Discover Financial Services Inc. is mulling whether to follow the other three major credit card brands into the contactless payment market.
MasterCard International, Visa U.S.A., and American Express Co. have been offering contactless systems for about two years, and even though only a handful of merchants accept them today, the concept got a major boost in May when JPMorgan Chase & Co. said it is putting its weight behind promoting the technology.
Many observers say contactless cards are now poised for widespread use, and Richard J. Reese, the vice president of enterprise architecture for Discover, said in an interview Wednesday that the Riverwoods, Ill., unit of Morgan Stanley may decide to develop its own product.
"We are in process of evaluating where the industry is going in that regard," he said. "Our network is ready to enable those forms of transacting."
Discover would be interested in new technology that offers speed and convenience to both merchants and cardholders, such as contactless payment cards, Mr. Reese said. However, he did not reveal any specific plans to issue the cards.
His company already has a reputation as a technological innovator. For example, it has developed credit cards that use the traditional magnetic stripe to transmit payment information but are small enough to fit on a keychain - as are some of the contactless cards offered by Amex.
Discover has also taken a merchant-friendly approach to using biometric technology to authenticate payments. After enrolling a card number with a retailer using the technology, customers can authorize purchases with a fingerprint, even if they do not have the card with them.
Some grocery stores are already using these systems. Discover charges lower transaction processing fees for these payments than other network operators, which consider the payments card-not-present transactions.
JPMorgan Chase has said it plans to issue contactless Visa and MasterCard products to customers nationwide and expects to have distributed 2 million of the cards by the end of the summer in Atlanta and in Colorado.
McDonald's Corp. and 7-Eleven Inc. are installing contactless readers in their stores, and Ariana-Michele Moore, an analyst with the Boston research company Celent Communications LLC, said customer demand is the key to encouraging more merchants to install contactless card systems. For that to happen, "we need at least a handful of issuers to promote these cards," she said. "We need at least five in the market."
Ed Kountz, a senior analyst with TowerGroup, the Needham, Mass., research unit of MasterCard, said contactless cards are taking off. "As recently as 18 to 25 months ago, contactless was still somewhat out there," but MasterCard disclosed at a conference recently that 4 million of its PayPass contactless cards in circulation in the United States.
A decision by Discover to enter the market would be tantamount to deciding to "go with the flow," he said. "If you are Discover, you are in a position to either stand on the outside or you can decide to not fight the ticker."
Jerome Svigals, a Redwood City, Calif., chip card consultant, said that the trend toward contactless cards has picked up momentum, and that Discover will eventually begin issuing them or risk being left behind by its competitors.
"They will have to issue these cards," he said.
An Amex spokeswoman would not give any information on the number of ExpressPay contactless cards it has issued, but the company has said any new Blue cards it sends to customers will have a contactless chip.
