New Merchants Will Fuel Contactless Growth, But Trouble Lurks

Shipments of contactless-payment transponders–the cards, keyfobs, and other devices consumers use to make radio-wave payments at the point of sale?will explode in 2006, reaching 45 million units, up from 13 million last year, according to ABI Research, an Oyster Bay, N.Y., research firm that follows radio-frequency-identification technology markets. Most of the growth will come from the North American market, where contactless payments took off in 2005, with half a dozen issuers and about 25,000 merchant locations signing on. Meanwhile, ABI forecasts continued progress by near-field communication (NFC) technology, which enables contactless payments, among other functions, on mobile phones. The firm projects that worldwide shipments of handsets enabled for NFC will reach 600,000 by 2010, up from a trivial number now. Speaking yesterday at a conference on NFC in Las Vegas, Erik Michielsen, director of RFID and M2M research at ABI, said the penetration of new merchant markets, coupled with a ramping up by acquirers and independent sales organizations, will account for much of this growth. “We see growth being fueled by tier 2 and tier 3 merchants,” he said, referring to smaller retailers that are likely to install transceivers in the wake of adoption by large chains such as 7-Eleven Inc., McDonald's Inc., and CVS Corp. In particular, Michielsen looks for increased contactless adoption by gas stations, which have largely avoided the technology so far (ExxonMobil Corp. has equipped its stations to accept its Speedpass tokens, but these run on a proprietary standard that is not compatible with the standard adopted by MasterCard International s PayPass, American Express Co.'s ExpressPay, and Visa's Visa Contactless programs). “I'd like to see the the gas-station market addressed more,” Michielsen told the audience of bankers and wireless executives. “It's a key piece for consumers, and there are enormous opportunities there.” One thorny issue for smaller merchants, however, is that subsidies the card companies have offered so far to fund contactless equipment in merchant sites are likely to end, Michielsen said. “One of the big issues we'll see is that many tier 1 merchants received subsidies, and that's going to change,” he said. “You can't subsidize everyone.” That will raise affordability issues for merchants, he warned, and pressure acquirers to sharpen the business case for contactless payments. “There's already some push-back from small merchants [saying], 'I can't afford it,'” Michielsen said, adding the end of subsidies could also dampen interest by acquirers and ISOs, key players in signing small merchants for new payment technologies. In his remarks, delivered at an event managed by CMP Media and run in parallel with the massive Celluar Telecommunications & Internet Association (CTIA) Wireless convention, Michielsen repeated a warning he sounded earlier this year that contactless growth projections also depend on better coordination on technical specifications among the card companies and clearer marketing messages to consumers (Digital Transactions News, Feb. 16). In contactless-payment systems, which began to see commercial rollouts last year, consumers pay at the point of sale by waving or tapping a card or other token near or on reader that receives radio waves from the token. These waves carry card-account data, with the radio link-up replacing conventional card swipes. The technology is seen as a means of replacing cash transactions at high-throughput outlets.