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Contactless payments—whether theyre made using a fob dangling from a keychain at a gas station, an RFID chip embedded in a cell phone or a new contactless credit/debit card—have now moved from the experimental to the real-world stage.
This is primarily thanks to a pair of crucial developments announced in June by Chase Manhattan of JPMorgan Chase & Co.—the worlds largest issuer of credit cards—and 7-Eleven Inc., the worlds largest convenience store chain, which brings in about $41 billion a year with some 27,100 stores worldwide.
Those two coordinated announcements are part of a trend with its goal being to simplify retail transactions by allowing customers to wave identifying devices over a reader and have the amounts deducted automatically from their accounts.
Chase Manhattan and 7-Eleven are far from the only companies to investigate contactless payment systems. But together, the two announcements add legitimacy and stability to the approach, which has been used most successfully in transponder-based toll-road payment systems like E-ZPass and single-company, keyfob token-based systems such as Exxon Mobil Corp.s SpeedPass system.
Adding a large bank and a well-known retailer to those ranks could create the kind of impact for contactless payment systems that Wal-Mart Stores Inc. made a couple of years ago by decreeing that many of its suppliers use RFID (radio-frequency identification) tags to help track inventory.
Wal-Mart wasnt the first RFID adopter, but it was the largest and the most significant user of the technology, both because of its size and the number of companies it could draw into the RFID pool.
Chase also isnt the only financial-services company pressing for contactless payment. MasterCard International Inc., Visa International Service Association, and American Express Co.—as well as some smaller credit card issuers—are aggressively pursuing contactless card strategies.
Several traditional retail companies have experimented with approaches to contactless payment, but so far, few other than ExxonMobil have gone further than small trial installations.
At 7-Eleven, testing began three years ago with a two-store trial in Texas. “We saw lots of positive indications from that pilot,” said 7-Eleven CIO Keith Morrow. Customers using the cards shopped at the stores more frequently than they had before, and spent more during each trip. “Weve been very aggressively pursuing this for more than two years.”
The chain also conducted opinion surveys of the participants in those trials. “They just felt, I was more in control of the transaction. I came up and, when it was time to pay, instead of swiping, waiting, signing, getting a receipt, it was one step. I had the control. I beeped at the terminal and then I was on my own way, out the door, in the normal time I would still be trying to sign the pen-pad or get a receipt,” Morrow said.
But what made the contactless move inevitable to Morrow, he said, was a trip last December to Tokyo, where he visited some of the chains 11,000 stores in Japan. That is roughly twice the number of 7-Elevens that exist in the United States.
Contactless payment in Japan was almost nonexistent one year earlier, but by December 2004, Morrow said, he saw it as a very popular and accepted form of payment everywhere from small retail operations to mass transit. “We sell convenience, we sell speed,” he said.
Japans culture is extremely time-compressed, he said, and they value even relatively small improvements in productivity. “Theyre a very concentrated population with a lot of mass transit, a lot of people on the move,” Morrow said. “They love electronics. They love their cell phones. Very small living spaces with very small kitchens. Some parallels certainly exist in the U.S. urban areas.”