In The Blink Of An Eye
Credit unions may be taking a wait-and-see approach to contactless cards, but in the blink of an eye-literally-they're going to see some of their biggest competitors offering them in droves, according to some credit card experts.
After years of speculation, some of the nation's largest banks are busy making millions of the new "wave" or "blink" credit cards that can be used in movie theaters, gas stations, fast food restaurants, drug stores and camera shops.
Cardholders pass the card in front of a reader and a quick "beep" tells the owner the sale is complete. Customers can still ask for a printed receipt with the new cards.
ExxonMobil has issued a key chain fob with contactless technology since 1997, but it could be used only at its gas stations. The new blink credit cards can be used any place a merchant has installed the proper reader.
And that, of course, is the rub. For the cards to be a success, the merchants will have to buy into their side of the technology, too, according to Glen Lee, SVP-marketing and sales at TNB Card Services, which credit/debit card services to CUs.
But that hasn't stopped American Express and J.P. Chase Morgan & Co. from announcing plans to issue their own contactless cards to their cardholders to further test the waters with wave technology. American Express will issue new Blue cards with contactless technology using its ExpressPay feature that it has tested since 2002. American Express also announced that 7-Eleven, Inc., with 5,300 stores, will install contactless readers in all of its stores nationwide by early 2006.
JP Morgan Chase, the nation's largest credit card issuer, created Visa and MasterCard credit cards with blink components in May and tested them in Atlanta and Denver with existing customers, according to Scott Rau,SVP of JP Morgan Chase card services. "Most of our focus has been on our card holders," he said.
The new cards will use radio frequency identification (RFID) technology, with an embedded chip that acts as an antenna. The chip does not emit an active signal until placed in front of a card reader. When a customer holds the card in front of the card reader, the reader sends a radio signal to the chip, which then responds with proper account numbers and identification.
Morgan Chase chose Denver and Atlanta for three reasons: each city has thousands of card holders; thousands of merchants that could switch to contactless readers and a thriving media market to help advertise the new cards, Rau said. Rau called contactless cards an additional method of payment on an existing account and said that Chase Morgan card holders are always asking for faster methods or more places to shop with their cards.
Morgan Chase cardholders in both cities can use their blink cards at Arby's, Regal Cinema, CVS drugstores, Race Trac, Kentucky Fried Chicken and Walgreen's.
RFID technology isn't new by any means. As early as World War II, an "identification-friend or foe" (IFF) system, was used to determine friendly or enemy aircraft. A radio signal would be sent to a receiver on the plane to detect the proper code. Contactless credit cards use the same concept. Today, other common uses for RFID are automatic passes on toll roads or turnpikes and RFID tags in library books to combat book theft. For many, the debate comes down to this: speed or security.
Rau said Chase Morgan blink cards need to be held only inches away from, and directly in front of a reader, which minimizes the chance that anyone would intercept the radio signal. As blink cards will be made in secure plants, they will have the same security measures as any Chase card. Plus blink chips help reduce the chances of losing a card, as it never leaves the customer's hand, he said.
"They're the one holding the card. They're making the transaction," Rau said. "For merchants, it's just like any other Chase card transaction."
Rau said the contactless credit cards will speed merchant transaction times, increase revenue per sale and can also be used with self-checkout lines such as Home Depot has already rolled out to the public.
Chase Card Services reports that transaction times have been reduced by 20 seconds and in one pilot program, revenues increased 20 to 30% compared to customers paying with cash. As employees aren't handling the credit cards, employees can service more customers, according to the Chase study.
"For the merchant, it's almost business as usual. A lot of consumers probably won't go back to waiting in line," he said.
Chase Morgan's Jessica Iben said blink readers cost around $150 to start.
TNB Card Services Senior Vice President of Sales and Marketing Glen Lee said his company and the credit union's it serves are well aware of blink technology and the large roll out Chase Morgan is undertaking. Lee said TNB and its member CUs are actively studying data and testing scenarios before investing large amounts of money. Lee said the merchant side of the issue (buying the new card readers) needs more development to succeed on a wide basis.
"We're kind of in a holding pattern to test the legitimacy," Lee said.
CUNA Mutual Group's Ann Davidson works as a payment systems risk manager and frequently lectures on the risk and reward of any new program facing CUs around the nation. Davidson called contactless technology "fast", but still sailing in untested waters. Davidson said she has spoken to representatives with credit card processors that support many organizations throughout the credit union industry. These officials said they would wait to determine the risks and success rates of the new cards.
"From a member standpoint, everyone's going to want one," Davidson said. "But how do I know someone's not in between the transmission and me?"
Davidson said her immediate concern as a risk manager and for any CU member is the security of the RFID transmission from a contactless credit card to the reader.