Contactless and Smart Cards Changing the Face of Payments
Highlights from Opening Day of Smart Card Alliance Conference
Smart Card Alliance Fall Annual Conference, Miami, October 12, 2005–The emergence of contactless payment in the United States and the evolution to smart cards for credit and debit cards in Canada and Mexico took center stage on the opening day of the 13th annual Smart Card Alliance conference.
North American smart card microcontroller shipments will top 132 million units in 2005 and grow at a rapid 27.7 percent compound annual rate through 2010, according to remarks made at the conference by market research company Frost & Sullivan. And payment cards figure prominently in that forecast.
“We expect a huge change in smart cards used in payment applications between 2004 and 2010 and that will be driven by take-up of contactless payment cards in the United States,” said Karthik Nagarajan, senior analyst for Frost & Sullivan. The new report, “Americas Smart Card Market Analysis,” came as a result of a project to estimate the market in the Americas undertaken by the Smart Card Alliance in collaboration with growth consulting company Frost & Sullivan.
Chase Bank USA was recognized as an innovator in the financial sector, receiving one of the first-ever Smart Card Alliance Innovation Awards on the opening day of the conference. The award was presented for the bank’s large-scale introduction of a new contactless payment feature, which the bank calls Chase credit cards with “blink.” This innovation jump-started a new technology era in the U.S. payment card market, a market that has not seen a significant change in technology since the introduction of the magnetic stripe decades ago. So far, more than two million contactless smart cards have been issued.
Also receiving an innovation award on behalf of CVS/pharmacy was Jon Roberts, senior vice president of store operations. The company implemented 40,000 contactless payment terminals throughout their chain of 5,400 stores in 2005. The company made the decision after conducting a 19 store contactless payment pilot in Phoenix that demonstrated two important merchant benefits–an increase of 20 percent in the average purchase compared to cash and faster transactions. Roberts reported an average speed for a contactless payment of 12.5 seconds compared to 26.7 seconds for other cards and 33.7 seconds for cash. “The fact that we were able to prove success in live stores showed us you could drive revenue and improve service. That’s what gave us confidence to go forward,” said Roberts.
Why smart cards? “No better technology affordably combines personalization and protection,” said Damon Turnbull, marketing director for the Americas for Axalto, the event’s lead sponsor.
The Smart Card Alliance board elected Greg Garback, executive officer, department of finance for the Washington Metropolitan Area Transit Authority (WMATA) as its new chairman.
While contactless cards will drive the market in the United States, migration to the global EMV standard for bankcards will play a major role in Canada and Mexico. Ron Wall, vice president for the Bank of Montreal, told attendees Canada’s infrastructure would be in place by 2006 with a coordinated launch and trial in 2007. “Mitigation of fraud exploitation from skimming and counterfeiting is the primary driver for the move to EMV,” said Wall. Canada has about 93 million credit and PIN debit cards. Wall stressed that the non-interchange based market model for debit in Canada made the market economics very different between Canada and the United States. “Debit transactions are 60 percent of card payments. Canadians love debit payment. Checks are used so infrequently retailers wouldn’t know what to do if someone presented one,” said Wall.
Mexico is on the same path and moving quickly toward EMV bankcards, according to Ignacio Lara, executive director of banking cards and acquiring business for HSBC Mexico. HSBC is a leader in the move to EMV, and had completely migrated their entire card portfolio and VIP debit customers. In total there are 45 million credit and debit cards in Mexico, with 6.5 million EMV compatible smart cards issued currently.
HSBC used the security features of the EMV smart card to create what Lara called the “world’s first instant delivery credit card” called Inmediata. In the past new customers had to wait as long as 12 weeks after approval to get a card. With Inmediata, the HSBC account executive can provide a temporary card at a branch at the time of application. When approved the customer activates the card over the phone. “When customers come in for a credit card they usually have an immediate need like Christmas. If they have to wait 12 weeks that need is probably gone. Now they can have the card to use within a day or two of their application,” Lara explained. He also offered impressive proof. “Our activation rates doubled from 25 percent to 50 percent in first month. This shows it works,” said Lara.
As for EMV migration “the problem in Mexico is not enough merchants,” but Lara said that would change soon. The liability for chargebacks for non-chip transactions will shift to small merchants on January 1, 2006 and to large merchants one year later. Also a new government program that encourages terminalization and subsidizes merchants will bring 250,000 merchant terminals into the program over next two years by Lara’s estimates.
The Bank of Montreal and HSBC Mexico both received Innovation awards for their role in migration to EMV smart bankcards. The final Innovation Award went to the NFC Forum, a not for profit organization leading the development of Near Field Communications technology, a way of emulating smart cards in mobile phones and turning them into contactless smart card readers. More information is available at http://nfc-forum.org.
About the Smart Card Alliance
The Smart Card Alliance is a not-for-profit, multi-industry association working to stimulate the understanding, adoption, use and widespread application of smart card technology. Through specific projects such as education programs, market research, advocacy, industry relations and open forums, the Alliance keeps its members connected to industry leaders and innovative thought. The Alliance is the single industry voice for smart cards, leading industry discussion on the impact and value of smart cards in the U.S. and Latin America. For more information please visit http://www.securetechalliance.org.