The race to capitalize on the 21st Century craze for convenience has heated up in the last couple of months. On November 30, Discover Financial Services rolled out its Discover Zip contactless payment system. Discover followed MasterCard Inc, Visa Inc., and American Express Company that had earlier announced their PayPass, payWave, and ExpressPay Contactless cards, respectively. On November 15th, service providers AT&T, T-Mobile and Verizon Wireless entered the fray. They formed a joint venture to build a national mobile commerce network—old world business models confronting fast moving new world order.
The latest twist in this saga is the move to contactless transactions playing out at gas pumps, coffee shops, fast food chains, and countless other locations, where transaction speed means increased revenue for retailers and less stress to a population that hates to wait. However, it should be noted that the speedy payment can be traced back to 1997 when then Mobil Oil (now Exxon-Mobil) introduced SpeedPass, an RFID dongle on a customer keychain. Verifone designed the RFID dongle and point-of-sale terminal inside the gas pump and at the cashier desk. Passing the dongle close to the pump in a certain place or at the point-of-sale terminal in the station authorized the gas purchase.
In this latest incarnation, major credit card providers, MasterCard PayPass seems to have the largest global footprint. MasterCard introduced PayPass in 2004 and as of Q2 2009; there were nearly 61 million MasterCard PayPass cards and devices in use at over 153,000 merchants worldwide. The financial service provider has tremendous potential to expand this footprint. According to the MasterCard website, the company processes over 22 billion transactions each year and has the capacity to handle 140 million transactions per hour, with an average network response time of 140 milliseconds and with 99.99 percent reliability .
Visa, the largest of the major credit card suppliers, with 1.61 billion cards in circulation versus 914 million for MasterCard started slower in the contactless payment rally. Its payWave offering got started in 2007. Statistics on the number of payWave cards in circulation are hard to come by on the web, but according to the ecommerce-journal website, the number in the UK is expected to reach 12 million this year. Certainly, both companies have a huge number of cardholders to upgrade to contactless technology. American Express comes in third with 53 million cardholders in the U.S. though all of them are equipped with ExpressPay, AMEX’s contactless solution. The problem for American Express is the limited number of merchants with terminal that accept ExpressPay compared to its two larger rivals.
Latecomer Discover with its Zip contactless payment system is confronting a formidable array of competitors. Nevertheless, Discover is hitting the ground running, stating in its November 30th press release that Zip is accepted at 100,000 locations in the U.S. And it has plenty of room to grow as Discover Financial Services’ payment network is currently accepted at more than seven million merchant locations nationwide. That’s why the new mobile-payment venture Isis being rolled out by the joint venture of AT&T, Verizon, and T-Mobile wanted to make use of Discover’s extensive mobile payment infrastructure.
The motives for credit card suppliers entering contactless payments is to increase the number and speed of transactions while lowering the cost of processing the exchange, each a machine-to-machine interaction generating a fee. Contactless payments enable these giants to process other types of transactions that generate revenue: prepaid cards, debit card transactions, funds transfers between individuals, etc.
Likewise, mobile phone service providers want new sources of revenue by having their handsets replace cards as well as the customer’s wallet. The three carriers together have over 220 million subscribers, thus a formidable base to empower with contactless payment capability, first by providing users stick-on RFID tags and built into next generation handset electronics.
The contactless bandwagon continued to gain speed this week. On Tuesday, Wells Fargo Bank announced a San Francisco-based pilot of Visa payWave. Conducted among 200 Wells Fargo employees who use BlackBerry and iPhone devices, BlackBerry users will insert an In2Pay microSD chip, from DeviceFidelity Inc. of Dallas Texas, containing Visa payWave software in their phone; iPhone users will receive an In2Pay case for their iPhone that contains the microSD card. The system will work at fast food restaurants, taxis, sporting event concession stands, and vending machines equipped with Visa payWave readers. DeviceFidelity is relying on the iSuppli report showing 66 percent of devices shipped in 2008 had SD slots growing to 82 percent in 2010. The one obstacle may be carriers building contactless capability into the handset.
One company angling to help carriers add the near-field communications (NFC) capability needed for contactless operation is the System LSI Division of Samsung Electronics. At the CARTES & IDentification 2010 Conference being held in Paris this week, the Seoul-based electronics giant announced a new near NFC chip phone makers can use to add contactless capability to their handset. The NFC chip can also read RFID tags in retail stores or on outdoor billboards for convenient on-the-spot data access.
The question that this competition brings out is how will the consumer ultimately prefer to make mobile payments: with a credit card, with a mobile phone, or some other device: RFID tag on wristwatch, keychain fob, bracelet, or some combination of all.
