Discover Continues Its Zip Trial But Stays Mum About Any Rollout

A Discover Financial Services employee test of contactless payment stickers for mobile devices that started in April 2009 will continue, according to a Discover executive. But Discover is being coy about if and when it or its card-issuing partners will roll out Discover's Zip contactless brand on a wide scale. Riverwoods, Ill.-based Discover issued a white paper reviewing its findings from the employee test that involves more than 700 staffers at its Riverwoods, Ill., headquarters and an operations facility in Salt Lake City, Utah. The employees could use Zip stickers attached to their mobile phones to make payments inside the Discover facilities, such as in cafeterias and at vending machines, and two convenience stores at headquarters, and in the wider world at any merchant equipped to process such payments. In contactless payments, a card or sticker equipped with a microprocessor chip and antenna and held a short distance from a specially equipped point-of-sale terminal communicates transaction data via radio waves to the terminal. Published in November, the white paper said some 60,000 U.S. merchant locations accept contactless payments. That is one of the first confirmations by a payment card network about the size of the contactless card acceptance base in the U.S. The number is now up to 70,000, Farhan Ahmad, Discover's general manager of prepaid and director of emerging payments, tells Digital Transactions News. “It's growing really rapidly,” says Ahmad. The acceptance base, while tiny compared with the 6-milion-plus merchants that accept bank cards, is expanding as MasterCard Inc. with its PayPass, Visa Inc. with payWave, American Express Co. with ExpressPay, and Discover with Zip all work to get merchants to take their contactless cards. While the individual networks often issue press releases announcing that a particular merchant now accepts its contactless brand, acceptance of one brand generally means acceptance of all contactless cards because they all use the same technology. Acceptors tend to be low-ticket, high-volume merchants that value the fast transaction times contactless payments afford, such as gas stations, convenience stores, and fast-food restaurants. But contactless is making headway in other retail areas. Big-box home-improvement retailer The Home Depot Inc., for instance, is a new acceptor. Discover issues cards and signs large merchants directly. Discover also uses bank card merchant acquirers to sign and service small merchants and has some card-issuing financial-institution partners. As a network, Discover will work to promote both issuance and acceptance of contactless cards, according to Ahmad. “We think this is a good way for issuers to distinguish themselves,” he says. Some Visa and MasterCard issuers have pumped out millions of contactless cards, with mixed results. Ahmad stops short of giving any specifics about exactly what Discover or its partners will do regarding issuing Zip cards. A big marketing campaign isn't likely, at least in early 2010. Discover, however, could step up its marketing “if we believe an opportunity presents itself,” he says. “It really depends on how this market is picking up.” Discover didn't say how many transactions the pilot has generated, but 78% of the employees said they would use their Zip sticker more often if more merchant locations accepted it. Twenty-nine percent said they would use it more often if there were a different form factor, 29% said better checkout performance, and 10% said they use it every chance they get. Stickers are intended primarily for use with cell phones and related mobile devices, but 32% of the users attached the stickers to their identification badges, enabling them to make purchases in the Discover facilities without opening a purse or wallet. Some 44% of users put their sticker, which is about a quarter of the size of a regular credit card, on their cell phone or personal digital assistant, 13% in their wallet, and 11% in other locations. Many of the users who attached the Zip stickers to their cell phones or PDAs hid them by putting them on the inside of the devices' cases or in other inconspicuous places. They did so because they didn't want a device's payments ability displayed. In fact, 69% of users wanted the sticker hidden and only 4% wanted it visible, while 27% didn't care. Placement of the sticker, with its comparatively small antenna, on a handset can reduce the sticker's so-called read range, or distance from the terminal that it can effectively communicate, because of electrical interference from the phone. Contactless cards and fobs generally are designed to work up to 4 centimeters, or about two inches, from the terminal. Devices with metal cases had the most problems. Discover found that the problems could be overcome by placing a layer of ferrite, a metallic substance, in the sticker to act as a shield from electronic noise. As many others have, Discover in its white paper notes that contactless payments have not evolved as quickly as many had hoped because the advanced technology that would turn mobile phones into true payment vehicles, so-called near-field communication, or NFC, has not taken off. NFC leverages the phone's intelligence, including the chip controlled by the wireless carrier. Among other issues, the carriers and payments industry have yet to come to terms on how revenues generated by NFC-enabled phones would be shared.