R.F.I.D. in the U.S.A.

Have you ever felt impatient when standing behind someone in line at the grocery store who insisted on paying by check? Well, get ready to fume at the slowpoke of the future-the technophobe using a credit card.

Contactless cards, already used in Asia for several transit and payment systems, have been introduced to the United States via pilot programs sponsored by American Express and MasterCard. These "proximity payment" systems use Radio Frequency ID (RFID) technology that can essentially provide a consumer with a portable antenna that transmits an encrypted number when brought near a secure merchant terminal.

Save Time, Spend More

From the outset, industry participants have cooperated-at least as far as the merchant terminals are concerned. "A merchant only wants to buy one reader," says David Bonalle, vice president and general manager of advanced payments development, American Express (New York). "They don't want to have four different devices sitting on their counter."

The American Express "ExpressPay" service is being tested at three corporate campuses in Phoenix, Ariz., and at area merchants.

The results have demonstrated how accelerating the payment process can help merchants to cut costs and raise revenues. According to time-and-motion studies conducted by American Express, ExpressPay "got people through the line 30 to 40 percent faster than with cash," said Bonalle. Furthermore, customers in the pilot spend an average of 20 to 30 percent more on their purchases, Bonalle says.

The ExpressPay device, available as either a key fob or as a standard card, comes with another interesting feature-no signature required. American Express limits its exposure with a "daily spend limit" of $150, usable only at selected point-of-sale locations. "There is an opportunity to go into higher value purchases as long as you add additional authentication," says Bonalle. "Some combination of spend limits and PIN, we think makes a lot of sense."

"Ultimately, I could see an even higher level of security by using a biometric identification," says Bill Allen, marketing communications manager for RFID Systems at Texas Instruments (Dallas).

But the biggest source of fraud isn't illegitimate use of stolen cards-it's the illegitimate use of stolen card numbers. That's why implementations of RFID include a chip controller that secures the transmission of payment information. The industry standard ISO/IEC 14443 "secures the transmission of the data from the card to the reader, and from the reader to the card," says Allen. "If someone intercepted the transmission of the data, they would have a very hard time cracking the algorithm."

On top of that, each chip contained within the ExpressPay device performs a random number algorithm that sends an unique code-which changes for each transaction-through the merchant terminal to American Express' back-end systems for verification.

Orlando of Opportunity

MasterCard International (Purchase, N.Y.) has also taken the proximity payments concept into the field. The association is testing its "PayPass" service at almost 60 merchant locations in Orlando, Fla., with member banks Chase, Citibank and MBNA. "MasterCard Paypass will provide faster transaction times than traditional payments, with similar levels of security-resulting in increased convenience and choices for our cardmembers," according to Steven J. Kietz, senior vice president, Chase Cardmember Services.

Technology partners for the Orlando pilot include OTI America, Inc. (Cupertino, Calif.), which provided the card technology, card reader solutions and personalization systems, and ViVOtech, (Santa Clara, Calif.), which provided RFID adapters for existing merchant terminals.

THE NEW FACE OF PHONES

In a related pilot in Dallas, MasterCard has teamed up with Nokia on a mobile payments pilot in which customers send RFID signals from the faceplates of their mobile phones. New York-based JPMorgan Chase provided the system for processing payment account information. "This Nokia trial makes use of the same technology standards that have been deployed by MasterCard in Orlando," according to Murdo Munro, vice president, mobile commerce and wireless, MasterCard International.

Visa International (San Francisco), for its part, has been focusing its efforts primarily in the Asia-Pacific region, where it goes head-to-head with JCB International (Tokyo). "We've got quite a few implementations in Korea now, both in contactless chip and also with infrared technology," reports Colin Baptie, a spokesman for Visa International.

Celent Communications (Boston) predicts that in 2007, RFID technology will capture at least eight percent of the payment volume at quick service restaurants, movie theaters, and movie and video game rental stores. These retail outlets had aggregate sales of $160 billion in 2002. That's quite an impact-without ever making contact.