Bank of America Corp. has seemed content to watch others drive the rapid growth of contactless payments, while rival issuers have distributed millions of the cards to U.S. consumers and merchants have grown more willing to accept them.
Now, growing noise in the contactless market is prompting the Charlotte company to take a fresh look at the technology.
This week B of A will begin issuing mobile phones with contactless payment chips to employees who want them. Five thousand workers have received contactless cards since September, and last month it started issuing keyfobs containing the chips upon request.
John Suchanec, B of A's senior vice president for product research and development, said in an interview last week that his company also has installed vending machines and point of sale terminals with contactless card readers in 12 of its office buildings. It plans to monitor employees' use of the devices, both at office buildings and retailers, he said.
The test, expected to last at least six months, will help the company decide how, or whether, to issue contactless cards to consumers, Mr. Suchanec said.
MBNA Corp., which B of A bought in January, was one of the first companies to evaluate MasterCard Inc.'s PayPass contactless card, in a 2002 test in Orlando, but after that MBNA took a wait-and-see approach to contactless technology, he said.
"We basically said that until there's a lot of places that you can use this, we don't see a lot of value proposition for our cardholders," Mr. Suchanec said.
MBNA issued contactless affinity cards in 2004 for the Philadelphia Eagles football team, and since then it has issued about 30 other such cards for sports teams and universities. However, those products, which B of A still supports, were "marketing tests" that the company now is using to study customers' spending habits in the closed payments ecosystem offered by stadiums and campuses, he said.
The national contactless payments ecosystem has been steadily expanding, in part because of efforts by issuers such as JPMorgan Chase & Co. and Citigroup Inc., both of which also participated in the 2002 Orlando test.
In May 2005, JPMorgan Chase introduced its Blink contactless brand and said that it would issue the cards to customers nationwide; on Monday it said it has sent out 7 million to date.
With more consumers carrying contactless cards, numerous merchants, including 7-Eleven Inc. and McDonald's Corp., have started accepting them. Jack in the Box Inc. said Monday that it is installing readers at all of its more than 2,000 U.S. restaurants.
Citi, which began issuing contactless cards last year, is working with the New York Metropolitan Transportation Authority to test their use at subway turnstiles. Banamex Financial Group, Citi's Mexican unit, said Monday that it would issue contactless MasterCard cards in that country. The cards' manufacturer, CPI Card Group Colorado Inc., said they cards would be the first PayPass cards in Latin America.
Stephen P. Herbert, the president and chief operating officer of USA Technologies Inc. of Malvern, Pa., which makes the readers that B of A is testing in its buildings, said a three-month survey that ended last month found that consumers spend 33% more for cashless vending machine purchases than they do for cash purchases.
Still, Mr. Suchanec, who joined B of A when it bought MBNA, said that the current test will help B of A decide how to approach the contactless market, and there is a chance it will not issue any new contactless products to consumers.
MBNA organized a similar test a decade ago to evaluate smart cards, and it eventually decided not to support them, he said.
"It was very expensive to make the product, and it was very expensive for the merchants to change their infrastructure to accept the product, and once that was done, the consumers didn't use the product," he said. "What we learned is we didn't want to be in that business."
B of A is particularly interested in watching how people use the phones with the contactless chips, Mr. Suchanec said. Because the phones require the cooperation of carriers, he said, the company would have to convince them that contactless payments are worthwhile if his company wants to move beyond a test.
Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, said that JPMorgan Chase likely has already won many of the early adopters with its Blink cards, and that B of A's cautious approach is wise.
There are only about 35,000 contactless terminals active in the United States today, and another 5,000 abroad, he said, and the scarcity of readers could lead to confusion about where the cards can be used.
Still, he said that consumers seem to like the technology, though it is unclear which form will be the most popular for consumers, or the most cost-effective for issuers. "I would be skeptical of them coming to a conclusion that only one form factor has promise."
