MasterCard is investing in and partnering with card technology company Dynamics to embed greater function into U.S. payment cards, a mission that has sputtered in past years.
The cards, which perform a task when the user presses an embedded button, have been floated in past years as a way to improve security or to allow a single card to access multiple accounts. In 2010, MasterCard began working with issuers in Europe to offer debit cards with built-in displays, but that technology was based on the EMV standard, which was still not being used in U.S. payment cards.
Today, the U.S. has become a more fertile ground for high-tech cards, said Carlos Menendez, group executive of global credit and debit products at MasterCard. "The technology has improved, consumers are more ready for these cards... there is an appetite for more functionality on a form factor."
MasterCard joined with CIBC, Bain Capital and Adams Capital Management in making a $70 million investment in Dynamics. The Purchase, N.Y., card network will offer exclusive Dynamics products to issuers globally.
"We hear a lot about innovation going into the phone, but there is also a lot that can go on the plastic itself," Menendez said. MasterCard hopes the cards with Dynamics' technology and EMV chips will be in the U.S. by the end of 2015. The card networks set an October 2015 deadline for U.S. companies to shift to EMV, which improves security over magnetic-stripe payments.
Pressing a button on a Dynamics card can switch the card from credit to debit, or can change the way rewards are calculated, for example.
The Pittsburgh-based Dynamics has faced challenges in the past. One of Dynamics' early plays was Citi 2G, a rewards card tested by Citigroup, a MasterCard issuer. The product never moved beyond an extended pilot, its failure attributed in part to the cards' costs. At the time, analysts estimated the cards cost about $10 each to produce.
Dynamics, which did not answer requests for comment by deadline, later succeeded in bringing its technology to market through issuers such as CIBC and UMB. MasterCard also plans to pair the technology with mobile apps.
"I think we are increasingly moving to the world where the form factor matters less. Any connected device can have a token which enables it to transact," said Zil Bareisis, a senior analyst at Celent. "The device can be a chip card, a smartphone, a smart watch, or an 'advanced card.' "
The cost of interactive cards is going down, while at the same time their appeal is improving as more consumers use smartphone apps while they shop, said Jim Van Dyke, CEO of Javelin Strategy & Research.
"These [interactive] cards were once expected to have a per-item cost of around $4, and even if that drops down to $0.40 or less it's hard to imagine that the drop occurs faster than the rising utility of 'payment cards' moving to mobile," Van Dyke said. "Consumers don't want separate devices and mobile proximity payments is already here."
MasterCard and Dynamics are working to achieve a "low enough" cost at the very time that mobile payments move into an early-mainstream phase, Van Dyke said. "My bet is that MasterCard did this partnership more for brand and bet-hedging rather than in expectation of significant volume, as the future of payments is going away from separate and physical hardware" Van Dyke said.
MasterCard will also work with other card manufacturers to improve payment technology as part of its multi-pronged diversification strategy, Menendez said.
While Menendez said the cost of the cards has come down, he also said the fee structure for the multi-functional cards will be determined by the issuers.
"Dynamics has added features and consumers are more ready for these kinds of cards," Menendez said.
The inclusion of EMV in the Dynamics' cards also preps its product well for adoption, Menendez said. Other companies, including multi-account card makers such as Coin and Stratos, have been criticized for not including EMV in their core products.
"Any innovation that takes place on plastic cards has to incorporate EMV with the contactless piece," Menendez said.