A pilot test that MasterCard International and three of its largest issuers are planning at least looks like the kind of thing that industry executives have long said is needed to give consumers here a stronger reason to use smart cards.
Next month the three — Citigroup Inc., J.P. Morgan Chase & Co., and MBNA Corp. — will issue fast-payment cards equipped with transponders to Orlando residents with good credit histories.
Just waving the cards or tapping them against receiving devices will pay participating merchants, which include a movie theater chain and some fast-food restaurants. Neither signatures and nor PINs will be required.
Executives involved in introducing the PayPass cards say they will probably be used mostly for small purchases in the test, which will last six months. For wider use, fraud protections would probably have to be enhanced.
“There’s no additional security risk associated with this card,” said Art Kranzley, MasterCard’s chief e-business officer. “If I steal this card it’s the same as stealing a mag stripe card, in terms of how it can be used. We’re not, for the pilot, changing any of the rules.”
The idea is to coax people to use cards for purchases normally made with cash, and to encourage them to spend more than they would in cash. For consumers, MasterCard said, the selling points are speed, automated record keeping, and an “increase[d] feeling of security,” because cardholders remain in control of the card during transactions.
Mr. Kranzley said the card is meant as a better consumer product, not a stalking horse for chip cards in this country, though multiple applications can be added.
But Jerome Svigals, the director of the Smart Card Institute in Redwood City, Calif., said the PayPass test sounds like “an excellent catalyst” for smart cards in the United States. “What you’d like to do is take the basic low-value card and turn it into a multiple-application card,” he said. Such systems are in use in Hong Kong, Korea, and Singapore, he noted.
PayPass has been tested in the cafeteria in MasterCard’s headquarters in Purchase, N.Y., since July. The technology has become familiar to consumers from drive-through payment of highway and bridge tolls; is was also introduced successfully in the late 1990s at what are now MobilExxon gas stations, which have issued more than six million Mobil Speedpasses to motorists.
The participating merchants include Friendly’s, Chevron, Loews Cineplex Entertainment, Ritz Camera, and McDonald’s, which has been testing transponder technology in some of its restaurants this year.
Mr. Kranzley said wider use of Paypass would not require big changes to the card processing infrastructure. A Paypass transaction is “essentially processed through the MasterCard network like any other credit card transaction,” he said. “This is not a closed environment.”
The cards look like magnetic stripe cards and work like them in traditional credit card transactions, Mr. Kranzley said. The chip and the antenna are hidden in the plastic.
The chip is unusually cheap because it needs and has less memory capacity than those on most U.S. chip cards — 8,000 bytes versus 16,000 to 32,000. Though the Orlando pilot will use only credit cards, PayPasses could be used for debit cards too, he said.
There are additional security elements added to the transponder portion of the card, Mr. Kranzley said, such as a special indicator in the message that would prevent a transaction from being fraudulently done again with a larger transaction cost.
The cards will also come with a special sleeve that would prevent someone from using an electronic device to “skim” the account information.
Mr. Kranzley predicted that consumers will like using PayPasses. “It’s an easier transaction,” he said. “They don’t have to surrender their card; they just tap it.” And they don’t have to worry about inserting it in a card reader the wrong way.
Steve Kietz, a senior vice president at Chase Cardmember Services, the card-issuing subsidiary of Morgan Chase, said his company will issue the cards to a wide range of active and inactive credit card customers in Orlando and see how the feature affects their spending behavior.
“The merchant has the option of not requiring the signature in the pilot, which we really think will speed up the process,” he said. The low-ticket costs will limit potential fraud risks, Mr. Kietz added.
Beth Horowitz, MasterCard’s senior vice president of product services, said that the pilot, which is to end in June, is meant to gauge consumer receptivity, transaction times, and whether credit card use increases in these merchant locations.
Loews Cineplex got involved to improve service and “learn more about our customers,” said John McCauley, the vice president of marketing for the New York company. “If they’re using this product, we’re not going to have personal data on them, but in the aggregate we will know what impact this had on moviegoing.”
If the test is successful, Loews will “scale it up” to other theaters, Mr. McCauley said.
Ken Kerr, a senior research analyst with Gartner Inc. of Stamford, Conn., said that transponder technology would be of the greatest benefit to merchants that now accept cash only. The effect on a merchant that already accepts credit cards would only incremental, he said.
“The big inhibitor — why McDonalds hasn’t taken Visa or MasterCard — is that the speed of the checkout line is paramount, and cash is faster,” Mr. Kerr said. “They’re not going to do anything that’s going to slow down the checkout.”
