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Article published in Issue Number: 070101

Contactless: Right where we should be

By Bulent Ozayaz, VeriFone

By the end of 2006, U.S. banks had issued 17 million to 19 million contactless credit and debit cards, according to industry estimates. One market research company, JupiterResearch, estimated those numbers will increase to 37 million by the end of 2007 and 188 million by 2010.

Merchants are starting to pay attention. Although few are ready to commit to wholesale replacement of existing systems, many are now beginning to make purchase decisions with a future upgradeability to contactless as a consideration.

Converting an installed base of payment systems to a new technology platform is a lengthy process. Most merchants are extremely conservative when it comes to investing in new equipment.

They do not adopt new technology willingly without a strong business case for a compelling return on their investment - or a substantial subsidy from a solution provider willing to underwrite a showcase demonstration.

As ISOs and merchant level salespeople, should that discourage you from selling your customers contactless solutions? Hardly.

The merchant driver

Merchants and acquirers may not yet be willing to pay for contactless, but they certainly need to start thinking about their ability to accept it for payment as more and more consumers walk into their shops expecting to be able to tap their bankcards and quickly complete the purchase.

Your role should be to lead - not force - merchants to recognize the potential of contactless and start thinking about the competitive disadvantage they may face when competitors begin implementing it.

VeriFone's strategy is to be poised to meet merchant needs as they develop. We have an array of products - from an upgradeable, modular system to unattended systems for drive-thru, kiosk and pay-at-the-pump applications to a card reader - that can be adapted to accept contactless payment.

Merchants need to consider the growing millions of contactless cards now in circulation.

The list of issuers that have so far initiated contactless cards in the United States is impressive: American Express Co., Bank of America Corp., JPMorgan Chase & Co., Citibank, Citizens Bank, Key Bank, HSBC Bank, U.S. Bank and Wells Fargo & Co.

So is the list of retailers that have begun a partial or wide-scale rollout of contactless-acceptance systems: McDonald's, 7-Eleven Inc., Wawa, CVS/pharmacy, Walgreen Co., Regal Entertainment Group Cinemas and more.

As consumers receive contactless cards - and watch snazzy television advertisements showing them how to use the products - they will increasingly expect their merchants to accept them for payment.

Industry standards and market requirements have matured to the point where we can build contactless payment systems with the assurance that changing technology won't make those legacy products obsolete in the near future.

That type of stability is crucial to fostering merchant willingness to invest in contactless, whether peripheral readers or replacement terminals with the new technology embedded in them.

Contactless enables a fast and secure payment process, and VeriFone expects demand to grow significantly. Markets around the globe are intensely focused on making payment faster and more convenient for customers, and contactless is one way to speed the process.

The faster the payment process, the more retailers are able to maximize their revenues and minimize their costs.

Contactless is currently a single-application product. The true value in contactless will lie in multiapplication systems, which are within the capabilities of the technology VeriFone has developed.

The NFC driver

A contactless POS system should be able to communicate with consumer contactless devices - such as mobile phones equipped with near field communication (NFC) technology - to transfer coupons, loyalty information or promotions. Or, to transfer information and data that may be pertinent to the marketing systems of the near future.

NFC-based value-added applications will help drive contactless payments, just as contactless payments will help drive NFC applications.

To this point, the payments industry has made strong and early steps on the path to contactless. And we are still very much at the beginning stages of merchant and consumer acceptance.

We have a long road to travel to ultimately convert the existing infrastructure to this exciting new way to pay.

But we are right where we should be. We must ensure we have contactless capability available for the merchant community when they are ready for it. As each new merchant adoption takes hold, it will encourage the next and speed up the pace of use.

At some point, contactless will become a requirement for payment systems, rather than an option.

Bulent Ozayaz is VeriFone Vice President of Marketing for North America. E-mail him at

Article published in issue number 070101

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