Contactless payments, and their appeal expected to show dramatic growth in 2006
Tuesday, December 20 2005
A panel of ID industry experts provided predictions for 2006. One of these glimpses into the future will appear here each day during December.
The takeoff of contactless payments has been dramatic. In fact, as of December 2005, there were more than 4.3 million MasterCard PayPass cards and fobs in market and approximately 25,000 merchants accepting PayPass
One of the keys to the success of contactless payments is that it benefits everyone in the payments value chain – merchants, financial institutions and consumers alike. Merchants benefit from the faster throughput that contactless payments allow, speeding up lines and freeing their staff to focus on more than just payments. For financial institutions, contactless payments help grow their businesses as more acceptance locations are opened up to non-cash purchases, and their card holders continue to rely less on cash, finding that electronic payments offer better record-keeping and flexibility.
As we look to 2006, we expect to see the adoption and appeal of contactless payments grow considerably in the U.S. marketplace. As more consumers become comfortable with “tap and go” payments, they will show preferences for those merchants that allow them to speed through check-out with a tap. This shift in their shopping patterns will encourage broader acceptance by more and more national, regional and even local merchants.
New developments will arise, such as the issuance of non-card form factors. Citibank, for example, has already announced the rollout of its contactless debit key fobs in the U.S. MasterCard also continues to work closely with handset manufacturers to pilot the use of mobile phones as contactless payment devices. We have made great progress with the technology involved. At the outset of our mobile phone trials, PayPass functionality was only possible through an add-on in the phone cover. We have now integrated PayPass technology into the actual phone itself. Although we do not expect commercial availability of this option in 2006, we believe this payment option shows great promise in the future. Additional innovative form factors are also in development.
As more cards and devices are enabled with contactless payments technology, consumers will find they have additional choices about how they will pay for their everyday purchases. Not only will they be able to use contactless payments to tap through check-out at their favorite convenience store, but they will soon be able to tap a vending machine to purchase snack items, rather than being limited to the change they have on hand.
In 2006, contactless payments are also expected to gain greater momentum in various global markets, including Europe and Asia. MasterCard currently has a number of PayPass-related projects underway in various countries around the world. For example, in Taiwan, MasterCard is working with the Kaohsiung City Transportation Bureau and others to make public transportation tap and go a possibility. And, in Canada, Citi Cards Canada and Petro-Canada, one of Canada’s largest oil and gas companies, are teaming up to launch PayPass.
It was just this year, 2005, that contactless payments expanded from a series of regional trials to a broader more nationwide adoption of a new way to pay for everyday purchases. In the last year, we saw Chase, Citibank, HSBC, Keybank, GE Consumer Finance and MBNA begin to issue MasterCard PayPass enhanced credit cards, debit cards and key fobs. Major merchants also announced plans to accept MasterCard PayPass, including McDonald’s, CVS, Duane Reade, 7-11, WaWa, Sheetz, Regal Entertainment Group, Ritz Camera Centers and Boater’s World Marine Centers, as well as the NFL stadium homes of the New York Giants and Jets, Washington Redskins, Philadelphia Eagles, Seattle Seahawks, Kansas City Chiefs and Baltimore Ravens.
Since contactless payments offer consumers a fast, convenient and secure alternative to cash, their purchases are no longer limited to the cash in their wallet--a win for them and for merchants. This is a welcome option for consumers, as they have increasingly shown a preference for electronic transactions over cash
A recent MasterCard survey revealed that as a method of payment, cash is becoming considerably less popular. In fact, 60% of respondents had only $20 or less in cash on-hand – representing an 11% jump as compared to a similar survey conducted in September, 2003. Sixty five percent of respondents said they would be likely to use a contactless card instead of cash for everyday purchases, citing convenience, speed and security as the primary benefits of contactless payments.
MasterCard has conducted extensive research and development over the years to create PayPass, to test it through market trials and to make it available to financial institutions, merchants and consumers. A large component of MasterCard’s R&D efforts has focused on the security behind PayPass in order to protect all parties involved in contactless transactions.
Today, MasterCard PayPass provides the most sophisticated and powerful security measures available in contactless payments, providing peace of mind and confidence to consumers as they speed their way through checkout. MasterCard PayPass also provides zero consumer liability in North America, just like all MasterCard payment programs.
At MasterCard, we understand that the revolution of contactless payments has only just begun, and that we need to continue working with financial institutions, merchants and the vendor community to ensure that contactless payments continue to help us all grow our businesses, while providing consumers with faster and more convenient ways to pay for their everyday purchases.
China's First EMV Chip Cards Being Issued By ICBC English Peoples
Daily Dec 19 2005:
China’s first EMV chip cards are now being issued by the Industrial and Commercial Bank of China, to guard against the migration of fraud from EMV card-using neighbors such as Malaysia. In line with Asia’s card fraud liability shift of January 1, 2006, China’s central bank, the PBOC, is encouraging local banks to evaluate EMV chip cards as an anti-fraud mechanism. At end-October 2005, China’s (mainly magnetic-stripe) bank card issuance exceeded 900 million yuan (USD 111 million) but this total will increase as chip cards are issued to replace existing mag-stripe cards.
Separately, China UnionPay, the payment network entity with responsibility for integrating China’s disparate networks, has signed recent agreements for its cards to be used in the US, Japan and Europe. Within Asia, China UnionPay cards are accepted in Hong Kong and Macau, South Korea, Thailand, Singapore, Indonesia, Philippines and Vietnam under cross-border agreements. A new venture with the European financing network EUFISERV has also opened ATM services in Germany, France, Spain and Luxembourg to all 815 million of China UnionPay’s cardholders.
Payment services at about 3 million POS terminals in Japan are also open to China UnionPay cardholders under an agreement with Japan’s second-largest credit card company, Sumitomo Mitsui Credit Card. Separately, Japan-based credit card brand JCB has signed an ATM gateway agreement with China UnionPay, to give CUP cardholders access to ATM services at UFJ Bank for the first time from March 2006. With one million Chinese predicted to visit Japan shortly, Japan Post is expected to open its network of 26,000 ATMs to CUP cardholders by May 2006. Related Links: China's Banks Making Initial EMV Preparations China To Test EMV Payment Cards In Shanghai China's Vending Industry Tipped For Strong Growth
Canada's Gas Stations See Increasing Card Fraud Canada East
Nov 24 2005:
Gas stations in eastern Canada are being targeted by thieves who are attaching card skimming devices to pumps, or bribing clerks to double-swipe cards through an illegal device at the counter. Card skimming cost Canadian businesses CDN 60 million in 2004, up from CDN 44 million in 2003 and nine police agencies in Brampton and Missisauga, Ontario, have joined forces this year against the issue. Retail gas stations are in the front line of the card fraud prevention program, “Project Protect”, as 31 stations in the region were targeted in 2005, eight of which are in Brampton.
Over 200 gas stations in Brampton and Missisauga are to receive police advice on reducing the risk of card skimming. Station managers and owners will be told to monitor point-of-sale areas to identify any skimming devices that are instaleld, while employees will be advised to resist bribes or any other attempts to involve them in card skimming. In 2004, over 4 billion Interac (debit card) transactions were made in Canada, with just .01 per cent, or 400,000 involving fraud, and Interac is confident that the police education program will reduce debit card fraud in the year-end period.
Canada is to move to EMV chip-based cards in 2006 and 2007 but until gas pumps, bank card terminals and ATMs are converted to accept chip cards, thieves have a short-term window of opportunity. The Canadian Bankers Association advises that given the volume of card payments made per year, the actual fraud rate is low, and consumers should be confident in the security of the payments system. Card skimming at ATMs is also on the increase, but new ATM security features mean that banks are able to identify and respond to machines that are tampered with.
China To Test EMV Payment Cards In Shanghai
Eastday.com Jul 19 2005:
EMV payment cards are to be tested in the Pudong area of Shanghai as an indirect result of the recent data leak that affected 40 million US-based credit cardholders, according to local press. Over 100 million yuan (USD 12 million) will be spent on upgrading the 60 per cent of Shanghai’s computer systems that are involved in the EMV pilot. At end-November 2004 Shanghai had over 50,000 POS terminals and 4,300 ATMs, and was chosen for the pilot given that it has the country’s highest rates of bankcard usage.
Banks in China are expected to spend a total of 100 billion renminbi on EMV migration from 2005, and by 2007 a chip card transaction environment will exist in Beijing and Shanghai, with a nationwide EMV transaction infrastructure expected to be in progress. By 2008, card acceptance is due to be available at 90 per cent of Beijing’s businesses, under a plan by the municipal government to increase card payments to 25 per cent of the city’s expenditure. Shanghai is already an important card center, where cards facilitate 25 per cent of payments and 50 per cent of businesses accept card payments.
China had about 762 million credit and debit cards in issue during 2004, an increase of 17.4 per cent on 2003 totals, according to payment systems integrator, China UnionPay. Card transactions in 2004 totaled about 26 trillion yuan (about USD 3.2 trillion), up 47 per cent on 2003. As China has a population of 1.3 billion however, card industry players are optimistic about future market growth. In March 2005, MasterCard advised that EMV card migration in Taiwan was at 78 per cent and is now deploying its PayPass contactless payment system for rapid everyday, transit and parking payments.
Canada To Issue EMV Chip Cards From Mid-2006
The Globe and Mail Oct 26 2005:
Canada’s EMV chip card migration will reach full stream from late 2006, when card issuers start replacing existing mag-stripe cards with a chip-based version with a view to conclusion by 2010. To date, about 53 million Visa and MasterCard cards are in issue in Canada, as are around 34 million banking/ATM cards. Debit card association Interac, which plans to start replacing mag-stripe cards with chip versions from 2007, recently advised that mag-stripe cards will no longer be accepted at ATMs as of December 31 2012, nor at POS terminals from December 31 2015.
During 2004, over CDN 163.2 million in fraudulent accounts was written off by Visa Canada and MasterCard Canada, out of a total of CDN 168.8 billion in retail sales. Of the more than one million cards that were lost or stolen in 2004, around 177,000 were fraudulently used, according to figures from the Canadian Bankers Association. In a warning to retailers, Visa Canada is currently advising that if retail POS systems are not EMV-compliant by 2010, liability for any fraudulent card transactions and the associated costs will be apportioned appropriately.
Canada’s chip card deployment is predicted to take three to five years as existing mag-stripe cards expire and are replaced with chip-based versions. Early movers such as the Royal Bank of Canada and Caisses Desjardins are already issuing hybrid mag-stripe and chip cards, particularly for customers who travel overseas frequently. As Canada’s debit cardholders already use PINs to verify their card payments, the switch to using PINs to authenticate credit card transactions is not expected to be as big a shift for consumers as in countries where card signatures have prevailed.
China’s Banking Networks Said To Be EMV-Ready
China Daily Feb 16 2005:
EMV chip cardholders from outside China will have no problem using their cards on the country’s banking networks, according to a recent statement from the central bank, the People’s Bank of China (PBOC). EMV studies will in 2005 be conducted by commercial banks and China UnionPay, the entity responsible for unifying China’s payment networks, the PBOC said. With EMV cards already in use in Europe, South Korea and Japan, the PBOC plans to hold an EMV forum in February 2005 to determine how China’s bankers can collaborate on developing the national financial smart card standard for EMV compliance.
China is able to handle chip card-based payments on foreign bankcards, the PBOC advised, as a result of its preparations for the 2008 Olympics in Beijing and the 2010 World Expo in Shanghai. This month the Shanghai Information Commission is to submit a plan for EMV-enabling Shanghai bankcards to China UnionPay, with a view to implementation from early-mid 2005 and upgrading POS terminals, ATMs and back-end systems. Banks in China had issued 762 million payment cards at end-2004, or 263 per cent more than in 2003, at 663 million debit cards and 98 million credit cards, according to the PBOC.
Bankcards facilitated up to 20 per cent of total retail purchases in major cities such as Beijing, Shanghai, Guangzhou and Shenzhen at end-2004, but the national average runs at about 5 per cent. During 2004 Chinese bankcards also became more international when usage extended to Singapore, Thailand and South Korea. By contrast, China’s banks had issued just 100 million bankcards in 2003, the year when all major cities were linked by a new national payment network. Elsewhere in the Asia-Pacific, Indonesia’s banks are preparing to handle EMV cards, as are banks in Singapore, the Philippines and Australia.
Canada To Deploy EMV-Compliant POS Terminals
EMV-compliant point-of-sale card terminals will roll out in Canada from July 11 under an initiative by Moneris, the country’s largest credit and debit card payment processor. This week, Canada’s first EMV chip transaction was conducted at CreArtive Custom Framing in Toronto, Ontario, using Moneris’ systems and Visa Canada’s EMV card-acquiring technology. While Visa Canada will not issue EMV chip cards for another year, the chip cards are expected to address Canada’s CDN 150 million a year fraud problem and to create new markets for chip-based gift and loyalty cards.
Moneris processes over 2 billion card transactions per year on behalf of its 350,000 merchant locations and is Canada’s first card acquirer to receive EMV certification from Visa Canada. The national EMV card migration will take three to five years, according to Visa Canada, as current credit cards expire and are reissued with a chip at the same time as card readers are upgraded. As Canadians are used to making PIN-secured debit transactions, EMV card adoption should be smoother than in the European countries not previously using PIN-secured card transactions.
Canada’s EMV migration is progressing amidst concerns that its card fraud would increase as fraud gangs migrated from other countries. The US has not set a formal EMV migration date but by end-2005, up to 20 million chips could be embedded in US-issued payment cards, according to industry figures. Chip-based contactless cards like JPMorgan Chase’s “blink” card, will lead the way, fueling expectations that the US is ready for payment cards that contain a chip, particularly as over 70 million smart cards are now shipped in the US each year.
Increased Fraud Will Lead US To Migrate To EMV
ATM Marketplace Jun 13 2005:
Increased fraud rates will prompt the US to issue EMV chip cards within five years despite the current lack of an EMV deadline, according to industry insiders. With most world regions on track for EMV compliance by 2007 and Canadian banks preparing to issue EMV chip cards in 2006 and 2007, the US needs to rethink its stance on smart cards. Fraud on magnetic-stripe cards was the biggest driver for other countries to migrate to EMV cards, and experts are warning that the US is at risk to greater fraud due to publicly stating that it is not moving to EMV card systems.
Until the US decides to issue EMV chip cards, other world regions will have to issue hybrid cards with a chip and a mag-stripe, or issue chip cards for domestic use, and mag-stripe cards with different account numbers for visitors to the US. About 35 per cent of POS systems in the US are EMV-ready, according to solutions firm Axalto, while about 50 per cent of POS devices sold in the market contain chip card readers. US-based acquirers will also need to accept EMV transactions from Canada, which in theory could push the banks to issue EMV chip cards.
US banks cite the lack of a business case as a reason for not migrating to EMV chip cards, but smart payroll cards are one example of how banks could harness EMV functionality. Visa and MasterCard are also working with US-based issuers to define potential smart card functions that could be offered to customers. Future EMV card deployments in the US could occur on a regional or target-group basis, with parking, transit fare payments and ticketing providing an initial bridge between payments and functionality, but first banks – and consumers – have to be won over.
Smart Card Adoption In US May Boost EMV Case
Kiosk Marketplace Feb 11 2005 :
The lack of EMV compliance in the US is a concern for the international banking industry, but until now US bankers have argued that EMV migration costs would outweigh the potential benefits. Canada is already piloting EMV chip cards as a defense against counterfeited cards however and payments experts believe that as fraud is displaced to the US, its banks will need to reconsider the EMV business case. With most world regions scheduled to complete their EMV migration by end-2006 furthermore, the US will face growing pressure to adapt its payment systems for EMV.
Many European card-issuers are debating the case for issuing mag-stripe cards specifically for use by visitors to the US, and for supplying chip-only cards for use in domestic banking markets. Fifty per cent of POS devices sold in the US have smart card readers, and 35 per cent of the total installed POS base is EMV-ready, according to terminal provider Axalto. All that remains is for Visa and MasterCard to mandate the use of EMV chip cards in the US, as in other world regions, and for an increase in smart card connections, which Axalto predicts will occur soon.
With McDonalds’ and MasterCard now rolling out MasterCard’s PayPass contactless payment system at selected venues, US consumers will become used to using smart cards for everyday purchases. Multi-function smart cards for parking are also being deployed in some US cities as a way for municipal government and local retailers to simplify parking management. Smart card interoperability could be required once disparate chip projects across the US reach a tipping point and EMV, as a certified global standard, would be an obvious choice for cross-industry integration.
US To Delay Smart Cards For At Least Seven Years
Celent Jan 26 2005:
Smart payment cards of the type currently rolling out in Europe, Asia and South Africa, will not gain a strong presence in the US for at least seven years, according to Celent Communications. Drivers such as fraud, skimming scams, EMV migration in other world regions and the speed at which magnetic-stripe cards are eliminated, will however affect the rate of eventual smart card adoption in the US. To this end, Celent analyst Ariana-Michele Moore has noted that “those close to the payments industry … know that smart cards in the US will one day take over magnetic stripes and revolutionize the payments industry”.
Moore’s underlying theme in a new Celent report, “Smart Technology And Strategies: Critiquing The Path Of Chip Technology”, is that smart card adoption in the US is in a ‘hibernation’ and not an extinction phase. Rather, chip card uptake in the US will be fueled by several interrelated factors, not least pressure on the US from other countries to move to EMV-based payments, increased cross-industry chip card adoption and greater use of cashless and RFID-based payments. Financial institutions meantime have a small window of opportunity in which smart cards can be leveraged as a payment product, and must capitalize on this, Moore advises.