Transaction Processing & Electronic Payment Solutions

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Merchant Solutions for your business.

New Card Technology

Spending on the contactless hardware, software, and services was $260 million last year and is poised to hit $800 million by 2011. (Progressive Grocer, March 2006)

Contactless Payment Systems

• No swiping is required
• The checkout timeframe is greatly reduced
• The card never leaves the cardholder’s hand
• Magnetic stripe transactions are also possible

An increasing number of U.S. consumers are paying for purchases with contactless payment devices. U.S. consumers are using contactless devices to speed through payment transactions at gas stations, quick-service restaurants, theaters, and other merchants across the United States. Transit systems are also adopting contactless payment devices to improve consumer convenience, increase throughput, and reduce operating costs in major U.S. metropolitan areas.

Contactless payment uses radio frequency (RF) communication between a contactless device and a point-of-sale (POS) terminal to transmit consumer payment information. Merchants can implement contactless payment solutions quickly and easily and immediately begin accepting the contactless payment devices now being issued by the financial industry.

Benefits for Merchants

For merchants, the launch of new contactless payment methods represents an opportunity to attract customers and increase revenues. Especially in retail segments where speed and convenience are mandatory. Increased convenience and an improved experience for the consumer have resulted in increased sales, higher average tickets, and faster transaction times. Merchants also enjoy lower costs due to fewer requirements to handle cash, improved operational efficiencies, and lower maintenance costs, resulting from improved reliability of contactless readers. As an added benefit, merchants have improved fraud protection with the use of contactless readers.

Leverage of Existing Payments Infrastructure

The contactless payment implementations being offered in the United States by American Express, MasterCard and Visa leverage the existing magnetic stripe payments infrastructure. These new payment schemes store a secured version of financial data on the contactless card chip. The card then uses RF to communicate payment information to the terminal. The merchant and the acquiring processor see little change to the payment data, so major changes to POS systems or the processing infrastructure are not necessary.

Changes to the POS System

To accommodate contactless payment, merchants must simply add intelligent contactless RF terminals to their POS payment systems. The new contactless RF terminals support the contactless card applications specified by the payments companies and communicate via RF with the contactless payment cards or fobs to receive financial data. The terminals then pass the data to the attached POS payment system. These terminals are tested and certified by the payments companies before being installed in the field.

Since cardholders tap or wave the contactless cards or fobs at the terminals, the terminals must face the cardholders instead of the sales clerks. (This is similar to the approach currently used by multi-lane retailers in the United States.) In table-service restaurants, waiters can carry portable contactless terminals to allow cardholders to make contactless payments at the table.

Merchants can add contactless RF terminals to their current POS systems quickly and easily. Contactless readers that work with existing POS systems are already available, with new POS systems with integrated RF readers being released. The merchant investment required to upgrade a physical terminal at the point of sale is modest.

Interoperability

The major payment card companies have agreed to ISO/IEC 14443 Type A and B as the contactless RF payment standard. This decision is the key to future interoperability. Any contactless device that complies with ISO/IEC 14443 Type A or B will be able to communicate with new contactless payment terminals.

American Express, MasterCard, Visa and Discover have also developed their own unique specifications for contactless payments. These specifications reflect each company's specific application requirements and security needs. However, the payments companies have ensured that the specifications can coexist in a single RF terminal.

Contactless RF terminal vendors are expected to provide interoperability among the different contactless payment systems. The objective will be to offer a single contactless RF terminal that supports multiple contactless applications and accepts a variety of contactless cards and fobs from the major payments companies.

POS, Store Controller, and Acquirer Software

Payment card issuers will need to know whether a transaction is initiated by a contactless payment device or a magnetic stripe card. This requirement will require software changes at the POS system level, possibly at the store controller level. The acquirer will need to carry the required new field through the financial network to a card issuer authorization system.

Target Merchants

• High traffic merchants
• quick-service restaurants
• convenience stores
• video rentals
• movie theatres
• newsstands
• grocery/supermarkets
• Unattended point-of-service locations
• gas pumps
• vending machines
• ticket kiosks
• Transit applications
• parking garages
• subway
• bus

Summary

The combination of positive consumer experience, standards-based technology, potential to use the existing payments infrastructure, and support from major financial industry players offers compelling business drivers for contactless payment. Merchants who can benefit from faster transaction speeds and increased consumer convenience should assess the business case for upgrading POS systems for contactless payment and take advantage of the nationwide rollout of financial industry-backed contactless payment solutions to create a strategic competitive advantage and increase sales.

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