American Express Co., which became the first U.S. smart card issuer with its 1999 unveiling of Blue, is developing a smart card product that uses radio frequency signals to transmit information to special point of sale terminals.
ExpressPay is being tested in several locations, including two Amex corporate cafeterias and a convenience store frequented by the company's employees. Intended to address the perceived short-comings of smart card products, which have failed to get U.S. consumers interested in the potential uses of microprocessor chips, it uses the chip for one purpose only: to make checkout lines less of a hassle.
"We have to learn from the smart card experience," David Bonalle, a vice president and the general manager of advanced payments development at Amex, said at the 15th annual Card Forum and Expo in New Orleans. "We can do this better, but it must be low-cost and easy to implement."
In his address to the card executives at the conference (which is sponsored by The Credit Union Journal's publisher, Thomson Media), Bonalle said all payment brands have to work together to make sure all contactless payment cards worked on one another's terminals. "How willing are other guys to quickly go to interoperable standards?" he said. "We are taking an open-book approach."
Amex is not the only one exploring contactless smart cards. MasterCard, along with J.P. Morgan Chase & Co., Citibank, and MBNA, has been testing its Pay-Pass card for four months in a major trial in Orlando. Last week MasterCard announced that it had 16,000 cardholders and nearly 60 merchants participating. It also said it had expanded the trial to Dallas, where it is working with Nokia to have consumers tap or wave their cell phones to make payments.
Randy Vanderhoof, the executive vice president of the Smart Card Alliance, in Princeton Junction, N.J., said contactless smart cards take advantage of technology that consumers have grown accustomed to via transit systems, highway tollbooths, gas stations, and so on. The procedure "is not as foreign" as that of regular smart cards, which require users to insert, not swipe, their cards into terminals, Vanderhoof said.
In an interview Bonalle said the idea for ExpressPay grew out of random conversations he had over the course of about two weeks. In the first, a friend in Washington was praising the contactless cards used in the D.C. subway system. Soon after, Bonalle's wife mentioned that she so liked the convenience of ExxonMobile's SpeedPass, which lets users wave their cards in front of a reader to pay for gas, that she would go out of her way to use it.
He said American Express is talking with several merchants interested in installing the specialized readers needed for ExpressPay, and that he expected faster pickup by merchants than Blue has had, because of transaction speed and the fact that con-sumers tend to spend more with the cards than when they use cash.
"All the fundamentals are in place," he said. Interviews with consumers yielded some new ideas for the cards. He said that several women said they would use such a payment choice at salons to avoid ruining wet fingernails, and other consumers said it would make paying by credit card less obvious.
"There is a very large reticence of consumers to use a credit card in places where they should be using cash," Bonalle said.
A common attitude, he said, was: "If you have to use a credit card to buy a $5 cup of coffee, you probably can't afford a $5 cup of coffee." ExpressPay works in much the same way as EZ Pass and other highway tollbooth systems. Payments can be executed with a simple wave of the card, eliminating swipes and signatures. Plus the card has been shrunk to half-size and fitted onto a handy key-chain device, which he said can eliminate the fumbling some-times associated with finding a card kept in a wallet.
Everything about ExpressPay has been designed for ease of use and simplicity-an about-face from smart cards like Blue that live to manage and personalize a dizzying array of applications. By narrowing the card's focus, Amex may have struck upon a strategy for making ExpressPay a success in ways that have eluded Blue and other smart cards. In many ways, ExpressPay and Blue occupy opposite ends of the smart card spectrum.
"The chip on Blue is mind-boggling in terms of its capabilities," Bonalle said.
The Value of Convenience
ExpressPay has less memory and only enough processing capability to enable the security. With ExpressPay, "the most important value is convenience," Bonalle said.
The idea behind Blue, in contrast, is better security "and a lot else we're going to evolve over time." So far Blue has been a hit in spite of its smart card capabilities, not because of them.
With attractive rates and a sleek, clear-plastic design, it had attracted four million customers by the end of 2000, the last time Amex gave out numbers. But these customers are not using Blue for its smart chip. They have virtually no opportunity to, because U.S. retailers have yet to integrate smart-card-capable terminals with their point of sale systems. ExpressPay does not have that hurdle. It does not require major changes at the point of sale, eliminating a big sticking point for merchant acceptance of smart cards.
Incentives For Merchants
ExpressPay transactions are processed essentially the same way regular credit card transactions are; they just get entered into the system differently. An extra incentive for merchants is that the card may boost sales. In three places where Amex has tested ExpressPay, customers using the card spent 17% to 33% more than those using cash. Cardholders benefit by being able to move in and out of lines more quickly, partly because they do not have to sign sales slips. A time-motion study Amex conducted last fall found that ExpressPay transactions were 28% faster than cash and 42% faster than card transactions with no signature.
Amex spent two and a half years developing ExpressPay, an exercise that began partly as a way to advance its smart chip pro-gram following the introduction of Blue.
"We're trying to learn from our experiences," Bonalle said.
For now, ExpressPay and Blue are complementary components of Amex's smart card program, Amex officials said.
ExpressPay is meant mainly for use in cafeterias, fast-food establishments, supermarkets, movie theaters, and other places where transaction values are low and the desire to move quickly through the line is high.
Blue, which requires a signature at the point of sale, will continue to be targeted for purchases of high-ticket items. Over time, in places where smart cards really take off, Amex may seek to combine the two cards' functions, Bonalle said.
No Replicating, No Skimming
Amex is comfortable with not requiring a signature on Express-Pay transactions because it has limited spending: $150 a day. The cards do not carry account numbers and so cannot be replicated or skimmed; the only way to commit fraud is to take it off a person and use it.
Emboldened by the success of an ExpressPay pilot program started last July in one of its Phoenix corporate cafeterias, Amex has slowly expanded the card's circulation. In November it rolled it out beyond Amex for the first time, to a corporate cafeteria and a fitness center, both in New Jersey. In March the card became available at the New York Mercantile Exchange and at Amex's headquarters cafeteria in New York, as well as at a handful of other Amex locations in Phoenix. Amex declined to disclose its plans for further expansion. Transactions executed with ExpressPay can be linked to any major credit card, though those who link it to an American Express card gain the advantage of seeing every purchase they make with the card listed on their statements.
