Tuesday, April 1, 2008
Key fobs may one day have a large footprint in the payments industry, but for now they appear to be a novelty. Six years after introducing a payment device that attaches to a keychain, American Express Co. is discontinuing its Express Pay fob. The fob was initially hailed as a convenience for customers who don't want to waste time pulling credit cards from wallets.
AmEx will focus instead on installing computer chips in traditional credit cards, enabling customers to hold such cards up to electronic readers as an alternative to manually swiping them. Some AmEx cards already employ this technology.
A report from Aite Group LLC, a payments industry consulting firm, stated that approximately 40,000 merchant locations are equipped with contactless readers. The report also noted that contactless cards represent only 3 percent of all debit cards in circulation and less than 1 percent of credit cards.
Critics of contactless technology say that high-tech criminals can buy readers and steal electronic data from unwitting cardholders just by getting close to them. The card Associations argue that contactless cards, like traditional credit cards, are embedded with encryption software that prevent duplication or data theft. Additionally, as with credit cards, contactless consumers aren't liable for unauthorized purchases.
AmEx is sending letters to its customers announcing when their fobs will be deactivated. The program will be completely phased out by July 2008.
Adam Atlas, Attorney and President of the Canadian Acquirer's Association, sees the lack of interest in fob technology being more of a psychological than practical issue.
"The theoretical appeal of new payment form factors is extremely attractive, but the problem is the practical implementation of these new factors," Atlas said. "We are so accustomed to paying with a traditional credit card that, psychologically, it is just too difficult [for contactless] to gain any momentum.
"There will be certain niche markets where form factors like fobs will be championed, such as gym memberships, school attendance records and college cafeterias. Those are scenarios where the alternative form factors are easier to implement and will creep into more common usage after they've made headway into those initial areas."
Atlas said that key fob technology is slightly ahead of its time, and the next generation coming into the workforce will embrace it.
"I think fobs are going to be even smaller than the AmEx fobs and eventually be integrated into cell phones and wristwatches," he said. "The next generation of young people is more tech-friendly and less spooked by new products and is more interested in convenience to a point that differentiates them radically from their parents."
Atlas pointed out that people tend to use AmEx cards for large-ticket transactions and business purchases. "But fobs are low-ticket transactions," he said. "So in my view, AmEx is not the champion for the fob. I think that title belongs to Visa and MasterCard, and AmEx may want to just focus on their traditional card present transactions."
Atlas doesn't see AmEx's fob failure as a barometer for contactless technologies' future.
Other companies are testing different devices. Bank of America Corp. offers a mini card that attaches to a key chain and is swiped through a traditional reader. MasterCard Worldwide is testing a contactless wristwatch. Visa Inc. recently made a micro-tag key fob available to financial institutions that issue cards with its brand. And Citigroup Inc. is pleased with the use of its contactless tag in New York subways.
AmEx wouldn't specify how many customers were using the fobs and noted they were available in only a select number of markets.
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