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TransCore Looks to Expand Its RFID Pilot in Dallas
May. 14, 2004
A payment system based on toll-road transponders in Dallas will expand later this year beyond the five McDonald's restaurants that have been part of the radio-frequency identification (RFID) pilot since its inception two years ago. Hummelstown, Pa.-based TransCore, which installs RFID-based toll-road systems around the world, says it will add more merchant sites and begin heavy-duty promotion of point-of-sale acceptance for a system it developed in the late 1980s for the North Texas Toll Authority. The NTTA, it says, has agreed to help promote POS acceptance of the technology, which TransCore calls "Pay by Tag," by including information on the program in its brochures and in statements it sends to motorists who use the system on the toll road and by posting links to the Pay by Tag program on its Web site. At the same time, TransCore is talking to merchants, including hamburger chains as well as car washes and dry-cleaning establishments, that are close to the five McDonald's stores and expects to sign up seven more acceptance sites by the end of the year. Next year, its plans call for another 30 locations to be added to the pilot. Both the NTTA promotions and the new merchant locations should start rolling out in the third quarter, says Ken Boekhaus, business development director for m-commerce at TransCore. In addition to the McDonald's outlets, some parking garages at Dallas airports and in the city are accepting Pay by Tag currently.

The NTTA's cooperation in backing Pay by Tag should help drive consumer enrollment and usage, Boekhaus says, by attracting motorists who already use the technology to pay their tolls. More than 800,000 drivers use the NTTA system currently. "It gives us a lot more marketing muscle because we're targeting the people we're looking for," he says. "Radio advertising falls on deaf ears." Although transactions have been increasing steadily in the McDonald's drive-ups, where the RFID receivers are installed, they still account for only 2% of all drive-up payments, not a compelling number on which to sell the service to other merchants. "We want to get that number up to show a return on investment for merchants," says Boekhaus. By signing up merchants in the immediate vicinity of the five McDonald's restaurants, TransCore hopes to encourage usage by allowing drivers to use their devices at a variety of places in their neighborhoods. Though the transmitters are mounted in windshields, they are usable in any drive-through configuration, such as pharmacies, car washes, and fast-food places. Even some local dry-cleaning stores, says Boekhaus, feature drive-throughs. As with other RFID pilots conducted so far by American Express Co. and MasterCard International, Pay by Tag cuts transaction times. TransCore says tender times in its McDonald's pilot are 18 seconds faster than cash. TransCore is supplying readers for the pilot at no cost to merchants, which is putting restraints on how many locations the company can recruit. "We're limited by our budget because we're providing all the equipment at our cost," says Boekhaus. Ultimately, though, the company plans to collect a fee of around 1% of each transaction amount for the RFID service, which would come on top of credit card discount rates merchants pay. "We're in it for the transaction business," says Boekhaus.

Motorists who use TransCore's device to pay tolls must enroll separately to use Pay by Tag, setting up an account backed by a credit card number. Although Pay by Tag payments originally hit prepaid accounts replenished by periodic charges to a credit card, TransCore dropped the prepaid system last October when it discovered it was discouraging participation in Pay by Tag. Motorists had already set up a prepaid account for their tolls, and didn't want to establish another one for point-of-sale payment, Boekhaus says. Now non-toll payments are routed directly to credit card issuers as if a card had been presented. This move also allowed the company to eliminate statements it sent to Pay by Tag users as well as a $1.50 account fee it charged each month to cover the cost of the statements. TransCore processes the transactions by translating the unique identifiers assigned to each transponder to the linked card accounts, which are centrally stored. Unlike MasterCard's PayPass and AmEx's ExpressPay RFID systems, the chips in the Pay by Tag devices do not store and so do not transmit card account data.

The Dallas area was also the site of a PayPass pilot MasterCard conducted last year involving quick-service outlets and cell phones as the payment device. ExxonMobil Corp., whose Speedpass RFID payment service relies on technology similar to that of Pay by Tag, suffered a setback in March when McDonald's announced it would shut down a Speedpass pilot it had been conducting at 440 restaurants in the Chicago area. The five restaurants accepting Pay by Tag in Dallas are part of a network of 45 McDonald's stores operated by Baibrook Partnership, a McDonald's franchisee.

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