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by: Jeremy Drzal
The electronic payments industry has seen rapid change in the last
24 months from the standpoint of payment mix (decreased checks and
cash, with increased debit and almost flat credit purchases) to the
advancement of new form factors such as EMV smart cards in Asia,
Europe and parts of South America, to new contactless technologies
such as PayPass (MasterCard), Wave (Visa), ExpressPay (Amex) and
QuicPay (JCB). The consumer base of accountholders has quickly
responded to the new RFID form factor because of its simplicity,
speed, and convenience. Retailers have also responded well
considering the increase in sales, faster transactions and in many
cases, higher spend versus its cash equivalent. It also provides
less wear and tear on hardware with fewer moving parts to further
decrease maintenance and replacement parts.
With the rapid adoption and move to put cards out into the market,
several large credit card issuers have announced programs including
Chase, Citi, MBNA. Larger retail chains have also got behind to
support the programs as well including 7-Eleven, McDonalds,
Meijer’s, Ritz Camera, and Regal Cinema to name just a few. The most
recent announcement has been the long ignored debit program from
KeyBank, the first contactless program announced. Citibank followed
shortly after. Both are MasterCard.
From an issuer’s perspective, they can introduce the contactless
payments through either credit or debit programs. Although most have
been credit programs as mentioned above. However, the nature of the
program is for low-value payments under $25. This is the target
market debit programs mostly serve. The largest missed opportunities
are in debit programs. One of the largest untapped markets lays
within the large and national debit programs for two primary
reasons. Firstly, the nature of the contactless programs are to
displace cash at the low-value payment level. Debit is the most
logical and consumer oriented programs to address this demand.
Secondly, debit card issuers have been mostly absent from previous
card technology programs such as EMV. EMV and smart card
programs/pilots have been mostly evaluated by credit card issuers.
These credit card issuers have learned the lessons of chip and new
technologies and they are in a strong position to capitalize on the
contactless programs through the technology teams from past smart
card programs. Since they may lack both the internal resources and
the product (contactless feature) for low-value payments, they will
likely lose significant competitive advantages by not being
first-market movers. Will debit card issuers have the level of
expertise to evaluate and build the requirements or programs needed
to deploy contactless card programs?
Consider the following: - McDonalds will now accept PayPass at their
stores and other small value retailers (under 25$) are aggressively
upgrading their POS systems to accept PayPass transactions. - The
pilot for PayPass was conducted by MBNA at the Seattle Seahawks
stadium (on credit cards). August 22 pre-season Monday night
football game had all 400 terminals within the Seahawks stadium
using PayPass. - The Washington Redskins FedEx stadium will be
accepting PayPass. - The nature of tap-n-go is to not take the card
out of the wallet, just “tap” the wallet. This means the consumer
will likely only have ONE contactless card in their wallet as the
primary card of choice making first market advantage critical. -
Tap-n-go is typically for low-value payments below $25. This
coincides with debit purchases as well and the direction the
associations are moving in changing the chargeback and dispute rules
- As a longer-term strategy, RFID allows issuers to partner with
non-traditional players for value added services including key FOBS,
stadiums, ticketing, campus, transit, etc. As part of this overall
direction, the card associations are seeking partnerships with banks
and large municipalities to offer community based services (parking,
transport etc) that represents an increase in spend for all parties.
- MasterCard has announced a Transit Ticketing application under
development to integrate or displace individually issued transit
tickets with an Association based card. - Asia as well as other
markets are quickly changing direction or re-evaluating traditional
EMV contact smart card programs to leverage contactless EMV protocol
in either a fully contactless card or a combination
contact/contactless card. - Near Field Communications is enabling
mobilcom operators and device providers to become an integral part
of “wallet” consolidation by converging payment devices with a
handset.
It’s certainly a time filled with a lot of changes, please stay
posted.
About the author:
Jeremy Drzal has over fifteen years experience in market strategy,
product development/management, sales and business development in
the technology, payments and risk management area. You can read more
about the payments industry at www.allpaynews.comor visit
www.keypoint24x7.comto inquire how he can help with your project
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