With 15,000 contactless MasterCard branded payment cards issued by three of the largest issuers in the United States, the PayPass trial in Orlando, Florida is the largest project of its kind to be initiated in North America. The trial currently involves nearly 60 merchant locations in the greater Orlando area, including quick service restaurants, theatres, retailers, and local government. The project is more than just a proof of concept for MasterCard’s PayPass technology, it is a proof of concept for the acceptance of contactless payments among both consumers and merchants.
“The PayPass tagline is the simpler way topay,” says Betsy Foran-Owens, VP Product Services for MasterCard International. “We view the major competitor to PayPass as cash rather than other card transactions.” She adds that 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.
And the speed can be increased, at least according to one of the technology vendors participating in the Orlando trial. Mohammed Khan, President & COO of ViVOtech, says “cash transactions require an average of 15 seconds by the time change is presented while contactless payments not requiring a signature can take just 4 –5 seconds.” And MasterCard reports that contactless payments reduced transaction time as much as 64% in its employee trial at the company’s Purchase, NY headquarters.
In addition to this time savings, the trial with MasterCard employees revealed several other notable changes to the participant’s spending patterns. In the cafeterias, the addition of PayPass led to a significant spike in card payments compared to cash. Prior to PayPass, only 5% used a payment card to pay for the small dollar value meal transactions. Following the PayPass introduction, this number climbed to 23% almost immediately. And transactions tended to be 10% higher when using a card instead of cash. According to Ms. Foran-Owens, when the cafeteria pilot was scheduled to end, there was an employee uprising and the system was left in place for ongoing employee use.
The cards being issued in Orlando are compliant with ISO 14443 Type B, though MasterCard stresses that PayPass supports both the Type A and Type B varieties of ISO 14443. According to Ms. Foran-Owens, “When we realized that contactless would be the next significant wave in payment technologies, we sought the right technology to enable globally-interoperable payments. ISO 14443 was the obvious choice.”
She adds that they looked at the Speedpass concept of matching a token’s number with a bankcard number in an external database but did not like the added steps and resulting expense. “We asked ourselves what MasterCard could do to build greater ubiquity so that all merchants could accept the card.” The team liked the card form factor because consumers were comfortable with it and it would enable the all-important continued utilization of the magnetic stripe. This was essential so that the card could continue to be used worldwide at all locations in addition to those pilot PayPass-accepting locations. Additionally, Ms. Foran-Owens noted the importance of creating a solution that would work with existing point of sale (POS) terminals so that a cost effective upgrade could be offered to ease merchant and acquirer concerns.
About the Orlando trial
According to Joan Henessey, MasterCard International’s VP E-Business, North America Acceptance, the decision to conduct this trial in Orlando was driven by the issuers and merchants. “The idea was to find a broad range of retail acceptance locations so we turned to some of our issuing partners merchants and they helped select Orlando.” Currently Friendlys, McDonalds, Chevron, Eckerds, Boaters world, Wolf Camera, Ritz Camera, Loews Universal Cineplex, and Orlando City Parking are accepting payments. The total number of locations is nearing 60.
The 15,000 cardholders participating in the pilot come from the existing clients of the three participating issuers: Chase, Citibank, and MBNA. It is no coincidence that these are the three initial partners as they are the three largest issuers of MasterCard products.
One source suggests that other issuers may be allowed to join the trial after June 2003, the initial period guaranteed exclusive to Chase, Citibank, and MBNA. Though specific processes used by the issuers to select trial participants has not been disclosed, it was suggested that a combination of geographic proximity to the merchant locations and prior use of card products at these merchants were considerations.
How the card is made …
MasterCard, like other major label bankcard products, has strict regulations regarding the manufacture of cards with its brand. The major reason for this is to combat counterfeiting and protect the finished, but not-yet personalized, plastic card stock. Only approved, secure facilities can manufacture MasterCard-branded cards. Financial institutions that issue MasterCard products utilize one of a series of approved manufacturers that operate these secure facilities.
At these sites, the plastic sheets are combined, magnetic stripes are added, and the card is printed with generic elements. It was essential to the success of the PayPass project that a wholesale change to the existing manufacturing processes not be required when the contactless component was added to the card. The solution was to provide the chip and antenna as a thin insert that could be added during the normal card manufacturing process.
How does PayPass work?
PayPass emulates the essential data from the magnetic stripe on the contactless chip. This data–the track one and track two of the magnetic stripe–enables the transaction to be routed, authorized, and processed in the existing payment networks. The key benefit to this process is that by providing the same information used by current processing networks, no changes need be made to the payment networks to handle PayPass transactions.
Additionally, MasterCard was acutely focused on extending this use of existing infrastructure beyond the payment networks to the actual merchant POS terminals. To that end, they identified partners to provide technology that integrated with existing devices. Did they succeed? According to Ms. Hennessey, to this point, not a single line of code has been modified in or added to the existing merchant terminals to bring the 60 locations online.
What are we waiting for?
As with any trial or pilot test of a new payment technology, the primary purpose is to gauge factors such as consumer acceptance, utilization rates, merchant perceptions, and a variety of other considerations. With the PayPass trial, MasterCard and the participating issuers hope to learn enough to determine if PayPass works and is viable. To Ms. Hennessey, the trial is about building a business case for contactless payments. She asks, “Are we sending more customers to the merchant? Are customers spending more? Are we speeding up the lines?” These answers will determine the future of PayPass.
Though it is too early to know the results of the pilot, some initial research conducted by MasterCard suggests great promise. 63% of respondents indicated that they would likely use PayPass if it was offered by their bank. And of those who indicated that they would definitely use it, they indicated that it would likely replace cash in more than half of their future transactions.
Now that is music to the ears of payment card issuers. The credit card and debit card industries are quite mature and issuers fight to lure cardholders from competitors. On the other hand, the cash-replacement arena is still open although it remains elusive. If PayPass and other contactless payment offerings can make inroads into the world of small value cash transactions, its future could prove priceless.
If you will be attending the Cardtech/Securtech conference in Orlando next month, be sure to visit the MasterCard booth to see the PayPass technology first hand.