Contactless Technology in the US - Card Technology

Contactless In America: Some Banks Have Yet To Climb Aboard

By Dan Balaban

While the buzz around contactless payment in the United States continues, not everyone is convinced the concept will take off anytime soon, especially when it comes to consumers tapping to pay with their mobile phones.

Among the more skeptical voices is that of John Suchanec, senior vice president of payment technology for giant card issuer Bank of America. The bank’s recent trial of contactless payment using mobile phones that support Near Field Communication failed to inspire, he said. And while the bank plans another NFC trial this summer, Suchanec said he isn’t yet sold on the technology or–for that matter–on contactless payment from other “devices,” including cards and key fobs.

“You’ve really got to provide a place where people will (be able to) pull out a device and use it everyday,” he told Card Technology. You really have to generate a business case to justify it (added cost).”

With rules adopted by the payment card organizations allowing U.S. consumers to make low-value purchases without signing receipts, tapping cards or other tokens to pay is not appreciably faster or more convenient than swiping the cards at the point of sale, said Suchanec. He also spoke last week at the CardTechSecurTech conference in San Francisco.

Bank of America is perhaps the largest but not the only big issuer still sitting on the sidelines when it comes to rolling out contactless cards or tokens. Citibank has largely dabbled in the technology, and Capital One hasn’t taken the plunge. Of the largest banks, only JPMorgan Chase has begun a significant rollout, although it has only put contactless chips on part of its portfolio.

Without more big issuers moving boldly forward on contactless–and none putting chips on all new and replacement cards–vendors predict they will ship only about 25 million contactless cards or fobs this year. That’s up modestly from the roughly 20 million contactless cards or tokens vendors sold in 2006. Contactless backers are targeting the cash-heavy market for purchases of $25 or less.

Bank of America does have some contactless cards on issue, by virtue of its acquisition completed in early 2006 of credit card giant MBNA, which has suited up for contactless payment mainly at American sports stadiums.

On the merchant side, 40,000 or 45,000 locations accept contactless payment in the United States, a growing yet still small percentage of all merchant locations that take card payment.

Some small or mid-tier U.S. banks, such as KeyBank, SunTrust and Wells Fargo, among others, are issuing contactless cards, as is HSBC on a regional basis. The 25 million contactless cards and fobs likely to be issued this year compares with the roughly 300 million credit, debit and prepaid cards U.S. financial institutions will roll out in 2007, nearly all of them simple magnetic-stripe cards. These cost a small fraction of the price of contactless cards, which run about $1.50 apiece in the United States. Issuers in Europe and Asia that have adopted more secure EMV technology for their payment cards would pay at least two to three times more to go contactless because their cards would require dual-interface chips. Relatively few contactless EMV cards are on issue.

Brian Triplett, senior vice president for emerging product development at Visa USA, said five of the top 10 Visa issuers in the United States have introduced contactless and momentum is growing.

He confirmed Visa plans to launch a national advertising campaign in the United States around its new Visa payWave contactless program. The campaign is expected to begin this summer and will try to give consumers a better grasp on contactless payment.

“This is consistent across Visa worldwide. We will continue to work with our issuers and merchants to sell that consistent story,” he said.

While Visa said it has been waiting until there are a sufficient number of contactless cards in circulation and merchants accepting them before launching a consumer advertising campaign, observers note Visa is playing catch-up with MasterCard Worldwide, which has heavily promoted its PayPass contactless brand in the United States. The belated Visa ad campaign is seen by the observers as an attempt to slow MasterCard’s momentum while boosting awareness among consumers and retail clerks, many of whom are completely clueless about contactless.

U.S. banks and payment card organizations that have launched contactless report impressive gains in use of contactless payment by consumers, with more transactions and higher spending per card or token. But these banks and card organizations haven’t yet released actual transaction figures.

For Suchanec, a major obstacle to getting more consumers to tap when they pay is persuading more merchants to accept the new form of payment.

Such big merchants as McDonald’s restaurants and 7-Eleven convenience stores take contactless at their thousands of locations across the country, and some sizable retail pharmacy, cinema and gasoline chains, also have signed on. But overall acceptance of contactless represents less than 5% of card-welcoming merchant locations.

“There are 6 million places where you can use your credit card, 45,000 (contactless acceptance locations) doesn’t excite me,” Suchanec said.

To encourage more U.S. merchants to move on contactless, he agreed the major card organizations might have to lower interchange, the major determinant of the fees merchants pay to banks on card transactions. “I think you have to bite the bullet,” he told Card Technology. “You’ve got to recognize cash transactions are different.”

As Card Technology recently reported, Visa Europe has agreed to lower interchange in the United Kingdom to try to attract more merchants for the planned launch of contactless payment in London this fall. MasterCard is expected to do the same.

Visa, MasterCard and American Express all told Card Technology, however, they have no plans to lower fees in the United States. They’ve subsidized the cost of terminals and readers for some merchants in the past. But they say the increasing card use by consumers and lower cash-handling costs will justify the investment by merchants in contactless.

“We do not intend to lower our discount rate,” Leigh Malnati, vice president for contactless payments at American Express told Card Technology. But he added during a presentation at the CTST conference in San Francisco that he sees the need for more places for consumers to tap their cards or tokens. “Until you have a better merchant coverage, there’s clearly a problem. It’s coming along. We would just like to see it come at a faster pace.”

Suchanec expresses even more doubts that contactless payment using NFC phones will take off anytime soon.

Interest continues to grow around the world in NFC, which embeds contactless chips and short-range antennas into phones and other devices, allowing them to emulate contactless payment, transit or building access cards; or act as contactless readers.

The relatively small but growing base of merchants in the United States that accept contactless would provide a ready infrastructure of readers for new mobile-payment services using the specially equipped phones, say backers. This would enable issuers to deliver their applications over the mobile network to handsets already in consumers’ pockets. They also could tie in electronic couponing and other support services to the payment applications, which their customers could access via colorful menus on their handsets.

Such large issuers as Citibank, Chase, HSBC and retailer 7-Eleven have launched NFC pilots in the United States, mostly involving consumers.

Bank of America began its own, low-profile, NFC trial late last year as part of a larger 5,000-employee pilot held at one of its corporate campuses, in Delaware, home of its MBNA division.

But the NFC portion of the trial flopped for a variety of reasons, says Suchanec, including an undesirable phone model and problems downloading the payment application to the handsets.

The bank gave employees a choice of the contactless form factors they could use and employees chose key fobs to phones by a six-to-one ratio, Suchanec said. The application available for download to the phones was PayPass from MasterCard.

“Active fob users averaged three times more transactions than phone users,” he said. “One of the problems they had with the phone, you can’t do more than one thing at a time; you can’t talk and pay.”

Users didn’t like the Nokia 3220 phone used in the trial, which wrapped up around March of this year. Employees even asked if the bank could download PayPass to their own handsets. The 3220 has been the workhorse of dozens of public and private NFC trials held around the world over the past two years. It has been one of the few NFC models available, after Nokia retrofitted the 3220 with a contactless chip and short-range antenna. But the model offers few other features subscribers would want.

There were other problems besides the unattractive phone. Users had trouble downloading the application. Bank of America’s technical staff had to help debug the code of the over-the-air platform from the beginning, Suchanec said. And the downloading process was confusing for consumers and took a long time–on average about 5 minutes for each download. Some of the delays or unsuccessful downloads were caused by a failure of the phones to receive the SMS messages sent via the OTA platform vendor, he said.

The bank used a platform developed by Germany-based Giesecke & Devrient, which transferred it to NFC platform vendor Venyon, a joint venture G&D formed with handset maker Nokia.

Venyon executives said they are unable to talk in detail about a specific customer project, including any reports of missed messages or time-consuming downloads. But they point out there are typically “issues” that crop up during trials. That’s especially true of trials involving a number of parties and new technologies, they say.

“This is especially important for NFC, as it consolidates a number of different elements, like the NFC mobile phone, secure element, applications, user interface, service provider system, mobile network, over-the-air platform and, of course, the actual contactless infrastructure,” said Venyon CEO Lauri Pesonen in a statement. “Venyon has certainly learned a lot in these trials.”

The Bank of America trial started late last year, just as Giesecke & Devrient was preparing to hand off the OTA platform to Venyon. Venyon senior vice president Andreas Schauer said it was one of the first trials of any kind downloading a bank-issued payment application. G&D had earlier downloaded a PayPass application as part of a trial in Dallas that officially launched in November.

In the Dallas trial, consumers had some problems downloading the applications, but MasterCard attributed them, for the most part, to spotty network coverage and unfamiliarity among most consumers with how to download programs or content to mobile phones.

A survey Bank of America conducted during or after its contactless payment trial showed participants rated the NFC phone as among the most negative part of their experience in the trial.

“You need to only have one bad experience throughout this whole process for people to abandon what they are doing,” said Suchanec.

The bank hasn’t given up on NFC or contactless, however. Suchanec says it plans a new NFC trial this summer among employees, using Nokia’s new 6131 NFC phone and another platform for downloading payment applications. The latter would allow users to make a phone call to request the application, reducing reliance on text messaging. Besides payment, the trial would include an application letting users tap contactless tags in posters to download discount coupons.

Overall, however, Suchanec said he believes it could take years before NFC is ready for roll out, at least in conjunction with contactless payment in the United States. “We’re a long way away from putting phones in the hands of consumers.”

Others might disagree, but what seems clear is it will be some time to come before contactless captures a sizable share of purchases now conducted by American consumers in cash. (2007-05-25)