash.

The new cards—sporting logos that read PayPass, ExpressPay, blink or simply a symbol that looks like radio waves—are already in the hands of millions of consumers nationwide. Their appeal for consumers—and some retailers—is speed, convenience and security.

Credit and debit cards have made huge inroads on cash transactions in the past decade, with more than twice as many transactions paid with plastic than with cash, according to Visa USA. Still, small-ticket transactions and others typically paid in cash represent a market opportunity of $1.2 trillion per year, according to Elizabeth Buse, executive vice president for Visa USA.

Will 2006 will be the year contactless payments gain the momentum needed to change the way people pay for purchases? Many in the payment industry believe so.

Card issuers—including Chase, MBNA, HSBC, Citibank, Key Bank and Charter One—began sending out and promoting MasterCards with PayPass (MasterCard’s term for its contact-less function) in this region in mid-2005; seven million such cards are already in U.S. consumers’ wallets, according to MasterCard.

American Express started about the same time with its ExpressPay program. Visa is not far behind, with four million cards nationwide to date.

“This momentum will continue in 2006 and beyond,” said Buse. “Contact-less will help drive the migration from cash to electronic payments.”

By the end of 2006, banks will have issued 25 million contactless debit and credit cards in the U.S., according to the Nilson Report, which tracks the card industry. That’s one for about every nine adults.

If that estimate is accurate, at least half a million Michigan consumers will have some brand of contactless card by the year’s end.

On the retailer’s end, over 30,000 merchant locations nationwide have already installed about 135,000 contactless readers in the past year, with many more expected in the coming months, according to MasterCard.

Already the cards can be used in Michigan to buy nachos at a Detroit Lions game, a Slurpee at 7-Eleven (at Detroit locations), a prescription at CVS, a roast beef sandwich at Arby’s or movie tickets at Regal Theaters in the metro Detroit area. Walker-based Meijer became the first major grocery and general merchandise retailer to roll out contactless readers on all its registers, adding them to existing POS terminals in November 2005.

Erik Michielsen, of ABI Research, calls the momentum of the new contactless technology “absolutely mind-boggling.” Others are more tempered in their enthusiasm, but analysts agree the potential is large and momentum is building.

How it works
With a contactless card, the cashier rings up a sale, the customer taps the card on the card reader or holds it an inch or two above it. The reader quickly flashes green and beeps to indicate that payment is complete.

For purchases under $25 ($50 at Meijer when using its cobranded Meijer MasterCard), no signature is required. American Express requires no signature regardless of the amount, but retailers may choose to obtain one anyway.

The cards have a small radio frequency (RF) chip embedded in them, which transmits data to a reader in the blink of an eye. They also have the traditional magnetic stripe, so they can also work like any other card.
Sandy Miller, a cashier at a Meijer in south Lansing, says that many customers are trying out contactless cards and seem to like using them. “There’s a coolness factor at this point, and they like the speed,” she said.

“They also appreciate not having to figure out the card swiper—holding the card right and swiping in the right way,” she added. “We cashiers like that too—each day we show or remind many customers exactly how to swipe.”

Effect on retail
The credit card industry hopes that as more consumers use contactless cards at the “early adopter” merchants, they will begin to favor them and come to expect more places to offer contactless payments. In time, other merchants may in turn upgrade to contactless, either by adding a peripheral reader to their current card swipers or by replacing their old terminals with ones that include contactless capability.

Retailers also benefit from contactless payments because average transaction times are cut significantly—contact-less transactions are between 25 percent and 65 percent faster than cash, depending on the study cited. In addition, the average transaction value with a contactless payment is 20 to 30 percent higher than that of a cash transaction.

As most merchants know, average tickets go up when cash transactions move to credit cards. Now, however, many more transactions—fast food, sports venues, movie theaters, gift shops, even vending machines—can see the same “ticket lift” that many other merchants saw when credit cards became a significant payment system.

Contactless readers are being aggressively marketed to large chains and to merchants who do many small, cash transactions, but any retailer can now obtain the upgrade that turns a magnetic-stripe terminal into one that reads contactless cards. The VeriFone Omni 3750 and the Hypercom T7 Plus will both accept the peripheral device fairly simply.

MRA can provide assistance to retailers who wish to add the device. Contact your regional marketing rep or call MRA’s John Mayleben, vice president of sales and marketing at 800.366.3699.

Retailers also may simply choose to wait until their next major hardware upgrade and replace older terminals with those that accept contactless payments.

Safe and secure
Those familiar with RFID technology may be concerned about the security of these cards, since RFID tags have been criticized for security concerns. The contactless card system, however, uses RF technology with slight but fundamental differences from RFID tags, with a focus on safeguards against fraud.

First, the close proximity required for data transmission—between one and four inches—makes it difficult for illicit readers to “eavesdrop” on data. Second, the data are highly encrypted in a way that would make stolen data useless.

Visa and MasterCard provide cardholders the same protections, including Zero Liability and continuous monitoring systems, as they receive with their other payment cards. Likewise, merchants who are registered with Visa and/or MasterCard are protected from chargebacks relating to no signature on qualifying transaction types.

The contactless future
The next wave will be other contactless devices. Like credit cards, minicards, key fobs, cell phones and handheld devices like a BlackBerry can be equipped with RF chips.

Discover is currently testing contactless payments with cell phones. Contactless payments via cell phones are already available in France.

Whether or not average retailers get on board now, later or never, at least they ought to know how to respond to the question “Do you accept contactless?”

Terms of Agreement

If the contactless card becomes universally accepted, we’ll probably forget the terms used to sell them in the early days (now). In the meantime, here are some of the marketing terms being used in connection with these cards.

Tap N Go (MasterCard’s term), blink (the term used by Chase Bank, which issues both MasterCard and Visa), and FastTAP (Meijer’s term) all refer to the same contactless card payment system. These marketing terms are appearing in promotions and in logos on the card, on the reader at the point of sale, or both.

PayPass (MasterCard), ExpressPay (American Express) and Visa Contactless are the branded terms used by the various card associations for their contactless cards. However, Visa’s logo for contactless functionality is simply a symbol resembling radio waves and doesn’t incorporate the term “Contactless.”

The card companies have worked out technical standards that let one reader handle multiple brands of contactless cards—all readers on the market today read all types. Each reader is then configured to read the card brands the merchant accepts.