The Wave of the Future Is at HandBy Sean Gallagher | Posted 2003-07-01 Print
Contactless payment is already here; business just needs customers to accept it.
Back in 1981, Princeton University professor Gerard K. O'Neill predicted in his book, 2081: A Hopeful View of the Human Future (Simon & Schuster), that people would one day wear bracelets identifying them by radio waves, so they could buy things just by picking them up and leaving the store.
ExxonMobil's Speedpass and electronic toll-payment systems such as E-ZPass have introduced millions of drivers to contactless payment. Users hold up a key ring attachment or a wristwatch, or simply drive their electronically tagged vehicle past an antenna. Radio waves recognize a hidden piece of circuitry identifying the holder and, voila, a charge is placed against the holder's account.
Naturally, MasterCard and Visa have taken notice— especially since the new technology could cut them out of the transaction.
Speedpass can charge directly to a credit card or bank account. E-ZPass and a system called FreedomPay charge against deposits already put in an account for the express purpose of paying off future charges.
Big retailers can speed up the payment process—and pocket the money they used to pay Visa and MasterCard in the process.
Generally, Visa and MasterCard charge retailers about 1.9% of the total purchase for debit and credit transactions across their network. MasterCard charges less for "quick payment" merchants, like fast food and movie chains, but won't say how much.
By comparison, Speedpass charges a flat rate of about 20 cents per wireless transaction. So, when a consumer chooses Speedpass instead of a credit card on a $100 transaction, the merchant puts $1.70 back in his pocket.
No wonder mainstream retailers are testing the waters. In February, Royal Ahold's Stop & Shop grocery chain linked Speedpass accounts with its rewards program, so customers are automatically recognized for discounts when they pay with Speedpass. Also being tested: an "intelligent shopping cart" that steers customers to specials of interest. The day when Gerard O'Neill's idea that the customer will get billed just by pushing the cart out the door now doesn't seem so far-fetched.
Peter Abell of AMR Research notes that a new standard for RFID-based payments, called ISO/IEC 14443, will speed up the acceptance of the technology. So will the backing of Visa and MasterCard, which are conducting trials of their own contactless payment systems, built on this standard.
Why would merchants care about Visa and MasterCard getting in the game? The potential number of customers: Speedpass may have six million customers with key fobs and Timex Speedpass watches, but Visa has more than a billion cardholders.
There also are up-front costs—to accept Speedpass, for example, one integrator says it takes $12,000 per location for a device reader and transaction server.
Systems like Speedpass still use their own networks to process payments; and, if a customer links the Speedpass account to a credit card, there's still a transaction fee that gets passed on in one way or another.
On some level, O'Neill's vision may have been overly optimistic. The real barrier to acceptance of technology like contactless payment may be the customers themselves—whether they will trust radio waves over cash, and whether they trust that interception of those radio waves won't mean any loss of privacy. Fraud fears could trump convenience.
Worst case, it just might take until 2081 to work all this out.
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