Less is More
As the mass market issuing of contact smart cards by banks around the world gets under way, a new technology is about to compete for a slice of the action. Contactless smart cards are moving into the mainstream quicker than many people think. At a time when it’s hard to explain to a consumer why a contact smart card (such as my American Express Blue card) is better than a boring old stripe card, contactless smart cards can immediately differentiate themselves from other card technologies, offering a totally different consumer experience. Unlike the traditional magnetic stripe card, which is swiped, or a contact smart card that is inserted into a reader, contactless offers just what it says. The card needs only to be briefly passed by, close to the reader, for it to operate. In many cases, it does not need to be removed from a purse or wallet and sometimes will even operate while still in a bag or briefcase providing it is close enough to the reader. The distance depends on the type of device used; proximity devices will work up to 10cm from the reader, vicinity devices will work up to 1m from the reader.
Proximity cards used to be limited to simple memory cards with the wireless interface and all they stored was an identification number. Hence they are often referred to as radio frequency identification, or RFID, cards. The latest models, however, offer almost identical functionality to contact smart cards and can also include high strength cryptographic functions and a contact interface for operation in existing infrastructure. Mass transit operators in Hong Kong, Paris, Washington and Taipei already have successful schemes in place using these devices. London, Sydney and Singapore mass transit operators are soon to follow and many city card projects are currently in the planning stages. Vicinity cards on the other hand currently offer only very limited facilities, operating as simple identification tags in most applications. Typical uses to date have been access control, smart labels for the retail sector and airline baggage identification labels for automated baggage handling systems.
Goodbye Slots
The first formal release of the international contactless standards (ISO/IEC 14443 proximity and ISO/IEC 15693 vicinity) this year will drive the standardisation of the many current proprietary systems. This in turn will yield economies of scale for the device manufactures and consequently drive down cost. The impact of standardisation and cost–reduction in the contactless world should be, as in other sectors, the creation of a mass market that exploits the main characteristics of contactless smart card as discussed in the following paragraphs.
Lower lifetime cost of ownership. For commercial use, the initial cost of contactless readers is already price comparable to motorised contact readers. The elimination of all moving parts, however, significantly improves reliability and operational reader life reducing the overall life cycle cost of ownership. Its inherent vandal proof properties are also ideal for unattended vending or payments, delivering overall improved system availability.
Faster transaction times. For historical reasons, and because of their origin in the mass transit sector, the interfaces to contactless smart cards are many times faster than to contact cards. Flexible form factors. As it operates remotely from the reader, the physical size and shape of the contactless device is unimportant. Many contactless devices have been mounted into traditional bankcard shaped plastic cards; others have been built into consumer goods like Swatch watches, pagers or key fobs.
These factors combine to make the contactless device attractive in a wide variety of transactional environments, and not just in mass transit. Here are a couple of examples.
Petrol Retailing. The Mobil Speedpass, a small barrel–shaped RFID token that consumers hang on their key rings, was originally introduced in 1997 to make paying for petrol more convenient. Today, more than 5 million US consumers use Speedpass at more than 7,000 Mobil and Exxon petrol stations across the US: the company attributes a 2.5%–3% uplift in petrol sales directly to the Speedpass system [1]. Speedpass, and others like it such as Shell EasyPay and Phillips Philpass are RFID cards: the merchants system associates with the consumers’ chosen payment cards. Some merchants, however, are opting for the newer and more powerful smart contactless card with microprocessors on board that offer more functionality. A programme for independent petrol station retailers in the US uses microprocessor tokens with in–store registration: consumers buy the token (for $7) and they are instantly associated with two of the consumers payment cards, swiped there and then at point–of–sale. These tokens also run loyalty schemes which should not be underestimated: one retailer (Pumper’s Premium Stores in South Carolina) claims a 20%–50% increase in car washes sold because of this loyalty scheme.
ExxonMobil have established a subsidiary, SpeedPass Network, to extend the system to other merchants. Speedpass can, for example, be used to pay at some 400 McDonald’s restaurants in the Chicago area [2]. The benefits to merchants can be substantial. When the use of the Octopus contactless card in Hong Kong was extended from mass transit to vending machines, retailers saw an immediate 15% increase in sales [3].
Mobile Payments. The EDY (Euro–Dollar–Yen) contactless electric purse in Japan, lead by Sony (with investment from Sakura Bank and NTT Data), is aiming at full–scale replacement of contact smart cards. The prepaid cards allow shops to reduce processing of cash register transactions to just 0.2 second. Users recharge the cards by depositing cash in special machines, which add the deposit amount to the cards balance [4]. Taking the system even further, the Japanese mobile phone operator NTT DoCoMo has distributed personal digital assistants (PDAs) with Edy chips embedded in them to 300 users in the city of Sapporo. They are using the PDAs to pay for subway fares, concert tickets and vending machine purchases. After it rolls out its third-generation high-speed network, scheduled to start next month, DoCoMo intend embed the Edy chip next to the subscriber identity module (SIM) card in mobile phones.
This type of operation, attracting attention from organisation such as Nokia and Vodafone [5], has one obvious advantage over the mobile payment systems being trialled around Europe at present (eg, Movilpago and PayBox): there’s no need to make a phone call to complete the purchase. Thus it can work in environment such as subway stations where mobile coverage is poor or non–existent and consumers don’t have to pay for any phone calls (or text messages or WAP sessions). And it’s fast.
Implications
Whether fast food or petrol retailer, theme park operator or baggage handler, companies looking to introduce some kind of transactional element (whether payment, purse, identity, loyalty or whatever) into their points of connection with customers are looking at contactless solutions. This has a some interesting implications.
POS Reconfiguration. A point–of–sale (POS) environment designed for contactless interfaces can be very different from traditional arrangements, offering retailers a whole new level of flexibility. Since the customer no longer has to exchange anything with retail staff the counter can take on new shapes. Since the POS terminal no longer takes cash it can shrink and, with no slots or electrical contacts, it can go outdoors or underwater. In some retail environments, attended POS might be replaced by unattended POS. In others, staff freed from taking payments and making change might be more useful deployed to improve customer service. Perhaps the entire POS, now the size of a Palm Pilot, will sit in the waiter’s pocket or on the hot dog seller’s tray.
Virtual Access. A contactless card reader for PC could sit anywhere on your desk. This opens up an appealing vision: you walk up to a kiosk at the airport, your PC at work or your TV set and, since the machine has already sensed and read the card, you immediately get a screen saying “hello Dave, please enter your PIN” (or in the future, perhaps, please put your finger on the pad or please say your password) and then your e–mail, your desktop and your bookmarks are there and ready for use. The same logic applies in many other situations: the car park machine shrinks, the coin handling mechanism in a slot machine vanishes and the doors to the bank ATM foyer open automatically.
In summary, then, the use of contactless smart cards for transactions at point–of–sale is coming along nicely and seems to offer significant benefits to merchants and consumers alike. Some of our clients in the banking sector are expressing interest in contactless technology, so who knows what might happen next?
Acknowledgements
Many thanks are due to my colleagues Colin Tanner and Dave Birch for their perceptive analysis of the likely trends in the contactless smart card sector. References
1. Credit, Debit or Speedpass in Card Technology. 6(9): p. 18–21 (Sep. 2001). 2. Rosen, C. Radio-Frequency-Based Payment System Is Spreading in Information Week (26th Jul. 2001).
3. Lomax, V. A step into the unknown in Banking Technology. 18(6): p. 45–48 (Jul. 2001). 4. Bitwallet in The Nikkei Industrial Daily (25th Mar. 2001).
5. RFID Gaining Traction in Mobile Payments in AnywhereYouGo (11th May 2001).
Contact John Elliot Principal Consultant
Consult Hyperion
39 Palmerston Place,
Edinburgh,
EH12 5AU,
UK
email john.elliott@consult.hyperion.co.uk or visit the website www.consult.hyperion.co.uk
