Combine a contactless chip and a specially-designed cell phone cover and you have new way to pay. That is what Nokia and Mastercard are testing in Dallas, TX with a select group of Nokia employees and local residents. Following Mastercard’s Orlando, FL trial of its new PayPass™ contactless payment network that began early this year, the Dallas project tests a different form factor–the cell phone rather than the standard card. But the pilot is also interesting in that it is a shift in the traditional issuance process of payment tokens. Nokia, a non-bank, is initiating the delivery of bankcard tokens to consumers.
The trial is slated to last up to 8 months and it involves an estimated 2000 participants and a small number of merchants in the MacArthur Boulevard area surrounding Nokia’s offices. Current merchants include Rockfish Seafood Grill, Jason’s Deli, Corner Bakery, Chevron, and Wolf Camera.
The 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.
This is not the first trial of contactless payments for Nokia. Using the same chip-in-cover method, the company tested a system with employees back in 2001. But with this earlier system, the contactless chip did not contain the credit card information. Rather, it contained a number that pointed to the credit card number in a database enabling the transaction to be initiated.
What makes the Dallas project unique, however, is that it alters the issuer involvement in the project. In Orlando, three major Mastercard issuers–Citibank, Chase, and MBNA–were responsible for delivering the contactless chip to their cardholders. In Dallas, Nokia is delivering the chip to handset users. The credit card information is being added per the handset owner’s instructions. In other words, a user in this model would select the payment account to be used where in the Orlando model, the payment card issuer would by default push their card and brand.
While this might seem like only a slight differentiation, its ramifications are significant. To date, control of payment tokens has rested solidly with the account issuers. With the exception of Speedpass, the token has been issued by the financial institution. The “real estate” on the physical payment token has been reserved for the bank’s logo, name, and marketing message (and, of course, the payment association logo).
In the Nokia trial, a non-bank is in control of the payment token and the marketing messages. Speedpass slipped under the radar screen of many banks because it has been viewed for niche locations (gas stations) only. Although it has quietly moved into other arenas, most payment card issuers do not view it as a threat to replace their plastic in a wholesale manner.
But if PayPass or a similar alternative payment offering does succeed on a large scale, and consumers were to abandon the plastic card in favor of the cell phone (or another non-bank issued token), it would change the payment card dynamic. Will the major issuers–whose top management just happens to sit on the boards of the big card associations–allow this control to get away? Certainly we are a long way from this actually happening but it does make for an interesting undercurrent to the current pilot projects. Watch and see.
Chris Corum, Editor