Contactless Payment and the Retail
`Point of Sale: Applications, Technologies
`and Transaction Models
`
`A Smart Card Alliance Report
`
`Publication Date: March 2003
`Publication Number: PT-03002
`
`Smart Card Alliance
`191 Clarksville Rd.
`Princeton Junction, NJ 08550
`www.smartcardalliance.org
`Telephone: 1-800-556-6828
`
`Smart Card Alliance © 2003
`
`1
`
`SAMSUNG 1015
`
`1
`
`

`

`About the Smart Card Alliance
`The Smart Card Alliance is the leading not-for-profit, multi-industry
`association of member firms working to accelerate the widespread
`acceptance of multiple applications for smart card technology. The Alliance
`membership includes leading companies in banking, financial services,
`computer, telecommunications, technology, health care, retail and
`entertainment industries, as well as a number of government agencies.
`Through specific projects such as education programs, market research,
`advocacy, industry relations and open forums, the Alliance keeps its
`members connected to industry leaders and innovative thought. The Alliance
`is the single industry voice for smart cards, leading industry discussion on the
`impact and value of smart cards in the U.S. For more information, visit
`www.smartcardalliance.org.
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Copyright © 2003 Smart Card Alliance, Inc. All rights reserved. Reproduction or
`distribution of this publication in any form is forbidden without prior permission from
`the Smart Card Alliance. The Smart Card Alliance has used best efforts to ensure,
`but cannot guarantee, that the information described in this report is accurate as of
`the publication date. The Smart Card Alliance disclaims all warranties as to the
`accuracy, completeness or adequacy of information in this report.
`
`Smart Card Alliance Members: Members can access all Smart Card Alliance reports
`at no charge. Please consult the member login section of the Smart Card Alliance
`web site for information on member reproduction and distribution rights.
`
`Government Agencies: Government employees may request free copies of this
`report by contacting info@smartcardalliance.org or by joining the Smart Card Alliance
`as a Government Member.
`
`Smart Card Alliance © 2003
`
`2
`
`
`
`
`
`
`
`
`2
`
`

`

`Table of Contents
`About the Smart Card Alliance _________________________________ 2
`Table of Contents ____________________________________________ 3
`Executive Summary __________________________________________ 4
`Introduction _________________________________________________ 6
`Existing Contactless Payment Applications ______________________ 7
`Hong Kong Octopus Card _____________________________________ 7
`ExxonMobil Speedpass _______________________________________ 9
`Visa Contactless Payment in South Korea _______________________ 11
`MasterCard PayPass(cid:140) ______________________________________ 12
`Contactless Payment Benefits and Costs _______________________ 14
`Contactless Payment Technology Options ______________________ 18
`Primary Contactless Payment Technologies ______________________ 18
`ISO/IEC 14443-Compliant High-Frequency 13.56 MHz Contactless
`Smart Cards ........................................................................................... 18
`ISO/IEC 15693-Compliant High-Frequency 13.56 MHz Contactless
`Smart Cards ........................................................................................... 20
`Proprietary High-Frequency 13.56 MHz Technology............................. 21
`Proprietary Low-Frequency 125 to 134 KHz RF Technology................. 22
`Proprietary Ultra-High-Frequency RF Technology................................. 23
`Alternative Contactless Technologies ___________________________ 24
`Infrared Solutions ................................................................................... 24
`Microwave Technology (cid:177) Bluetooth ....................................................... 25
`Carrier-Based Mobile.............................................................................. 26
`Near Field Communication..................................................................... 27
`Key Technology Considerations _______________________________ 28
`Contactless Payment Transaction Models_______________________ 34
`Speedpass________________________________________________ 34
`E-ZPass__________________________________________________ 35
`Contactless Payment Using Track 1 and Track 2 Magnetic Stripe Credit
`Card Data ________________________________________________ 36
`Contactless Credit/Debit Card Using EMV _______________________ 38
`Stored Value Card __________________________________________ 39
`Why Contactless Smart Cards?________________________________ 40
`Conclusion ________________________________________________ 44
`References and Resources ___________________________________ 45
`Publication Acknowledgements _______________________________ 47
`Appendix A: Contactless Transit Implementations _______________ 48
`
`
`
`Smart Card Alliance © 2003
`
`3
`
`
`
`
`
`
`
`
`3
`
`

`

`Executive Summary
`Contactless Payment Represents a Growing Market
`The latest trend in retail payment applications is contactless payment.
`Contactless payment systems are used successfully in Asia, Europe and
`North America and offer a number of advantages to issuers, retailers, and
`consumers. Contactless payment allows issuers to penetrate the cash
`payment market, enjoy increased customer transaction volume, and improve
`customer retention and loyalty. Retailers realize benefits due to faster
`transaction times, increased revenue, improved operational efficiency, and
`lower operating costs. Consumers enjoy the convenience of hands-free
`payment, the ability to pay for multiple services using one device, and the
`security of not having to display a card for payment.
`
`Contactless payment applications are particularly attractive to retail
`segments where speed and convenience of payment are essential (for
`example, quick service restaurants, gas stations, convenience stores,
`parking facilities, transit services, entertainment venues and unstaffed
`vending locations).
`
`Multiple Technologies Support Contactless Payment
`Multiple technologies may be used to implement a contactless payment
`system. Candidate technologies include radio frequency, infrared, carrier-
`based mobile and Bluetooth technologies. Three types of radio frequency
`technologies are currently used, including: high-frequency 13.56 MHz
`contactless smart cards, low-frequency (100 to 300 KHz) devices and ultra-
`high-frequency (900+ MHz) transponders.
`
`The choice of an appropriate technology is driven by issues such as what
`types of payment mechanisms the technology supports, whether the
`technology is commercially available and governed by international
`standards, what regulatory issues apply, how much investment is required,
`and how well the technology protects customer data and guards against
`erroneous transactions.
`
`Various Transaction Models Support Contactless Payment
`A contactless payment system can follow a variety of transaction models.
`Candidates include account-based payment, traditional credit or debit card
`payment, and stored-value payment. Each transaction model requires a
`different infrastructure investment and different participation by the
`consumer, retailer, acquiring processor, and issuing bank. Which transaction
`model is appropriate depends on the approach chosen to implement the
`system.
`
`Contactless Smart Cards Offer an Excellent Choice for Retailers
`Smart cards are being used for payment throughout the world, with Visa,
`MasterCard and JCB leading initiatives to extend the use of smart cards for
`contactless payment. The combination of standards-based technology,
`enhanced security features, availability of products and services from
`multiple vendors, potential to use the existing payments infrastructure, and
`
`Smart Card Alliance © 2003
`
`4
`
`
`
`
`
`
`
`
`4
`
`

`

`support from major financial industry players offer compelling benefits for
`payment implementations based on contactless smart cards.
`
`
`About This Report
`This report was developed by the Smart Card Alliance to describe
`contactless payment applications, technology options and transaction model
`alternatives. This report provides answers to commonly asked questions
`about contactless payment systems, such as
`What retail sectors can benefit most from contactless payment?
`What are example implementations of contactless payment and how
`successful have they been?
`What are the technologies that can support contactless payment?
`What are the business drivers for adopting contactless payment?
`Are there advantages to using contactless smart cards in contactless
`payment systems?
`
`Smart Card Alliance © 2003
`
`5
`
`
`
`
`
`
`
`
`5
`
`

`

`Introduction
`
`
`
`The financial, retail, and transportation industries are all abuzz over the latest
`payment trend (cid:178) contactless payment devices. These devices come in a
`variety of shapes and sizes, ranging from traditional plastic cards to key fobs,
`watches, and cellular phones. Major cities around the world already use
`contactless smart cards for transit payment, with many major cities in the
`United States also implementing or planning to implement contactless smart
`card-based automatic fare collection (AFC) systems.1 In 2002, MasterCard,
`VISA and JCB also announced the availability of contactless payment
`options for traditional cash-only environments where speed is essential, such
`as quick serve and casual restaurants, gas stations, convenience stores, and
`movie theaters.
`
`Because contactless payment is a new market using and promoting a range
`of technologies and transaction models, the terminology describing it can be
`confusing. This report defines (cid:179)contactless payment(cid:180) as the ability to perform
`a non-cash payment transaction without a physical connection between the
`consumer payment device and the physical point of sale (POS) terminal.
`Contactless payment may be implemented using different contactless
`technologies, including radio frequency (RF), infrared (IR), Bluetooth, and
`carrier-based mobile technologies. Three types of RF technologies are
`described in this report, including high-frequency 13.56 MHz contactless
`smart cards, low-frequency (100 to 300 KHz) devices and ultra-high-
`frequency (900+ MHz) transponders.2
`This report provides information on current contactless payment applications
`and on the benefits and value proposition for retailers and issuers
`considering such a payment scheme. It examines the various available
`contactless technologies, transaction models and implementation
`approaches. Finally, it describes the advantages of contact and contactless
`smart cards as compared to other current payment mechanisms.
`
`
`1 See Appendix A for a summary of North American transit agencies implementing or
`planning to implement smart card-based systems.
`2 RF bands are defined as: low-frequency - 30 KHz to 300 KHz; high-frequency (cid:177) 3
`MHz to 30 MHz; ultra-high-frequency (cid:177) 300 MHz to 3 GHz.
`
`
`
`
`
`
`
`Smart Card Alliance © 2003
`
`6
`
`6
`
`

`

`Existing Contactless Payment Applications
`Contactless payment applications have existed for more than a decade.
`Since the 1980s, millions of toll-road users have used (cid:179)long distance(cid:180)
`contactless technology for prepaid accounts or customer billing.
`ExxonMobil(cid:182)s Speedpass(cid:140) was introduced in the mid-1990s, and over 6
`million customers now use a key fob, vehicle tag or watch to pay for gas and
`convenience store items at more than 7,500 Exxon and Mobil stations in the
`United States, Canada, and Singapore.
`
` A
`
` number of mass transit agencies are also in the process of moving from
`magnetic stripe cards to contactless smart cards for fare payment or are
`testing smart card-based systems. According to Datamonitor, the market for
`transit-related contactless smart cards will grow from $55 million in 2002 to
`$200 million by 2006.3 Contactless smart cards are currently being used in
`many cities worldwide (including Hong Kong, Tokyo, Seoul, Pusan,
`Washington, DC, and Shanghai), with the majority of new transit fare
`payment systems planning to use contactless smart cards as the primary
`ticket media. In many of these cities, these contactless smart cards are
`expanding beyond transit-only payments to include contactless payment with
`local retailers.
`
`This section describes several current contactless payment applications that
`are being used at the retail point of sale.
`
`
`
`Hong Kong Octopus Card
`The Hong Kong Octopus card, launched in 1997 as an electronic purse for
`public transportation, is the most successful and mature implementation of
`contactless smart cards used for mass transit payment. The card(cid:182)s
`acceptance and popularity have since extended its use to nearby retailers.
`Its success highlights two critical components of any payment strategy:
`strong self-service habits and the ability to leverage these habits to launch
`payment technologies for the general retail environment.4 The Octopus card
`is a good example of a contactless transit payment application that is
`evolving into a general retail payment mechanism.
`
`Octopus cards were developed as an automatic fare collection (AFC)
`scheme for Hong Kong(cid:182)s transit system. Over 9 million Octopus cards and
`150,000 smart watches have been issued, and over 7 million transactions
`are recorded on a daily basis, for a daily transaction value of over HK$50
`million (about US$6.5 million).5 This contactless smart card ticketing system
`currently includes over 100 service providers, including all of the major
`transport operators (bus, taxi, subway, train, tram, and ferry services).
`Because Hong Kong's main transport operators are all partners in the
`Octopus card, kiosks are widely available, making it easy for customers to
`check the balance on a card and recharge it with cash or electronic
`payments. The use of the card has shortened queues at ticket barriers,
`
`3 (cid:179)Access Will Overtake Transit as Contactless Card Application,(cid:180) Card Technology,
`October 2002, p. 25.
`4 Contactless Smart Card Schemes in the Asia Pacific Region,(cid:180) Asia Pacific Smart
`Card Association report, August 2002.
`5 Donald Davis, (cid:179)The Contactless Wave,(cid:180) Card Technology, January 2003.
`
`
`Smart Card Alliance © 2003
`
`7
`
`
`
`
`
`
`7
`
`

`

`because the card doesn't have to be taken out of a bag or wallet (cid:178)
`customers can just wave it past a scanner at a distance of several
`centimeters.
`
`The first non-transit applications for the Octopus card allowed the card to be
`used for payment at photo booths located in the Mass Transit Railway (MTR)
`stations and pay phones operated by New World Telephone. After only 5
`years, 25 percent of Octopus card transactions are unrelated to transit.6 The
`card lets consumers make payments quickly and conveniently and is
`accepted by more than 160 merchants:7
`Park 'N Shop (Hong Kong's leading supermarket), Watson's, 7-Eleven,
`and Starbucks accept the Octopus card. Many fast food outlets already
`accept the card, and McDonald's is expected to accept it in the near
`future. Octopus charges a 1% commission on retail purchases.
`More than 3,000 soft drink vending machines in offices, schools, and
`shopping malls now have Octopus scanners. Sales have increased, as
`consumers make more impulse buys when they don't need to use cash.
`Pay phones, photo booths, and many car parks accept the card, avoiding
`the need for consumers to carry change. The card can also be used for
`admission to public swimming pools and other recreational centers.
`Nokia has launched a cover for one of their mobile phones that includes
`an embedded Octopus chip and antenna, enabling commuters to use
`their phone to make Octopus payments.
`
`
`While Octopus cards are anonymous by default, over 500,000 personalized
`cards have been issued and are used for the Octopus Automatic Add-Value
`Service. Twelve Hong Kong banks and one credit card company support the
`automatic add-value service. Because each personalized card has a unique
`identification number, up to 40,000 cards are also being used as security
`passes at housing estates, for staff identification cards, and as loyalty cards.
`
`The contactless Octopus card is based on Sony(cid:182)s FeliCa(cid:140) technology, a
`proprietary 13.56 MHz technology similar to but not compliant with the
`ISO/IEC 14443 standard technology. This technology has widespread
`acceptance in the Asia Pacific region, with over 25 million cards issued
`worldwide.8 Terminals read the cards instantly, processing transactions in
`less than one-third of a second. On the MTR, a scanner at the ticket barrier
`loads data on the card that is then used by scanners at the exit gates to
`deduct the correct fare and show the remaining credit.
`
`In 2002, the Asia Pacific Smart Card Association reported that 95% of the
`(cid:179)economically active population(cid:180) was using the Octopus card.9 Travelers
`have found that the card provides increased convenience, allowing them to
`pass through fare collection points 15 to 20% faster, according to Octopus
`card statistics. The scheme has succeeded because it offers real
`convenience to cardholders.
`
`The Kansai Thru Pass, a similar transit application using the FeliCa
`technology, is being rolled out over the next 5 years in the Japanese cities of
`
`
`6 Asia Pacific Smart Card Association, op. cit.
`7 Ibid.
`8 JCB Contactless Presentation, January 2003.
`9 Asia Pacific Smart Card Association, op. cit.
`
`
`Smart Card Alliance © 2003
`
`8
`
`
`
`
`
`
`8
`
`

`

`Kyoto, Osaka, and Kobe. JCB will issue more than 5 million Thru Pass cards
`to be used in a merchant base that includes 10,000 POS terminals.10
`
`In the United States, the Washington Metropolitan Area Transit Authority
`(WMATA) has 325,000 SmarTrip contactless smart cards in circulation, used
`for payment throughout the Metrorail system and at all WMATA-operated
`parking facilities. WMATA has also entered into pilots that expand the use of
`the card to other applications. In a pilot agreement with First Union National
`Bank, 1,000 co-branded cards were issued in 2000 that could be used in
`WMATA's transit system (as a contactless smart card) and used as a debit
`card (with a magnetic stripe) for banking transactions or re-loading the card
`for transit use. The cards were re-issued to participants in 2002. Based on
`survey data gathered from the cardholders, consolidation of functions on a
`multi-application card was an attractive feature and would lead to increased
`use of the card. WMATA also entered into a pilot with the U.S. General
`Services Administration and U.S. Department of Education for a co-branded,
`multi-function transit-building access card. These pilots were initiated in 2000
`and 2002, respectively, include approximately 2,000 cardholders between
`the two agencies, and continue to operate today.11
`
`
`
`ExxonMobil Speedpass
`Speedpass, introduced by ExxonMobil in 1997, was the first automated
`payment system to adopt radio frequency-based technology to help
`consumers make retail purchases. Today, over 6 million Speedpass
`customers frequent 7,500 Exxon- and Mobil-branded locations around the
`world. Over 92% of the Speedpass users report a high level of satisfaction.12
`
`The ExxonMobil Speedpass project resulted from a 1993 Mobil study that
`concluded that convenience, friendly service, and recognition of loyal
`customers create consumer loyalty and additional spending. The benefits to
`the consumer are straightforward: no foraging for change or bills, no handling
`of credit cards, no paper receipt to sign or keep track of, and no personal
`identification number (PIN) to enter or remember. In general, the entire
`transaction is handled more quickly and the customer is in control at all
`times.13
`
`Motorists enrolled in Speedpass use a key fob, watch, or transponder affixed
`to their vehicle's rear window to communicate securely with a gas pump or
`POS terminal. A reader integrated into the pump or terminal sends a signal
`to the customer(cid:182)s device, which replies with a unique identification code that
`is linked to a customer account. The customer is then authorized for
`payment, and the pump is activated, or a purchase can be made at the
`convenience store. Consumers do not pay for the Speedpass device, and
`there is no consumer service charge for using this technology to make
`payments.
`
`Speedpass is recruiting key retailers in other sectors, such as grocery stores
`and fast-food restaurants, to use the payment technology. Selected Stop &
`
`10 ContactlessNews, Volume 1, Number 2, January 2003.
`11 Source: WMATA
`12 Texas Instruments RFID eNews, Issue No. 14, November/December 2002.
`13 Amy Cortese, (cid:179)Toolbooth Technology Meets the Checkout Lane,(cid:180) New York Times,
`July 7, 2002.
`
`Smart Card Alliance © 2003
`
`9
`
`
`
`
`
`
`
`
`9
`
`

`

`Shop supermarkets began using Speedpass in 2002 for payment, coupons,
`and a loyalty program. During the past 2 years, over 430 McDonald's
`locations in the Chicago area have begun accepting Speedpass.
`
`In December 2002, ExxonMobil Speedpass and Timex® released 4,000
`timepieces featuring a miniature Speedpass transponder. The watch looks
`and functions like a regular watch, but enables customers to pay instantly
`and even more conveniently at Exxon and Mobil service stations.14
`
`The RFID transponders used in the Speedpass devices (key fobs, watches,
`and window transponders) were designed by Texas Instruments and feature
`a digital signature encryption protocol with challenge/response authentication
`to ensure consumer protection. This technique makes it extremely difficult, if
`not impossible, to duplicate the transponder (tag) or the secret encryption
`key. According to Texas Instruments, even if the key were duplicated, it
`would only be valid for a single tank of gas.15 The Speedpass system was
`also designed to ensure customer privacy and security. The customer's
`credit or check card number is not used by the Speedpass device or
`merchant POS terminal, maintaining the confidentiality of that information.
`
`Customers at Exxon- and Mobil-branded service stations increased their
`purchases of gasoline by 15% after they became Speedpass users, resulting
`in a sales lift of 4%.16 (Sales lift is measured as total gallons sold for the 12
`months prior to implementing Speedpass compared with the 12 months after
`Speedpass was implemented at each location). This represents one
`additional gas purchase per month per customer.
`
`Several other pilots are also in progress using payment systems similar to
`Speedpass. Shell Canada has launched its (cid:181)EasyPay(cid:182) solution based on
`ISO/IEC 15693 technology from TI to over 400 service stations. McDonald's
`is conducting two pilots using RF-based contactless payment systems from
`other service providers. One involves using RFID technology by
`FreedomPay® at 32 outlets in Boise, Idaho and the other allows E-ZPassSM
`customers on Long Island to use their E-ZPass toll transponders to pay at
`the drive-through window.17 Similar trials are being conducted by Taco Bell®
`and KFC® using a product from a company called 2Scoot®. According to Ed
`Kountz, a senior analyst for emerging technology with TowerGroup, (cid:179)Trials in
`so-called quick-service restaurants (aka fast-food joints) have resulted in a
`15 to 30 percent (cid:181)bag lift(cid:182)(cid:178)the industry jargon for an increase in average
`order cost.(cid:180)18
`
`Bank of America recently announced the QuickWave contactless payment
`pilot.19 Launched in 2002 in Charlotte, North Carolina, the pilot includes
`10,000 Bank of America employees and 15 downtown restaurants and
`shops. Participants pay for their purchases and accumulate loyalty points by
`using the card. The scheme is similar to Speedpass in that the contactless
`card references the user(cid:182)s bank account. QuickWave uses technology from
`FreedomPay and Inside Technologies that supports both the ISO/IEC 15693
`
`14 See Speedpass web site, http://www.speedpass.com.
`15 (cid:180)Mobil Speedpass Goes Global as Mobil Singapore Rolls Out Asia(cid:182)s First RFID-
`Based Pay-At-The-Pump System,(cid:180) Texas Instruments press release, April 5, 1999.
`16 Matthew Miller, op. cit.
`17 Ibid.
`18 Matthew Miller, (cid:179)Received Wisdom,(cid:180) CommVerge, November 1, 2002.
`19 ContactlessNews, Volume 1, Number 2, January 2003.
`
`
`Smart Card Alliance © 2003
`
`10
`
`
`
`
`
`
`10
`
`

`

`and ISO/IEC 14443 Type B contactless smart card standards.20 The pilot will
`continue through March 2003.
`
`Visa Contactless Payment in South Korea
`Since 1998, approximately 6 to 7 million Visa-branded contactless cards
`have been issued by several large Visa members in South Korea. These
`cards contain a chip, which is used for contactless payment in the Seoul
`transit system, and a magnetic stripe, which is used for regular credit card
`payments. The popularity of transit applications on credit cards means that
`contactless chips have become a standard feature for the majority of new
`credit cards issued to residents of Seoul. Several other major cities in South
`Korea (Busan, Jeonju, Inchon, and Ulsan) have also deployed Visa credit
`cards coupled with a contactless transit application. However, unlike the
`cards used in Seoul, these cards are issued as (cid:179)dual-interface(cid:180) cards in
`which a contact-based electronic purse (on a chip) is offered along with a
`contactless transit application (also on a chip).
`
`In 2002 Visa introduced the dual-interface GlobalPlatform (GP) card, based
`on Philips technology. Unlike previous dual-interface cards, the new GP
`cards allow applications to be downloaded, modified, and deleted after the
`card has been issued. The cards also support VSDC and Visa multi-
`functionality. Three major districts in South Korea, (City of Daejon, City of
`Gwangju, and Chungnam Province) have adopted these dual-interface GP
`cards. Issuance begins in 2003, with a target of up to 2 million cards. In
`addition to the ISO/IEC 14443 and MIFARE-based transit application, the
`card will also carry VSDC (EMV credit and debit), digital ID, Visa Cash e-
`purse, and loyalty applications. Other cities that have been issuing
`proprietary transit cards are planning to migrate to Visa(cid:182)s dual-interface
`Global Platform cards.
`
`Visa continues to work very closely with S-1/Samsung Electronics in several
`areas to provide VSDC payment and multi-function capabilities through the
`dual-interface smart card chip. Current programs include contactless access
`control to corporate buildings for Samsung employees and their families and
`contactless access for residents of apartment buildings in several major
`South Korean cities.
`
`SK Telecom, the largest mobile telecommunications service provider in
`South Korea, launched the second phase of their Moneta card program in
`December 2002. The Moneta card now supports Visa payment at the point
`of sale using an IR beam or signal sent from mobile telephone handsets to
`upgraded merchant terminals. Plans are in place to expand this program
`and include contactless Visa payment in 2003. By the end of 2003, it is
`anticipated that approximately 400,000 terminals will be upgraded to support
`IR and contactless smart card technology and approximately 2 to 3 million
`handsets will be deployed.
`
`Two other South Korean telecommunications providers, KTF and LGT, have
`indicated that they will also provide Visa payment at the retail POS using
`infrared and contactless smart card technology in 2003.
`
`Smart Card Alliance © 2003
`
`11
`
`
`20 BiometricTech News, January 16, 2003.
`
`
`
`
`
`
`
`11
`
`

`

`MasterCard PayPass(cid:140)
`MasterCard(cid:182)s PayPass, announced in December 2002, eliminates the need
`for users to swipe their cards through a reader. Consumers tap their
`payment cards on a specially equipped merchant terminal (or wave them at
`the terminal) that then transmits the payment details wirelessly, The new
`solution is targeted for traditional cash-only environments where speed is
`essential, such as quick service restaurants, gas stations, convenience
`stores, and movie theaters.
`
`Chase, Citibank, and MBNA are working with MasterCard in a MasterCard
`PayPass trial in Orlando, Florida. Consumers can use the PayPass card at a
`variety of participating Orlando merchants, including Boater(cid:182)s World,
`Chevron, City of Orlando Parking, Eckerd, Friendly(cid:182)s, Loews Universal
`Cineplex, McDonald(cid:182)s, Ritz Camera, and Wolf Camera. Additional retailers
`are expected to begin participating in early 2003. The MasterCard PayPass
`card also includes a magnetic stripe, allowing consumers to use it at any
`location that accepts MasterCard.
`
`Recent MasterCard consumer research reveals the following reactions to
`PayPass:21
`63% of the consumers surveyed said that they would (cid:179)definitely(cid:180) or
`(cid:179)probably(cid:180) use MasterCard PayPass if their bank offered it to them.
`Consumers who said that they would definitely use the card indicated
`that it will replace cash in more than half (53%) of their transactions.
`PayPass is perceived to be (cid:179)innovative(cid:180) and (cid:179)fun to use,(cid:180) as well as an
`enhancement that (cid:179)would make shopping less of a hassle.(cid:180)
`
`
`The MasterCard PayPass card uses ISO/IEC 14443 standard technology
`(Types A and B) to securely transmit Track 1 and Track 2 payment
`information from the card to the merchant terminal using RF. This eliminates
`the need for a cardholder to present the card to the merchant to swipe
`through a reader, allowing the cardholder to remain in control of the card.
`The payment transaction is then processed through the existing MasterCard
`acceptance network. The simplified approach of using Track 1 and Track 2
`data allows merchants to cost-effectively retrofit their current magnetic stripe
`POS terminal to start accepting PayPass cards.22 This is accomplished
`using an RF adapter that involves no POS software change. MasterCard
`plans to introduce MasterCard PayPass to additional markets when the
`Orlando trial is completed.
`
`
`
`Summary
`
`Figure 1 summarizes the technology and device formats used by each of the
`applications discussed in this section.
`
`
`21 (cid:179)New MasterCard PayPass Utilizes Contactless Payment Technology,(cid:180) MasterCard
`press release, December 12, 2002.
`22 (cid:179)U.S. Smart Card Breakthrough,(cid:180) The Nilson Report, January 2003.
`
`
`Smart Card Alliance © 2003
`
`12
`
`
`
`
`
`
`12
`
`

`

`
`
`Figure 1: Featured Applications and Corresponding Technology
`
`Technology
`
`Form Factor
`
`Featured
`Application
`Hong Kong
`Octopus Card
`
`# of Cards
`Issued
`
`9+ million
`
`Non-standard 13.56
`MHz (FeliCa)
`
`ExxonMobil
`Speedpass
`
`6+ million
`
`Low-frequency RF
`(TI)
`
`Visa Contactless
`Payment
`
`7+ million
`
`ISO/IEC 14443 13.56
`MHz, Infrared
`
`Plastic card
`
`Key fob, wrist
`watch, window
`transponder
`Plastic card,
`mobile phone
`
`MasterCard
`PayPass
`
`Pilot phase
`
`ISO/IEC 14443 13.56
`MHz
`
`Plastic card
`
`Smart Card Alliance © 2003
`
`13
`
`
`
`
`
`
`
`
`13
`
`

`

`Contactless Payment Benefits and Costs
`In the United States, contactless payment is an emerging market. A number
`of contactless technologies are being implemented, various payment
`processes are supported, and both pilot and commercial services are
`available. While the market is new, there is already evidence that retailers
`can see significant benefits from implementing contactless payment and that
`consumers value its increased convenience and speed.
`
`This section describes the general business benefits and costs of
`implementing contactless payment for retailers and issuers. It does not
`attempt to quantify the business case, since actual benefits and costs vary by
`retail segment and by the technology used.
`
`Retailer Benefits
`Retail segments in which speed and convenience of payment are essential
`can realize significant benefits from contactless payment. These segments
`include: quick service restaurants, especially those with drive-through
`service; gas stations; convenience stores; parking