Spotlight On Contactless Payment Trends

Contactless bank cards and transit

Some transit operators may be adding bank-issued contactless cards into their closed payment systems, representatives of the transit authorities in New York City and Salt Lake City told conference attendees. Both organizations are currently testing the concept with consumers.

"We wanted to learn about the acceptance of contactless Visa, MasterCard and Amex cards as a basis for fare payment," said Craig Roberts, electronic fare collection manager for the Utah Transit Authority (UTA). Roberts heads up a program to accept bank-issued or "open" contactless cards on 41 ski buses in Salt Lake City, replacing the current use of season passes and employee IDs. It is the first program in the United States to accept contactless cards from all three associations, and the first open contactless program on buses. Roberts initiated the UTA program with a call for industry input at last year's Smart Card Alliance annual conference, and then put the program together in just one year with the UTA's technology and business partners. "We'll be in a position to go live when the snow falls," said Roberts.

Managers at New York City's MTA are on the same track. Steve Frazzini, chief officer for automated fare collection program management at MTA New York City Transit, said the agency spends about $60 million per year on revenue support, maintenance and other fare collection costs to collect about $2 billion a year. Those expenses, along with the emergence of open contactless programs, prompted the agency to start looking into leveraging the payments industry infrastructure.

"We'd like to be considered as a merchant," said Frazzini. "We'd like to offload those tasks and focus on what we do best, running transit systems."

That thinking led the MTA into a trial with Citibank and MasterCard PayPass to test how the contactless technology works in their environment and see how customers react. The consumer level test began July 5th and includes 79 turnstiles in 30 stations across four NYC boroughs. After three months, they like what they see-good customer acceptance, no chargebacks, no fraud and no customer phone calls transferred to the MTA. "The results have been very positive," said Frazzini.

Both the MTA and UTA are testing a way to make "open" contactless cards even more profitable using aggregation. By grouping many small payments together and presenting them as one transaction to the merchant acquiring system, the agencies lower their transaction costs. Since 75 percent of the MTA's transactions are micropayments of less than $6, aggregation can save a lot of money, something the testing proved works. "We didn't doubt that, but we've learned that it actually happens," said Paul Korczak, program manager for MTA New York Transit and chair of the Smart Card Alliance Transportation Council.

Online security

William Giles, vice president of emerging technologies at MasterCard Canada, announced two new smart card-based online security solutions for U.S. card issuers; one based on a low cost card-sized device and the other on the SIM card in GSM mobile phones. Both use an application on the smart card that generates a unique password for each transaction that the consumer enters online instead of the static security code printed on the back of the card. U.S. issuers can offer this immediately to their customers, because it will work seamlessly with any SecureCode compliant online merchant. A Keybank pilot tested the phone-based solution, and Giles estimated the cost of the handheld device would be well below $10 each.

Contactless payment

One contactless issuer, Wells Fargo Bank, found a new twist by linking contactless card transactions to a personal banking service called "My Spending Report" that lets consumers see where they are spending their money. Adding small payments to the report "promotes cash to card conversion," said Peter Ho, card services vice president for Wells Fargo Bank.

Another highlight of the first day was the presentation of the contactless survey results announced yesterday by the Smart Card Alliance. The survey, conducted by Javelin Strategy and Research for the Alliance, showed that 13 percent of the consumers surveyed have already used contactless payment, and 95 percent of that group said it was both easy and fast. Those consumers who have tried it were confident in the new payment technology as well-84 percent said it was as safe or safer than credit cards, and that they would use it for large purchases too. Of consumers who are yet-to-try contactless, 75 percent are somewhat likely or very likely to adopt it.