Is Peppercoin Eyeing Opportunities in Hot Contactless Market?

Could Peppercoin Inc., a processor of micropayment transactions both online and in card-present venues, be eyeing opportunities in the hot market for contactless payments? Though he refuses to comment on whether the company has any such plans, Mark Friedman, the Waltham, Mass.-based company's chief executive, he has clearly watched developments closely. “Peppercoin would provide tremendous value to those programs,” he says, chiefly through controlling transaction costs and handing merchants tools to encourage repeat customer visits. Peppercoin, which introduced a commercial service in December 2003, will bring live a third version of its system at the end of November that will include features such as virtual stored-value cards and customer-incentive-management to build customer loyalty and repeat business. Contactless payment technology, which is enjoying a breakthrough year in 2005, is apparently winning issuers and merchants through its ability to speed up card- transaction time in high-throughput, low-ticket venues where slow card payments were impractical. JPMorgan Chase & Co., which has been the most aggressive bank issuer of contactless cards, announced yesterday it would begin issuing the high-tech plastic to customers in the Northeast (Digital Transactions News, Oct. 27), bringing its chip-equipped card base to 5 million. Other banks, including MBNA Corp., KeyBank, Citigroup Inc., and HSBC Bank U.S.A. N.A., are also issuing cards or keyfobs on contactless platforms for both credit and debit card payments. Major chains like 7-Eleven Inc. and McDonald's Corp. have adopted the technology and are deploying it chainwide. With contactless cards, keyfobs, or other tokens, customers wave the token near a terminal or tap it on the terminal to initiate a transaction. Card-account data are transmitted from a chip-and-antenna inlay embedded in the card or token to a transceiver built into the terminal or linked to it. Visa USA, MasterCard International, and American Express Co., all of which have contactless payment platforms, argue venues such as fast food, where tickets can be as low as a few dollars, benefit from electronic payment because customers tend to buy more items than with cash. But Friedman argues the current platforms don't address issues such as transaction costs, since interchange fees, and hence discount rates to merchants, are left unaffected. Another issue, he says, is the absence of a merchant-based tool to foster repeat business, something that could be critical in low-ticket markets. If it costs a merchant on average $20 to acquire a customer, he says, and its average ticket is $3, “the merchant needs to bring the customer back seven times to have a profitable customer.” Peppercoin's software from the start has addressed the problem of transaction costs in micropayments through an aggregation model, by which average fees are reduced by leveraging them against payments aggregated for multiple customer transactions with one merchant. Peppercoin 3.0, which was announced last winter (Digital Transactions News, Feb. 2), will attack the problem of generating repeat business with features allowing merchants to offer and control incentives, Friedman says. A municipality controlling parking meters, for example, could offer drivers two hours of free parking time if they buy a $20 parking pass, he says. Another feature, which he calls a virtual stored-value card, will allow merchants to offer to customers the ability to treat any credit or signature-debit card in their wallets as a stored-value card at that merchant's locations, with the account value funded by a transaction on the card. If Peppercoin ultimately plays a role in contactless programs, it won't be the first low-ticket processor to tie into the technology. USA Technologies, which processes card transactions on vending machines, announced this week it is equipping more than 500 machines in New York and Georgia to accept contactless tokens on MasterCard's PayPass platform.