Much has been made in recent months about the major bankcard associations and their pilots utilizing contactless technologies. ContactlessNews reported in December 2002 that Bank of America was testing a contactless Visa key chain with employees in Charlotte, North Carolina. And in January of this year, it was learned that MasterCard would be launching a test of a contactless card for payments in Orlando, Florida. But where was American Express in all of this? Out West, it seems, in Phoenix, Arizona working on a pilot of their own.
Since July of last year, 1000 Amex employees in Arizona have been using a contactless keyfob to pay for meals in the company cafeteria and at a handful of local restaurants. The keyfob is waved in front of a payment terminal at the merchant checkout and the payment is taken from the employee’s American Express card.
In addition to the trial with American Express employees, ExpressPay has reportedly been tested in several other corporate cafeterias and a fitness center since the fourth quarter of 2002.
When asked if the trials have encouraged American Express to commercialize the product, the company’s VP and General Manager for Advanced Payments development, David Bonalle reported, “we believe that there is a significant value proposition for contactless payments because of interoperability at the reader, the inherent security of smart technology, faster throughput, and increased functionality.”
Big A goes for Type B
Amex has named their contactless product ExpressPay. And they have selected ISO 14443 Type B for its commercialization the struggle between the two ISO 14443 camps, this is the first of the major card issuers to specify Type A or B. Both Visa and MasterCard publicly announced support for ISO 14443 in recent months, but not a specific Type.
Texas Instruments (TI) will supply the chips for ExpressPay. It will be their first ISO 14443 Type B product. Says Mr. Bonalle, “we began looking at contactless payments 2.5 years ago,” and the two companies have reportedly been working together on the product for almost as long.
When asked why the selection of ISO 14443, Mr. Bonalle responded, “we are passionate that 14443 is the right choice. It is the payment standard for RF.” When asked why the Type B variety of ISO 14443, he responded, “B had some increased functionality and we believe that it will have a potentially lower cost and broader supply availability.” Certainly, the relationship with TI and their decision to pursue Type B had some effect on this decision as well.
How does ExpressPay work?
In the contactless chip, the same data is stored that is typically encoded on tracks one and two of a bankcard’s magnetic stripe. This data includes all the information that is required to successfully gain authorization for a transaction and later settle that transaction. This data is encrypted and housed on the contactless chip.
When the cardholder, or keyfob-holder, wishes to conduct a transaction, the keyfob is presented to a specially equipped point-of-sale (POS) reader. This reader consists of a standard merchant POS terminal with an RFID reader plugged into the POS’ serial port.
The contactless reader decrypts the track one and two data and passes it to the POS terminal. The POS terminal treats it just like any other magnetic stripe card input and passes it to the financial networks for authorization. From here, there is no difference between the contactless transaction and another transaction.
According to Mr. Bonalle, this process is ideal because it enables multiple POS terminals to be used with the product rather than a wholesale change to the POS network. Indeed, this is critical to any new payment product as the issuers of contact chip cards have found in early trials. The resistance on the part of the merchant community to invest in new equipment can severely impact a new payment initiative’s chances for success.
American Express has a strong track record of creating consumer excitement around chip-based payment products. Their Blue Card virtually created the consumer awareness of chip card technology in the U.S. When asked would we soon see a contactless component to Blue, Mr. Bonalle was cautious. “We definitely see that combining RF technology with other payment products makes sense.” As for timeframes, he was
noncommittal. “I can say that we will initially target supermarkets, drug stores, corporate cafeterias, video stores, coffee shops, and similar locations.”
“There is a very different value proposition for smart cards vs. RF,” says Mr. Bonalle. “Smart cards are all about increased security and added applications. For RF it is about throughput and convenience.” If he is right, American Express may just have a payment product that can do what few thought possible–eclipse the consumer adoption and excitement surrounding Blue.