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New cards: Flash but don't swipe
MasterCard, American Express want to offer consumers 'contactless' cards, but are they necessary?
February 3, 2004: 10:48 AM EST
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - MasterCard and American Express say they have a solution for those frustrating lines at the checkout counter: "contactless" credit cards.

Both card brands started pilot programs last year, and Mastercard is going to offer the cards to consumers in a few markets this summer.

MasterCard's chip-embedded  
MasterCard's chip-embedded "contactless" credit card.

You don't need to swipe the cards to use them. Just hold one near a machine programmed to read the card number, record the sale and issue a receipt, and move on.

"For consumers, it eliminates the fumbling factor with cash and coins. For merchants, it speeds up the checkout process," said Jorge Fernandes, CEO of ViVotech, a California company that developed the software and hardware for the swipeless cards.

"These cards are a way around" all those issues, he added.

But not everyone shares Fernandes enthusiasm.

Visa, the No. 1 credit card issuer, developed a similar system, tested it, and gave it a thumbs-down. The company said consumers didn't appear too excited about it.

But MasterCard said the feedback for its system was more positive. The company has been testing its cards in Orlando and Dallas and plans to roll the new cards this summer in other cities but declined to elaborate on the details.

"We're looking at places where the cards can replace cash," said Art Kranzley, MasterCard's chief ebusiness officer, citing McDonald's, Starbucks, Loews movie theaters and Chevron gas stations, among other destinations, as examples. Citibank, J.P. Morgan Chase and MBNA -- some of the nation's biggest card issuers -- took part in the trials.

American Express (AXP: Research, Estimates), which is testing its "contactless" system mainly in the Phoenix area, said its pilot programs will continue until July.

Anthony Mitchell, spokesman for American Express, said the card company has been testing Express Pay in over 400 merchant locations where speedy transactions are a top priority. Those include CVS drug stores, hamburger chain Blimpie and sandwich seller Quiznos.

In December, American Express also used the system in a few New York and New Jerry ferry terminals.

Pay by key chain, watch, cell phone?

The new MasterCard "hybrid" PayPass debit, credit and prepaid cards are regular-sized cards that consist of both the magnetic strip and a microchip embedded in them that enables the electronic "contactless" payment when they're waved in front of a reader.

In other words, the card never leaves the customer's hand.

At the same time, consumers uneasy with the new technology can still go ahead and swipe the card the way they usually do while making a payment.

The Nokia phone SmartCover is embedded with a contactless chip programmed with programmed with pre-registered MasterCard payment account  
The Nokia phone SmartCover is embedded with a contactless chip programmed with programmed with pre-registered MasterCard payment account

The cards use radio frequency identification, or RFID, technology to work. Each PayPass unit costs between $100-$150.

Both MasterCard and American Express are also exploring other ways to further develop the "contactless" payment systems.

For example, MasterCard paired up with Finnish cell phone maker Nokia to test the future of retail payments using mobile phones. In this instance, the microchip is embedded in the plastic phone and the customer waves the phone in front of the reader device the same way as they would do with the cards.

American Express doesn't use a conventional looking credit card for its contactless system but a key chain attachment with a chip.

"We can also deploy this technology into watches," said ViVOtech's Fernandes.

Some are skeptical

"Our consumers are content with the cards in the their wallets and they want to see more outlets to use the cards," said Camille Lepre, spokeswoman for Visa. "

George Whalin, an independent retail consultant, said he anticipates significant hurdles before the "contactless" cards become widely excepted.

"Security and privacy concerns, especially with RFID chip technology, are enormous," said Whalin. Consumer advocate groups have criticized RFID chips, saying that the technology enables its issuers and users to store too much information about a consumer.

"Technological innovation always precedes demand. It's not necessarily what the market wants or is willing to adapt to," Whalin said. Whalin thinks MasterCard and American Express may be intentionally deploying"contactless" payment systems in quick-service destinations for another reason -- the companies are trying to appeal to younger customers. "This is the demographic that will also be the least critical of this technology."

McDonald's, Loews and CVS could not be reached for comment.  Top of page

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