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Catching onto Contactless

In the past year, contactless payments in the U.S. have taken off. Leading financial issuers have put 13 million contactless credit and debit cards and devices into consumers' hands, and that number is expected to grow significantly in 2006. Both well-known national merchants, such as McDonald's, 7-Eleven, AMC Theaters, CVS/pharmacy and Arby's, and regional retailers, have made the choice to accept contactless payments.

Driving factors
Rapid adoption of contactless payments is being driven by shared benefits delivered to the three primary participants in a payment transaction—the consumer, the merchant and the issuer. Consumers get faster checkout, greater ease of use and greater security since they maintain control over the payment transaction.

Looking specifically at merchants, the benefits of reduced time at the checkout and higher transaction values are driving the business case for implementation. Chase has reported that time at the point-of-sale is reduced 30 to 40 percent, and Arby's has found that contactless took 10 seconds off of drive-thru transactions----a significant factor in being able to serve more customers. Research has also shown that consumers spend more per transaction when they don't use cash and early adopting merchants are confirming that consumers are spending more, more often.
These are quantifiable benefits to contactless payment and technical implementation is relatively straightforward. Terminals, software and processing networks are now in place to support contactless payments and offer significant business drivers for merchant acceptance.

Security standards
Contactless payments, as implemented by American Express, MasterCard and Visa, use a secure form of wireless technology that is optimized for payment applications. Contactless payment is built from the ground up on requirements for security, using sophisticated smart chip technology and multiple safeguards to protect against fraud. First, contactless payment cards use the international standard ISO/IEC 14443 and 13.56 MHz and are designed to operate at short ranges so that the consumer needs to make a deliberate effort to initiate the payment transaction. Second, contactless smart chip technology offers unique security attributes to prevent potential new types of fraud. Other security features have been implemented to prevent contactless transaction information from being used to create a cloned magnetic stripe card. and because the contactless payment device never leaves the consumer's hand it eliminates other fraud scenarios.

While we're still early in the adoption cycle, the market results for contactless payments have been positive. With issuers, merchants and consumers all seeing benefits, significant growth in adoption and use of contactless is expected this year, projecting that a new era of secure payment has begun.

Cathy Medich is manager of industry councils for the Smart Card Alliance

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