February 24, 2005
Is Cash Losing Its Cachet?
By Evan Schuman, eWEEK
Credit card companies, through consumer promotions and lower fees for retailers, have been whittling away at the last few cash-friendly refuges.
And as though George Washington needed even more disrespect to be heaped upon his picture on the one-dollar-bill, contactless payment systems are now helping to take the green out of greenbacks.
Contactless payment systems are wireless small devices used to pay for goods and services, as opposed to credit or debit cards that must have their magnetic strips swiped (which is the contact). Typical RFID contactless units are key fobs such as ExxonMobil's SpeedPass or plastic bars, which are used for EZPass tollbooths.
A contactless system could just as easily be a cell phone, a PDA or even a new credit card. A credit card would be considered contactless if it was scanned by a reader and not swiped.
"As consumers continue to use card-based transactions for smaller, traditionally cash-based purchases," said Erik Michielsen, director of RFID and ubiquitous wireless research for ABI Research, "contactless payment capabilities make more sense, especially for card issuers looking to increase customer loyalty and convenience."
For years, credit card companies have resisted contactless payment methods, but two of the largest players—MasterCard and AmericanExpress—have now started to embrace contactless systems, while Visa sits on the sidelines in the U.S. and watches, Michielson said.
American Express is pushing ExpressPay and MasterCard is offering PayPass. Visa is doing contactless trials in the Far East under the name VisaWave.
"What's lifting this to the next level is the expansion of contactless payment from these closed, branded systems, to open systems tied to bank accounts and major credit card issuers," Michielsen said. "These financial institutions now want a bigger share of what was in the past the cash-based economy."
Contactless won't necessarily dominate U.S. retail at any point, as its attractiveness is limited to stores where checkout speed is critical. Depending on a store's current check process, a contactless system can shave off anywhere from 15 seconds to about one minute. At a convenience store, a fast-food restaurant or even a popular coffee shop with very long lines in the morning, that kind of acceleration could be very helpful.
But at a service-oriented department store, those time reductions might be meaningless and not worth the investment.
Michielsen, who just completed an ABI report on contactless payment systems, sees a vast difference in contactless payment acceptance in the U.S. and Europe.
For the last several years, European—and Asian—retailers have surpassed American retailers technologically because—ironically—the U.S. technology infrastructure was so strong. The strength of the U.S. tech underpinnings gave little incentive for U.S. retailers to experiment as they were doing fine with their older approaches.
Loaded with other new technology investments, many European retailers have been uninterested in contactless systems. This time, it's the U.S. companies that are finding it easier to justify making the investments to make the migration.
"North America is really in the sweet spot with contactless RFID payments," Michielsen said. "When you think of smart card serices—cards with the chips in them—you think Europe. North America didn't implement smart cards because they didn't need to. Because Europe has such a foundation with the smart cards, they are very hesitant to move ahead with contactless. Europe is simply in a very different timeframe."
With reduced credit card fees for smaller purchases, the number of transactions that will reliably stay cash is quickly shrinking.
"There is a fine line between what a consumer is willing to use a credit card for and what they are willing to use cash for," Michielsen said. "Contactless is now for that intermediate space."