Discover Financial Services’ Nov. 29 announcement that it is distributing credit cards and stickers supporting its Zip contactless-payment technology to its customers, on the heels of a similar announcement last week from Bank of America Corp., suggests the emergence of two key marketplace opportunities that tap-and-pay technology could exploit, analysts say.
The first is the need for card issuers lacking mobile-payment technology to pump up consumers’ payment options with contactless cards and stickers that mimic mobile payment by enabling consumers to attach a device to a mobile phone for tap-and-pay speed and convenience.
A more intriguing reason card issuers may be pushing contactless payment again could be a provision in the Durbin Amendment within the Dodd-Frank financial-reform bill that enables merchants to refuse small credit card payments, contends Brian Riley, a senior research director with TowerGroup.
“If wider availability of contactless payments helps socialize people to using credit cards for more small-ticket credit card transactions, it might deter merchants from refusing them,” Riley tells PaymentsSource.
The legislation enables merchants to set a minimum dollar value, not to exceed $10, for acceptance of credit cards. The new rules are set to go into effect July 22.
Riverwoods, Ill.-based Discover on Nov. 29 said it began sending its Zip contactless payment cards and stickers to “select” cardholders two weeks earlier and will roll the products out to its wider customer base in starting in January (
“Contactless is a good step to something that’s going to be more significant in the future,” says Mark Scarborough, Discover senior vice president of cardmember marketing. The products are “slightly more primitive” than future mobile-payments systems under development, he says.
Indeed, contactless stickers are a far cry from fully realized mobile payment technology, such as phones equipped with Near Field Communication for two-way communication, which some issuers are testing. But they may help fill the void in the short run, Megan Bramlette, a partner with Auriemma Consulting Group, tells PaymentsSource.
Discover is working with AT&T Inc., Verizon Wireless and T-Mobile USA on starting a mobile-payments network called Isis, which the carriers announced on Nov. 16 (
Industry experts consider contactless cards and more specifically payments stickers to be a bridge to more-advanced forms of mobile payments.
Citigroup Inc. already issues contactless stickers to some of its credit cardholders. Bank of America Corp. last week said it plans to begin issuing contactless stickers for debit and credit cardholders next year (
Issuing contactless cards and stickers “is foundational to mobile payments using NFC,” says Richard Crone, the chief executive of Crone Consulting LLC in San Carlos, Calif. Such a move is an attempt by issuers to protect their “competitive boundary,” he says.
“The one who loads the chip on the card is the one who controls the chip on the card,” Crone says. “Even though it’s a chip, they restrict payment applications to the issuer’s brand. It also requires that the merchant load [the issuer’s] proprietary application on their point-of-sale terminals for reading it.”
Discover began testing its Zip contactless stickers in early 2009 with more than 700 employees at its headquarters in Riverwoods, Ill., and at a facility in Salt Lake City, according to a white paper the company released. It also has tested NFC phones for several years at its headquarters.
Scarborough declined to say how many Discover cardholders have contactless cards or stickers.
The company has been working with merchants to certify their point-of-sale terminals to accept its Zip contactless cards and stickers for payments, Scarborough says. More than 100,000 merchant locations are equipped to accept the payment type, the company says. The product uses the same ISO 14443 standard that supports Visa Inc.’s payWave and MasterCard Worldwide’s PayPass contactless programs.
Discover is taking a regional approach to expanding merchant acceptance, focusing on the San Antonio and Salt Lake City areas first, Scarborough says.
Cardholders interested in receiving a contactless card or sticker may request one by calling the company. Contactless cards and stickers are available for Discover’s flagship card products, including its More, Open Road and Motiva credit cards, a spokesperson says. Contactless versions of its Miles and Escape credit cards are not available but stickers are.
Contactless payment stickers are a logical step forward, but there may be little demand for such products in the long run, one observer says.
“These recent announcements about contactless stickers are a way for issuers to show consumers and the market that they have some activity with mobile at a time when there is a great deal of talk about mobile and new technology in development,” says Auriemma’s Bramlette. “In fact, stickers do not turn a phone into a mobile-payment device, and I doubt most people will stick them onto their $400 iPhones.”
