March 23, 2004
Ever since Exxon Mobil Corp. launched Speedpass in 1997, payment card issuers have been trying to figure out how to use newfangled gadgets to their best advantage.
The theory is that if a payment provider can break out of a customer's wallet, its product stands a good chance of getting used more often. As a result, issuers are competing for space on key chains and cell phones in addition to their usual top-of-wallet ploys.
Several issuers have experimented with Speedpass-style payment devices. V.C. Kumar, a strategy manager at Texas Instruments Inc. of Dallas, which helped develop Speedpass, said companies are preparing to issue more such devices.
Texas Instruments is involved with American Express Co.'s pilot of a similar device, ExpressPay; and EZPay, offered by Royal Dutch/Shell Group of Cos. in Canada, as well as payment key tags offered in closed systems at sports arenas.
All the devices use a similar technology, which lets customers wave a key tag at a reader to make payment via radio frequency identification, or RFID. They are also called contactless chips because they contain a chip, like smart cards, but do not require insertion into a reader.
Mr. Kumar said the projects have been successful but will probably expand gradually as issuers figure out how to market them on a wide scale.
"Issuers do tend to be a little more cautious" than the operators of closed systems, such as Speedpass, he said. "I think the initial applications will be in markets where convenience has some value, such as in drive-through merchants."
Issuers must look into new devices because of the glut of payment cards in most consumers' wallets, Mr. Kumar said. Key fobs "are virgin branding turf," he said. "We think they will become ubiquitous."
American Express' ExpressPay project is still officially in pilot stage, but it is steadily adding more merchants, said the executive in charge of the program. More than 15,000 ExpressPay tags have been issued, though that number includes a small pilot project in Singapore. "A significant number of people would like payment on a key chain," said David Bonalle, a vice president and general manager with Amex's advanced payments enterprise development group in New York.
Speedpass was instrumental in making the gadgets acceptable, Mr. Bonalle said. "Now, people have more idea of using a key fob to make payments" than they did even with smart cards, another chip payment mechanism, he said.
Joe Giordano, a vice president of development at Exxon Mobil, said Speedpass has been so successful in increasing customer loyalty that the company has begun marketing it to other retailers. Customers at some McDonald's Corp. outlets in the Chicago area and at two Boston-area branches of Stop & Shop Supermarket Co. can now pay with Speedpass.
"We created Speedpass as a way to make buying gasoline faster and easier and to differentiate the Mobil brand," Mr. Giordano said. "Retailers started coming to us and saying, 'Can we do Speedpass too?' "
The Irving, Tex., oil company charges retailers to cover the cost of implementation. Eventually, Mr. Giordano said, the devices will make a profit. The initial impetus for the high-tech program was de-cidedly low-tech, he said. "We were trying to recreate the old-fashioned buying ex-perience ... when a fellow could come in and wave and say: 'Put it on my account.' "
Last year Exxon Mobil experimented with putting the RFID chip in a Timex watch. The entire batch of several thousand sold out, and now Timex Corp. offers the Speedpass watch on its Web site.
Mr. Giordano said he had also experimented with using cell phones for payment. "Our vision long-term is that there are going to be different types of devices for different people," he said. "It is not about the device, it is about the system. The device can be anything that is convenient and secure."
One he rules out is a payment chip embedded in a customer's skin. "There is no market for that," he said. "Customers do not find that attractive."
MasterCard international has conducted its own trials of a contactless chip card with issuers Citigroup Inc. and J.P. Morgan Chase & Co.
MBNA Corp. offers the cards only to customers who live in the Orlando area, where it conducted a pilot of the product it calls PayPass. MasterCard would not comment for this story, but its 2003 performance report said it would offer PayPass more widely.
Mr. Kumar of Texas Instruments said he has heard of plans for far more RFID devices from various issuers.
American Express has been quiet about expanding the ExpressPay project. Visa and MasterCard have experimented with mobile phone payments: MasterCard tried them as part of its PayPass pilot, and Visa International used them in a few pilots, including one in Tokyo last year using NTT DoCoMo Inc. phones equipped with infrared transmission ports.
Visa U.S.A. has perhaps been stung by the recent failure of its largest chip card program, the Target Smart Visa, from the Minneapolis retailer Target Corp. A Visa executive said it had decided to stay out of the race for new payment gizmos.
"There are 400 million devices that are magnetic stripe with Visa logo on it today," said James McCarthy, the senior vice president of eVisa member and merchant sales. "The idea is to get profit out of that before I look at the next bright, shiny object on the path. We will wait for the market to make a move and say there is a need that is not being filled."
Visa did participate in a small RFID test with Bank of America Corp., which piloted a key fob device at a few dozen restaurants and retailers near its Charlotte headquarters in 2002. Mr. McCarthy said that he used one of the devices, called QuickWave, but that the pilot has since ended and the payment terminals were removed. "There was not incremental volume," Mr. McCarthy said. "We did not see a business case appear."
The manufacturers of a similar device, iButton, say there is a case for the product, which they call safer than RFID. It is enclosed in a tiny metal can, which must actually touch a reader to transmit payment information.
iButton is made by the Dulles semiconductor division of Maxim Integrated Products Inc., of Sunnyvale, Calif. It is used mostly in company cafeterias and vending machines, said John van Zandt, an executive with Maxim. "It is a one-of-a-kind technology that competes with RFID," he said.
The Denver Mint issues iButtons to employees for use in its vending machines, said Allan M. Brown, an executive with a vendor, eSecure Peripherals in Brossard, Quebec, who said the mint was one of his first customers. "If you work there you can't bring in coinage," because of theft concerns, he said.
Biometrics vendors have tried to gain customers for years - mainly grocery stores and other retailers where the idea of paying with a fingerprint might appeal to busy shoppers.
Tim Robinson, the president of BioPay LLP of Herndon, Va., said his company has enrolled 900,000 customers for paycheck authentication, its most popular product. More than 800 merchants use BioPay's biometric fingerprint readers to verify the identity of customers who cash paychecks, he said. Biometrics for payment has been a little slower to catch on, and BioPay has about 25 merchants in a test of that system.
"It has to be convenient, and the merchant will only do it if it is lower cost," Mr. Robinson said. BioPay lets customers link a fingerprint only to a checking account, which merchants prefer because of lower ACH transaction costs.
He predicts that growth in biometric payments will be slow but steady.
Robert Cook, the owner of two shops in Herndon, Va., called Fox Mill Pets, said he has offered BioPay for about six months. The device appeals mostly to regular customers, though some are uncomfortable with giving a fingerprint, he said. "They think it is too much information."
Mr. Cook said he has registered his fingerprint at BioPay and uses it at several area restaurants. "It is taking a little while to catch on, but customers that use it like it," he said. The biggest benefit to his business? "It is a low-cost transaction." Industry experts have differing opinions on the future of payment gadgets.
If you asked consumers 10 years ago, "they would have said they wanted e-mail," said Ed Kountz, an analyst at the research firm TowerGroup in Needham, Mass. "Consumers can be persuaded there is value" in Speedpass-like payment devices, he said. "It is clear it can happen and we believe it will happen with careful management and the ability to deliver significant value."
Mr. Kountz expects 180 contactless payment devices to be in circulation by 2007, up from 20 million in 2001. His estimate includes retail and transit devices.
Peter Cattaneo, the director of the Java Card business group at Sun Microsystems Inc. of Santa Clara, Calif., which provides technology for smart cards, said the number of payment gadgets in the United States has been falling recently, and that he does not see a great future for Speedpass-style devices.
"Speedpass was a brilliant idea, but I am not sure how much further it goes than that," Mr. Cattaneo said. Consumers do not usually shop with keys in their hand, as they do when buying gasoline, he said. "The use of a card goes back an awfully long way, and people are comfortable with it. Gadgets for gadgets' sake don't make any sense. You have to add value."