Contactless Cards: The Next Big Thing? Why the Major Payment Brands and Card Issuers Believe Contactless Technology Will Revolutionize Point-of-Sale Transactions

Consumer demand for convenience and quick service is insatiable. As a result, retailers continuously are seeking innovative ways to accommodate today's drive-thru culture. But not since the magnetic stripe card was introduced more than 30 years ago has there been an all-new way to pay that appealed to both consumers and merchants. That may be about to change. JPMorgan Chase & Co. believes it is pioneering a breakthrough payment innovation that will revolutionize point-of-sale transactions. company recently launched credit and debit cards with what it calls blink technology. cards feature an embedded chip and radio frequency identification tag, or RFID. Instead of swiping or handing the card to a cashier, cardholders simply hold it near a point-of-sale terminal at checkout. As consumers hold the card near the terminal, the card quickly emits a signal to confirm payment, and they are on their way. No signature is required for purchases less than $25. Chase expects the new cards to spur increased customer loyalty and help gain top-of-wallet position with its card members. We recognized that even though we had made great progress with our rewards card products, we still had an opportunity to make our cards more functional, says Tom O'Donnell, senior vice-president of Chase Card Services. We saw the speed and convenience with contactless cards as a new service that will help increase customer loyalty. Chase is rolling out the cards in conjunction with Visa U.S.A. and MasterCard International to traditionally cash-sales driven merchant locations at which speed and convenience are most important to consumers. American Express also is making contactless functionality available through its Blue card program. For the foreseeable future most RFID cards will also be issued with a magnetic stripe. Among the targeted merchant categories are convenience stores, gas stations, pharmacies, movie theaters and quick-serve restaurants. In particular, restaurants with drive-thru windows experienced an average 20-second time savings compared to cash transactions in MasterCard's 2003 contactless trial in Orlando. No new infrastructure During the 1990s, various iterations of smart cards, also known as chip cards, failed because their intended uses were too broad, say payment card company officials. Unsuccessful smart card programs ranged from loaded-value electronic purses to multi-use cards that would house financial information as well as personal information such as medical insurance data. In addition, these card offerings often required consumers to sign up for new accounts, while forcing merchants to install costly network infrastructures. According to Art Kranzley, MasterCard's executive vice-president of advanced payment solutions, contactless cards will succeed because their value proposition is tightly focused on payment convenience, and they represent an extension of consumers' existing credit and debit accounts. We are leveraging the same accounts consumers already have, he says. The consumer doesn't have to do anything to get the new capability. In addition, Kranzley points out that the basic payment infrastructure is already in place and merchants are simply overlaying contactless card readers on top of established credit and debit networks. To accelerate market penetration, Visa, MasterCard and American Express have all agreed to a common contactless communications protocol, based on the ISO14443 implementation standard for radio frequency communications. Agreeing to one common standard benefits all in the value chain, Kranzley says. Merchants and terminal vendors now can invest and deploy contactless devices with confidence, knowing they will have to develop and support only one communications specification, making the manufacturing process easier and less costly. Security safeguards Preventing and detecting fraudulent transactions remains an ever-present challenge in the payment card business, but proponents say contactless cards are well-positioned to combat fraud. …