If the purpose of the recent SmartTalk Teleconference hosted by the Smart Card Alliance was to generate enthusiasm and optimism for contactless technology, it certainly succeeded thanks to the latest positive results of contactless trials reported by two of the majors–MasterCard and American Express.
“The conference went fantastically well,” said SCA Executive Director Randy Vanderhoof. “It was the best attended of our SmartTalk conferences; and the best media response we’ve ever had.
“Consumers have readily accepted contactless technology,” said Mr. Vanderhoof in his introduction to the phone conference. “The tests have been very positive.” The reason for his optimism? Contactless technology, he said, “is meeting the three C’s: Cost, convenience, and consumer acceptance.”
Speakers included Don Davis, editor and associate publisher, Card Technology Magazine; Betsy Foran-Owens, vice president, product services, global development, MasterCard International; David Bonalle, vice president and general manager, advanced payments development, American Express; Amol Deshmukh, director, strategic relations, Axalto; and Mohammad Khan, president and COO, ViVOtech.
“We’re at an exciting turning point, where we’re about to see some major product announcements,” said Mr. Davis. “One of the big questions is whether consumers will pay with a contactless card over other cards or cash.”
He said contactless is big in some countries or continents, such as Asia and Hong Kong, mostly for transit use. “One thing is clear; the concept of contactless is intriguing enough that the majors are testing it out (MasterCard, Visa, American Express),” he said. “Someone has to roll out contactless and MasterCard is getting ready to do that.”
He listed three factors that must exist for contactless to catch on: “It pushes the card with the contactless feature to the top of my wallet; merchants see a sales lift and quicker transactions; and a critical mass of merchants accept it within a short time, so consumers find it useful. Spotty acceptance,” he added, “could help doom the concept.”
Paypass from Mastercard
But Mastercard is “enthusiastic” about contactless following results of its PayPass trial runs in Dallas, Texas and Orlando, Florida, said Ms. Foran-Owens. “PayPass is the perfect payment solution in areas where speed is essential, such as movie theaters, fast food restaurants, gas stations,” she said.
“With heightened consumer concern over fraud, once they (consumers) understand that their PayPass never leaves their hand, their comfort level increases,” she added.
In Orlando, Mastercard teamed with JP Morgan-Chase, Citibank, and MBNA. More than 60 retail locations and 16,000 Mastercard cardholders participated. That trial found that the new concept prompted infrequent card users to pay more frequently with their card and that it achieved “top of wallet” status. At drive-thrus, PayPass cut 12 to 18 seconds off purchase times compared to cash, very important for merchants and consumers, she added.
“In Dallas, our purpose was to explore non-card uses,” she said. There, Mastercard teamed with Nokia, AT&T Wireless, and JP Morgan Chase to integrate PayPass into Nokia mobile phones via a contactless chip embedded in the phone’s cover. PayPass phone payments were six seconds faster than payment cards, she said.
“For merchants, speedier transactions…attracts new customers and helps merchants lower their costs and improve productivity, because employees handle less cash,” she added.
“Trial results (now concluded) are the reason for our enthusiasm,” she added, such as “an 18% activation rate on formerly inactive accounts, nearly a 23% increase in transaction volume and an even greater increase, 28%, in total weekly spending.”
And Mastercard’s own consumer survey showed that 86% want to use cash less than they currently do, 53% said they would use PayPass to replace cash payments if their banks offered it, and consumers perceive PayPass as “innovative” and “fun to use.”
ExpressPay from American Express
American Express, with its ExpressPay, went a different route, explained Mr. Bonalle.
In its Phoenix, Arizona, New York City and Singapore trials, the company went with key fobs that were useable only for purchases under $50, “the type of purchase you’d make in everyday life,” said Mr. Bonalle. “We built it on a key fob because consumers told us it was the most convenient.”
The product can be used by non-American Express card members and can be linked either directly to the American Express card or as a stored value card preloaded from other payment vehicles.
Readers are interoperable with competitors’ solutions and compliant with the ISO 14443 industry standard (the same as MasterCard’s), he said. Merchants have two options for contactless acceptance: Integrated terminals that include contactless reader modules or the ability to retrofit virtually any existing POS.
“We’ve issued over 25,000 ExpressPay devices. Phoenix continues to grow at a rapid clip,” said Mr. Bonalle.
More than 425 Phoenix merchants accept ExpressPay, ranging from fast food chains, gas stations, and ice cream parlors to one photo chain. “In Singapore, we have a broad array of merchants (179) and results are very positive. We didn’t have problems with reader performance and there were much fewer issues than we expected, such as them learning a new behavior, waving the fob. ”
The company conducted a limited trial in New York City, its headquarters, limiting usage to businesses near American Express and to the company’s cafeteria, which “gives our employees a chance to test the product,” he said.
Consumers quizzed in a 2003 research study gave ExpressPay “a score of 6.7 which, in new product development, is very high,” said Mr. Bonalle.
“On the merchant side, a time and motion study in our own cafeteria showed that ExpressPay took less than half the time as a cash transaction did.”
Merchant Business Case for Contactless Payments
“Time is money for merchants,” said Mr. Deshmukh of Axalto. “The faster you can get your customers through the transaction process, the more you make.”
He called it a “win, win, win for all: an increase in sales, convenience for customers, and savings in cash-handling.”
Segments likely to benefit most from contactless include fast foot restaurants, convenience stores, gas stations, parking, video rentals, movie theaters, drive-through drug stores, vending machines, and ticket kiosks.
He laid out a business model assuming a fast food restaurant with four POS registers, doing 60 transactions an hour, with an average ticket price of $5, fewer than 15% contactless transactions and open just 10 hours a day. The basic first year up-front costs for the merchant would be $1,000 to $1,500 to cover the terminals, employee training and maintenance.
With contactless in play, he said, the hourly transactions would jump to 62 and the average sale to $5.75. In a year that would equal about $55,600 additional revenue, he said.
Mr. Khan, of ViVOtech, manufacturer of contactless readers, discussed how a merchant could implement contactless technology.
“The good news is that all these programs–ExpressPay, PayPass, etc.–are designed to leverage existing infrastructure, which would allow use of existing POS systems,” he said.
“These readers, either add-on or integrated, will read any other contactless card as long as it complies with the ISO standard,” he added.
As to merchant strategy: “Based on what we have seen,” said Mr. Khan, “contactless payment is ideal for those with long lines. What we are seeing is a broad level of acceptance from many merchants. ViVOtech has been shipping large quantities of readers that shows the market is already moving in that direction.”
About the event
The conference was a live version of a report the alliance issued a couple months ago, “Contactless Payments: Delivering Merchant and Consumer Benefits,” the same name for the teleconference.
While 125 registered, 85 actually participated, said SCA Executive Director Randy Vanderhoof. “Roughly 25% were media; another 25% were alliance members; and 50% were people outside the alliance,” he said. In addition, there were about 15 international registrants.
This was the alliance’s third SmartTalk conference. One dealt with smart cards for secure identification and the other with privacy. Another will probably be held towards the end of this year, said Mr. Vanderhoof.
“The purpose of the conference was to provide access to the information that the alliance has developed through the Terminal and E-Transaction Infrastructure Task Force. We wanted to give the marketplace updated info because contactless payments is such a hot topic.”