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It's Déja Vú All Over Again

By Ken Musante

Mainstream media are giving contactless cards a lot of attention lately. The coverage is largely a result of JPMorgan Chase & Co.'s May 2005 announcement of its new contactless "blink" card, and MasterCard International's recent partnerships with several major retailers for its PayPass solution.

Chase said it will be the first bank to "increase the speed and convenience of a credit card by ... rolling out consumer cards with contactless functionality." Chase plans to work initially with merchants in Georgia and Colorado.

More than 500,000 Colorado cardholders will receive blink cards, which they can use at about 400 merchant locations in 63 Colorado cities. In Atlanta, 1 million cardholders will receive cards that they can use at 400 merchant locations.

MasterCard announced that 7-Eleven Stores Inc.; Regal Entertainment Group's Regal Cinemas, United Artist Theatres and Edwards Theatres; Ritz Camera Centers; and the Sheetz Inc. convenience store chain will all accept PayPass.

Many people unfamiliar with our industry will read the articles and think "Contactless cards, what a great idea!" Those of us with experience and who are more familiar with the contactless concept want to know "What's in it for the retailers?"

The blink contactless cards will have magnetic stripes on them, which raises another question: Why would merchants upgrade their terminals when all these cards will work with existing terminals?

Granted, many merchants purchased chip reader devices, but those devices will not work with this contactless technology. Until merchants are losing sales, they will not upgrade unless it will save them time and/or money.

My speculation is that Chase is looking for incremental value from merchants who do not yet accept credit cards, such as fast food restaurants, vending machines and kiosks. MasterCard said its PayPass contactless solution affords the acquirer and cardholder all the benefits of a swiped transaction. (This means the acquirer will receive retail interchange rates and more limited reasons for chargebacks.)

I applaud MasterCard and Chase for focusing on expanding payment opportunities. Their work will directly benefit all of us in this industry.

Further, I am pleased with the potential that contactless cards can provide to all of us should there be a need to replace terminals.

However, unless Chase has a strategy for attracting additional retailers who do not currently accept credit cards, its plan is no different from American Express Co.'s Blue card, which did little to change anything.

Contactless and chip technology have been around since before tattoos were multi-colored. Products based on this type of technology have not caught on because no business case exists for merchants to upgrade their terminals.

In a recent "American Banker" story on contactless, when asked why Chase expects the merchant community to suddenly accept contactless cards, Chase Senior Vice President Tom O'Donnell said, "'We think we've solved that problem.'" Somewhere, somehow, I think I've heard that one before.

Ken Musante is President of Humboldt Merchant Services. E-mail him at .

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