December 01, 2003

MasterCard introduces contactless card trials in smaller markets.

Although smart cards have not been as readily accepted in the U.S as they have been in Europe, a contactless card pilot by MasterCard International has proven successful with a long-term potential for an increase in popularity.

In a recent trial by MasterCard the company issued PayPass, a contactless payment device with smart card capabilities, to 16,000 cardholders and nearly 60 participating merchant locations in Orlando, Fla. The trial that began in January ended recently with positive results, according to Murdo Munro, MasterCard's vice president of mobile and wireless commerce.

PILOT FLIES HIGH

"We encouraged the consumers to use the new card for transactions and we monitored the usage and the feedback we received from those consumers and merchants," says Munro. "We saw a reasonably good number of transactions and we have also seen some directional change of behavior resulting from giving consumers the PayPass cards. "

The PayPass card is a dual-interface smart card, which allows customers to make contact (magnetic stripe) and contactless transactions. MasterCard initially held a technology trial prior to the market trial in Orlando at its corporate headquarters in Purchase, N.Y.

The in-house technology trial was just a preview of the more complex market trial held in Orlando, says Munro. The market trial included existing MasterCard holders, issued by Citibank, Chase and MBNA, and gave different options for merchant locations.

"In Orlando, we wanted to see if the benefits we saw on our own internal trial could be migrated out to the public at large," Munro says. "We picked a drug store, a gas station, a cinema and a parking operation. We wanted merchants in each of those categories to enable a number of their outlets with PayPass technology." The card company is currently working with Nokia in a trial in Dallas to incorporate the PayPass contactless payment feature into customer mobile phones, Munro says.

MasterCard's PayPass technology might be more widely accepted in the long run because the product has been on trial in one area first, according to Randy Vanderhoof, executive director of the Smart Card Alliance.

"(The card) will be more successful if it starts in a smaller, concentrated area, with a large number of retailers who are accepting the card technology." Then a bank can grow it from there, Vanderhoof says, "rather than a mass issuance to everyone and trying to line up one or two national retail chains to adopt it," he adds. Vanderhoof predicts the trials will set examples for other types of card products.

"The strategy that MasterCard is taking with PayPass of introducing it into a specific marketplace, and by getting a concentration of cardholders and merchants to accept the card, it is going to increase the success of having that card expand beyond that particular market," says Vanderhoof. "I believe that will be a model for other issuers and other programs-pick specific target markets and work heavily in those markets."

GAS, BIG MACS, AND MATINEES

Merchants that participated included Chevron gas stations, McDonald's drive-through locations and Loews Cinemas. The card company chose to work with multiple vendors to give merchants the ability to buy from different manufacturers. MasterCard required that all vendors pass an approval process for its products.

Vanderhoof says banks will continue to be interested in issuing similar cards because the convenience of contactless will ultimately increase transactions in merchant locations that traditionally did not accept card payments. This will pique interest in banks, which will benefit from the increase in these transactions.

"Touch-and-go payment technologies that contactless offers can actually increase the transaction speed over cash transactions and significantly increase them (transactions) over credit card transactions," according to Venderhoof. "Therefore, the benefit to the bank is that they're getting the card used more frequently, which means balances are increasing, which means their profits from each cardholder go up."