News

Contactless payments catching on?

April 9, 2006

This article appeared in the Retail Self-Service Executive Summary, Spring 2006.

Untold hours have been saved for merchant and consumer alike by the shift toward electronic payments at retail. In businesses where every second counts, shaving just a few more seconds off a transaction time can snowball into savings of millions of dollars. This need for speed has led many companies to consider contactless payment systems.

7-Eleven, which operates 5,300 stores in the U.S., is the latest retail giant to take the plunge. The c-store chain recently announced that all of its stores will be equipped to accept the Blink card from Chase Bank. Chase has begun delivering the new cards - which consumers simply hold near or tap on a terminal instead of swiping - to 1.3 million users in Texas and Florida.

"Because 7-Eleven is synonymous with convenience, anything we can do to improve a customer's shopping experience at our stores is always under review," said 7-Eleven's vice president of business development Rick Updyke in a news release. Chase's Blink "fits well with 7-Eleven's strategy of providing consumers quick, convenient service."

Fast food, faster

One of the industry segments that appears most drawn to contactless payment is foodservice. QSRs in particular seem to have much to gain given that the average contactless transaction can be eight to 10 seconds quicker than a swiped transaction.

Pizza Pizza, the largest pizza operation in Toronto, took the contactless plunge in June 2005. Pat Finelli, Pizza Pizza's vice president of marketing, said consumers were quick to adopt the new technology.

"We tailored the program to meet the needs of our key customers," he said. "A multifaceted marketing program supported the launch and helped to get the word out."

From anecdotal feedback, "both our consumers and franchise partners appreciate the added convenience, speed and simplicity of the program," Finelli added.

"Contactless payments are about speed and convenience, which benefits consumers and merchants," said Tom O'Donnell, senior vice president of Chase Card Services. He said that the average contactless transaction is 10 percent to 40 percent shorter than a swiped one.

But how do you get customers excited about yet another card when wallets and keychains are already bulging with plastic? In the case of Chase's Blink, the contactless hardware is integrated into a traditionally shaped card, which also features a magnetic stripe - so the card can be used at any payment terminal, not just those equipped to read blink.

Small transactions like food or gas seem to be the biggest target for contactless schemes. Catherine Graeber, principal analyst for Forrester Research, said that other ideal uses would be video stores, movie theaters, newsstands and transit ticketing.

As such, she doesn't worry about security concerns floated during early discussions about the technology - sky-is-falling worries about thieves being able to read the card in your pocket by standing next to you with a wireless device in theirs.

"Personally, I feel that because contactless cards are typically authorized for small dollar amounts, it doesn't seem like fraudsters would find this a highly attractive target," she said.

However, consumers might disagree - Graeber said that of the consumers surveyed who have yet to use a contactless card, 24 percent were worried about fraud, particularly if the card is lost or stolen.

What needs to happen

So what needs to happen to convince consumers and merchants to add yet another card to their arsenal? Graeber said that contactless payment methods have a great amount of potential, but three things need to happen in order for the technology to succeed:

The cards need to be interoperable. "MasterCard, Visa and American Express can't each do their own thing, requiring the merchant to have multiple card readers."

A sufficient number of merchants need to sign up. "The card associations and card issuers need to get a critical mass of merchants in a concentrated geographic area to accept the cards. Smart cards were a dud because there was no place to actually use the cards."

Security promises must be made. "Card issuers need to offer a security guarantee that offers zero-liability on lost or stolen cards, or unauthorized access to accounts."