Wednesday, December 8, 2010

Whither the Contactless Payment?

(Posted by Michael Plasmeier, Maya Bustan, Iulian Pogor, Tal Snir)

RFID-enhanced contactless cards might be the future of payment, but they certainly are not the present. Credit card companies have faced continuous challenges in the United States when introducing contactless payments methods. In 2006, the major card associations agreed to standards for use in the United States and cards were rolled out.

Unfortunately, the cards provided weren’t satisfactory in terms of protecting the identity and credit card information of the user. This led to negative publicity for contactless picked up by mainstream media. Consumers’ concern that thieves would be able to capture their payment information outweighed the potential benefit of faster check out times for small purchases.

Regardless, contactless payment systems are currently seeing a resurgence in popularity. In addition to start ups like Bling Nation that is focusing on smaller businesses and communities, many banks and card issuers are developing/offering cards with contactless capability.

In spite of the growing buzz and opportunity for contactless cards, the authors of this post have found that it is actually quite difficult to obtain a contactless card in the US. We were unable to even find, much less apply for a Chase “Blink” credit card. Searching for “Blink” on Chase’s site led to a dead link. While attempting to apply for a PayPass MasterCard, we could see a selection of several cards, but we ran into errors when attempting to apply. Applying for a Visa PayWave card was partially successful. One bank told us that the offer was no longer available, but Wells Fargo appeared to be issuing PayWave cards.

Are standards and technology to blame for the slow adoption? Or are their other issues at play?


  1. Are there contactless cards with bullet-proof security?

    On the face of it, contactless cards are not that different from the cards we use today, so it's hard to imagine a longterm deterrent to their adoption other than security.

  2. The issue with contactless cards is that they really do not solve any big pain point for consumers. There is not that much of a difference between swiping your card or moving it towards a detector. Consumer habits are one the hardest things to change.

    The real innovation and where the market really is going to be, is around alternative payment methods. This includes companies such as Bling Nation, PayPal and, believe it or not, the cell phone carriers.

    If AT&T/Verizon/etc actually are able to pull the trick on the new payment platform they are creating, carrier payments will become the de-facto standard for payments for cell phones (phones will become the standard payment method, it is to be decided who is processing the transactions).

    We have seen examples of this in Kenya with M-pesa, and many countries, developed and non-developed, are rushing to make cell phones the standard for payments. This has way bigger implications than just card acceptance (financial inclusion, remittances, etc).

    The issue with any payment network is the same: a classic two-side network. Big banks have the acquiring network and merchants. Carriers have the consumers. Alternative payment methods have both but on a much smaller scale. Who will win? There is still a long road ahead....

    Full disclosure: I work for PayPal.

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