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Contactless payments in retail 6/1 ChainStoreAge Compared to the adoption of credit cards by US consumers, contactless payments are being embraced at warp speed. That’s because consumers are notoriously impatient at checkout-& because consumers love to embrace technology that makes their lives easier & more convenient. Contactless payment systems satisfy all these desires. ‘It took 40 years for 75% of the US population to become equipped with credit cards & 18 years for 75% - 80% of merchant POS locations to have PIN pads,’ noted Gerritt Kerkstra, Mastercard. ‘By comparison, after only 3 years contactless is outpacing that growth.’ At the end of the first quarter of 2008, Mastercard’s contactless brand, PayPass, was in 109,000 merchant-equipped locations in 24 markets around the world. Inside Contactless, provider of the smart microprocessor chips that enable tap-&-go payments, recently shipped 50m chips into US & Canadian markets since introducing the technology to North America in 2005. Inside provides chips for Visa’s payWave contactless solution, American Express’ ExpressPay & has been tapped by Discover to provide chips when it deploys contactless on Discover-branded cards. ‘In 2005, 10m contactless cards were issued into the North American market, followed by 18m in 2006, & last year the number rose to 34m,’ reported Charles Walton, Inside. ‘This year we’re going to hit 60m cards. It’s not a rocket ship, but certainly a steady growth rate & I think in 2009 we could see close to 100m contactless cards in the North American market.’ At what point will contactless payment become ubiquitous? Walton predicts it will take 10 years from the initial introduction, making 2015 the year merchant POS systems could expect to be pretty well tapped in. Early adopters have been retail environments such as c-stores & fast-food restaurants that typically have lower-ticket sales & a heightened need for speed at POS. ‘The contactless proposition is not as strong for a Neiman Marcus or Bloomingdale’s, although both interesting & somewhat surprising has been the deployment of contactless at multi-lane retailers like Office Depot & Petco. The driving force behind contactless has been to produce a more streamlined experience so customers move through the lanes faster. A broader trend is the security aspect. It has become relatively simple for someone to replicate the information stored on a card’s magnetic strip, but the same is not true for information on a microprocessor chip. It’s orders of magnitude more difficult to breach a chip.’ Mastercard’s strategy for deployment has taken a totally different tactic. ‘We’re focused on POS locations that typically have cash transactions because contactless provides an excellent alternative to cash,’ said Cathleen Conforti, PayPass. Merchants with drive-through lanes, such as fast-food restaurants or coffee shops, are perfect examples of cash-centric POS services that would benefit from contactless terminals. Pharmacies with drive-through services are another logical candidate to offer contactless payments. Chips are being added to pre-paid debit cards, making contactless an equally viable solution for the unbanked or under-banked consumer. ‘Another trend we’re seeing,’ observed Walton, ‘is that some banks & merchants are using the contactless cards to take advantage of value-added opportunities. A microprocessor chip is quite powerful & can store large amounts of data, which makes it ideal for co-branding.’ An airline frequent-flyer number could be included on the chip so points are added when the card is used at certain merchants. Walton suggested that the added data capacity on a chip provides an opportunity for retailers to create more personalized, customer-friendly services. ‘A coffee chain might use the chip to track a customer’s regular preferences. Or, a retailer like Barnes & Noble that has a membership club for discounts could automatically combine the member ID & a credit account in the chip.’ Inside is working with some retailers to implement contactless chips on their private-label cards, although none have publicly announced this. ‘Retailers have begun to see the value in self-deployment & in some cases are paying to add contactless readers at the POS, for all the benefits we’ve discussed & to avoid the interchange fees charged by Visa & Mastercard.’ What does the future hold? Probably less plastic & more variety-contactless chips are being deployed in key fobs, wristbands & mobile phones, & stickers that contain the microprocessor chips & can be applied to existing mobile phones. Walton noted these are popular with Gen Y shoppers. As contactless starts to approach ubiquity in the bricks-&-mortar space, one has to question if there are opportunities to tap-&-shop online. Walton acknowledged the concept of tap-&-go e-commerce is ‘really interesting. Incorporating reader chips into PCs is a long-cycle process & not one that we are likely to see in 2008 or 2009. What we are more likely to see in the near term is a contactless reading function incorporated into a USB device. The USB plugs into a keyboard, laptop or PC enabling the use of a contactless card to conduct the transaction over the Internet. Although we are engaged in this process now, we are not ready to deploy it yet.’ Why Shoppers Love Contactless: Convenience - It makes life easier. Speed - Expedites checkout & no signature on purchases under $25. Security - Much harder to replicate data contained on a microprocessor chip than on a magnetic strip. Personalization - Store shopping preferences on the chip to create a customer-friendly interaction. Simplification - Integrate membership & loyalty accounts into the chip so discounts or points are automatically accrued.