Wireless terminals may be the best-known form of mobile point-of-sale technology, but contactless cards, which represent the cardholder side of wireless applications, are registering in a big way on card-industry executives' radar.
In the past year, MasterCard International and American Express Co. have launched contactless card pilots. But the card companies' interest in wireless payments extends beyond placing a contactless chip on a card; both are considering alternative forms for the technology such as cellular telephones, keyfobs and watches.
"The idea is not so much as to replace the card, but to extend the convenience of payments," says Edward Kountz, senior analyst, emerging technology solutions for Needham, Mass.-based research firm TowerGroup. "With consumers having an average of five cards in their wallet, getting them to regularly use them is a tough challenge for issuers. That's why the card companies have some aggressive goals in wireless."
MasterCard, which recently concluded a radio-frequency identification (RFID) pilot for its PayPass contactless card in Orlando, Fla., has teamed with Finland-based cellular-telephone maker Nokia to incorporate contactless smart card chips into mobile phones for Nokia's Dallas employees and local AT&T Wireless customers. The pilot, launched in late May and scheduled to conclude in October, involved 11 merchants including Chevron, Corner Bakery, Jason's Deli, Rockfish Seafood Grill and Wolf Camera. Devices were issued to less than 500 consumers.
To initiate payment, users wave their Nokia phone in front of a POS device that reads a radio signal emitted from the transponder within the chip to download account data. The chip is embedded in the cover of the phone, which allows consumers to use the phone when making a purchase. The MasterCard brand is printed on the phone cover.
The chip acts as a radio antenna that emits a standardized frequency (ISO/IEC 14443 A&B) to the point-of-sale terminal. Once the device is waved near the terminal, the terminal picks up the transmission and the cardholder's account data are sent to the processor for authorization. The application is similar to ExxonMobil Corp.'s hugely successful SpeedPass.
"Research has shown consumers are very interested in contactless payment technology, but that they wanted to use the card or devices in multiple locations," says Betsy Foran-Owens, vice president, product services for MasterCard. "We are looking at different form factors than cards because many consumers don't always carry a wallet."
Santa Clara, Calif.-based ViVOtech participated in MasterCard's tests by supplying mobile terminals that read the radio signals from cell phones or PayPass cards. Wireless customers can enable their phones to act as a payment device in a transaction that takes two to four seconds versus the average 16 seconds for a traditional credit card transaction, says Mohammad Khan, ViVOtech's president and chief operating officer.
"There is great interest among restaurants we talk to in harnessing PayPass for loyalty programs," he says.
American Express is experimenting with various wireless applications with its ExpressPay service, which was designed as an RFID, key-fob system. Users can have ExpressPay transactions billed to their AmEx card or any other general-purpose credit or debit card. Users preferring to stay on a budget can pre-load up to $600 into their ExpressPay account.
Once the account is debited down to $20, the account is automatically replenished to its original value using the same payment source. Users can even set a daily spending limit of up to $150. ExpressPay can be attached to several form factors, including cell phones, keyfobs and American Express cards.
"We see ExpressPay as a way to reach consumers that don't have an AmEx card," say David S. Bonalle, vice president and general manager of advanced payment development for American Express. "This also broadens the customer base for merchants that accept ExpressPay."
American Express, which is piloting Express Pay in Phoenix and Singapore, says users have increased their average purchase by 20% to 30% and that the devices have speeded the completion of payment transactions by up to 40%.
Mobile technology is also being explored in conjunction with automated teller machines. With cash withdrawals, deposits and account-information requests accounting for more than 80% of ATM volume, many ATM network executives have begun searching for additional services that can boost volume and revenue from user fees. One idea being considered is to use ATMs as a way for consumers to purchase additional prepaid airtime for mobile phones, a process called mobile top-up.
The technology reportedly is being tested at ATMs located in non-traditional merchant locations, such as gas stations and convenience stores, according to TowerGroup. These automated teller machines typically have lower than average volume, which makes them ripe for the addition of new services that can generate user fees and volume. TowerGroup predicts that ATMs will account for about 7% of sales for prepaid mobile phones by 2007 and $124 million in dollar volume for ATM operators.
"The attention being paid to mobile top-up at the ATM will lead to significant incremental ATM revenue over the next five years," says Kountz. "Prepaid mobile is indicative of a broader trend: the rise of new types of content available at the ATM and elsewhere, whose purchase can be partially or totally transacted outside of established financial services networks."
Meanwhile, ExxonMobil's Speedpass, the pioneering system allowing customers to pay by swiping a tiny key-chain attachment past a radio-frequency reader at the gas pump or retail counter, is now used by six million consumers. The company plans to increase usage substantially in the next two years, says Joe Giordano, vice president of business and product development for Fairfax, Va.-based Speedpass Network, a division of ExxonMobil.
Consumers can link their Speedpass to a credit card or signature-based or personal identification number-based debit card. McDonald's Corp. now accepts Speedpass at 440 locations in the Chicago area. Other quick-service restaurant (QSR) chains nationwide, along with supermarkets and pharmacies, are Speedpass' next target, says Giordano ("A New Addition to Cobranding's Menu," page 40).
"Creating loyalty programs among different marketers in our network is the next step we're working on," he says. "The idea will be allowing companies to do cross-promotions, such as getting rewarded at Exxon for buying something at McDonald's," he says.
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