Buoyed by successful trial roll-outs in Orlando, Florida and Dallas, Texas, and a survey showing more and more consumers are looking for cash alternatives, MasterCard International is poised to launch more PayPass pilots in U.S. cities this summer.
“Right now, PayPass trials are continuing in Orlando and Texas,” said Betsy Foran-Owens, vice president, product services, MasterCard International. In addition to more U.S. cities, “other markets will be introducing PayPass in the future as well,” she said.
The Orlando trial that began a year ago, involves RFID-enabled MasterCards issued by Chase, Citibank, and MBNA. More than 16,000 cardholders can use PayPass at more than 60 retail locations–including gas pumps, theater box office windows, traditional merchant countertops, and drive-thrus–in the Orlando area.
Dallas, on the other hand, involves a test with a Nokia cell phone cover and a contactless chip. Nokia is initiating the delivery of bankcard tokens to consumers. The trial is slated to last up to 8 months and it involves an estimated 2,000 participants and a small number of merchants in the area surrounding Nokia?s Dallas offices. Current merchants include Rockfish Seafood Grill, Jason?s Deli, Corner Bakery, Chevron, and Wolf Camera.
The Dallas system operates in the same manner as the Orlando PayPass card trial. The Track 1 and 2 data from a traditional magnetic stripe credit card is stored on the contactless chip and passed to a point-of-sale reader for payment processing. The payment network does not delineate between the contactless payment and the magnetic stripe payment so little-or-no software modification is required to accept contactless payments. In the Nokia trial, the chip containing the data is simply housed in the cell phone cover, rather than in a plastic card. Customers can tap or wave their cell phones over the reader.
PayPass relies on ISO 14443 standard contactless technology. In North America, where the majority of transactions are authorized online, the payment application data is based on the magnetic stripe information with additional security data. Atmel Corporation of San Jose, California, is supplying the secure contactless microcontrollers used in the PayPass deployment. The contactless chip used is an 8-bit secure microcontroller from the company?s AT05SC secure product family.
“Our objectives in the Orlando trial were to test the real world application of contactless payments,” said Ms. Foran-Owens. “Specifically, we wanted to ensure that the operational reliability that we achieved in our headquarters test could be achieved on a larger scale with a variety of terminals at the point of sale. Finally, we wanted to better understand the actual cardholder and retailer experience associated with contactless payments. Simply put, all of our objectives were met in the trial.”
PayPass exceeds expectations
“One particularly interesting finding was that MasterCard PayPass prompted infrequent card users to pay with their PayPass enhanced cards much more frequently and in a variety of situations,” said Ms. Foran-Owens. This established a positive link between MasterCard PayPass and increased cardholder activation. In particular, over the nine-month trial, we realized nearly an 18% activation rate on formerly inactive accounts.”
Another benefit, she added, was that “we saw a top-of-wallet impact among PayPass cardholders. Specifically, there was a nearly 23% increase on transaction volume versus the same period in 2002, and an even higher increase of nearly 28% in total weekly spending versus 2002.”
But a more critical advantage was the pattern of frequent usage that emerged.
“Month after month, we saw more than a 12% increase in transaction volumes at PayPass merchants,” she said. “We saw clear evidence that the consumers were using their PayPass cards when they once would have used cash. The average PayPass transaction size during the trial was around $21. Eighty percent of PayPass transactions were for purchases under $25.”
All of this fits nicely with a national telephone survey MasterCard International undertook last October and confirms what Ms. Foran-Owens said when the PayPass trial was initiated last Spring. “We view the major competitor to PayPass as cash rather than other card transactions,” she said then.
The October survey was designed to gain additional insight into consumer payment trends and preferences. According to the survey, nearly 40% of U.S. adults carry less cash with them compared with five years ago and 26% say they carry “a lot less” cash. Findings also showed that nearly half (49%) of consumers carry $20 or less in their wallet and 86% reported that they want to use cash less often than they currently do. These survey results are in line with 2002 studies that showed 53% of consumers would use PayPass to replace cash payments if their banks offered it to them, according to a MasterCard spokesperson.
To succeed, PayPass has to be a simpler way to pay because it will primarily be used for small value transactions where speed and customer throughput are essential, said Ms. Foran-Owens.
This is obvious from the trials, which show that PayPass saves consumers, and merchants, time. In some locations, according to the test results, PayPass reduced purchase times so substantially as to have a tangible impact on retailers? ability to support additional transactions and thus potentially increase revenues. The most significant time savings were in drive-thru environments where between 12 and 18 seconds were shaved-off the purchase time as compared to cash, said Ms. Foran-Owens.
“This compares consistently with industry statistics indicating an average time savings of 5 to 15 seconds with RFID fobs,” she said. “More transactions usually translate into more revenues.”
Initial results from the PayPass trial in Dallas found that the average PayPass payment using a mobile phone was six seconds faster than card use. MasterCard attributes this to the fact that consumers don’t have to fumble in their wallets for the card.
Benefits for merchants, consumers, and card issuers
“PayPass is designed to be simpler and faster than cash, thereby speeding consumers through the check-out process, increasing average transaction amounts spent as compared to cash, providing a reliable, trusted payment method that works well in quick pay environments, and helping attract new customers and increase their loyalty,” she Ms. Foran-Owens. “For consumers,” she added, “MasterCard PayPass is designed to provide better record keeping than cash, provide a quick, easy payment method, thereby improving the overall in-store experience, and increase the feeling of security, as cardholders remain in control of the card/device during transactions.
“For financial institutions,” Ms. Foran-Owens added, “PayPass is designed to increase gross dollar volume by attracting payments away from cash, open up new acceptance opportunities for quick pay environments, and increase account holder loyalty for their card programs. Together, this all indicates the emergence of a strong issuance business case.”
To realize the PayPass potential, MasterCard recommended some best practices that were needed at point-of-sale, such as: high speed authorization connections; integrated terminals and readers with direct connections to cash registers; and implementation in quick pay merchant environments.
A new terminal offering
Hypercom Corporation debuted a new terminal option at fast food chain, Fazoli’s Orlando locations. Hypercom’s ICE 5500 Plus and ICE 6000 Plus terminals incorporate a special antenna and reader to offer merchants a seamless, solution for PayPass. Retailers like Fazoli’s with existing Hypercom terminals only needed to add an auxiliary RF reader to their existing hardware, said a Hypercom spokesperson.
Coming to a merchant near you?
Stay tuned to see where MasterCard’s contactless payment technology rolls out next. If the results from the two initial trials in Orlando and Dallas are indicators, PayPass may be coming to a merchant in your area of the world sooner than you think.