Inconsistency Threatens Contactless-Payment Rollouts, Expert Warns

For all the progress banks and merchants have made so far with contactless payments, further success is threatened by inconsistent approval criteria for components ranging from chips to readers, an expert in radio-frequency-based payment warns. That inconsistency, he says, is driving up costs and breeding frustration among vendors. “It's just very confusing to a lot of folks,” says Erik Michielsen, director of RFID and M2M research at ABI Research, Oyster Bay, N.Y. Michielsen says banks and their card associations should work now on improving communication among themselves to bring greater consistency to the way they certify contactless-system components. “It's important the market gets streamlined,” he says. “It's better the industry confronts this issue now rather than wait another year.” Otherwise, he warns, the problem will only magnify as shipments build up to meet the demand expected on current trends. According to figures ABI has compiled, there are now at least 120,000 contactless readers in place at retail outlets. Between 11 million and 12 million cards and other specially equipped tokens were issued last year to consumers, a number Michielsen says will “more than double” in 2006. Although Visa USA, MasterCard International, and American Express Co. have based their contactless programs on the ISO 14443 standard, which permits interoperability between the systems, Michielsen says the card companies apply different criteria in evaluating inlays, tokens, and other equipment. He expects Discover Financial Services LLC to begin rolling out the technology, as well, which could exacerbate matters. The need to comply with inconsistent criteria, he warns, forces parts makers to build units in smaller batches, undermining the economies of scale that normally stem from commercial rollouts. “Companies have to do smaller-batch designs,” Michielsen says, while “everyone is begging for lower prices and higher-performance products.” Michielsen says he has spoken to about 48 component companies, with at least half of them citing the problem. “They're frustrated,” he says. While he doesn't advocate a cross-network committee or other group to work out the issues, he says the card companies are going to have to learn to communicate with one another more effectively. “There has been some cooperation,” he says. “There needs to be more cooperation.” In contactless-payment systems, which began to see commercial rollouts last year, consumers pay at the point of sale by waving or tapping a card or other token near or on reader that receives radio waves from the token. These waves carry card-account data, with the radio link-up replacing conventional card swipes. The technology, which is now migrating to mobile phones as well, is seen as a means of replacing cash transactions at high-throughput outlets.