Jul 19, 2006

Cool payment technology that makes contactless much more attractive for merchants

Anybody that reads my blog knows what I think of basic contactless cards which offer no other benefit than eliminating the need for a signature. Visa's No Signature Required program and MasterCard's Quick Payment Service program both offer the same benefits promised by contactless cards, but using existing magstripe cards, so there is no need to replace cards and POS terminals. But contactless can be made much more powerful and really stand out from magnetic stripe cards, if only the chip actually gets used.

Welcome’s R&D people recently gave me a demo of their new version of XLS for contactless cards. They showed it to me on both Visa Wave and Pay Pass. You tap the card and the full transaction is done instantly, both the boring, traditional payment portion of the transaction as well as all the payment enhancements that Welcome is known for. If you’re entitled to a promotion offered by the merchant, like a buy 1 get 1 free value meal for your next visit at McDonald’s, the promotion is automatically printed by the POS terminal. The merchant can target promotions based on the customer’s prior purchase history, for example a high value promotion given only to customers that have been to that merchant three times over the past month, or instead only to customers that are not loyal and that are probably shopping somewhere else. The customer’s prior transaction data is stored in the chip, so delivering the promotion is extremely fast, with no need for heavy duty data crunching at the back end. The bank’s authorization system is completely unaffected by the new feature and doesn’t have to be modified in any way at all.

What’s really cool is that the technology was designed for combi-cards, the standard contactless/contact type cards that are the only version of contactless that will be deployed outside the US. The card can be used sometimes in contactless mode and at other times in normal contact mode, for example when the transaction is over $25 or when a particular store hasn’t upgraded to contactless. The behaviour data in the chip is processed consistently across all transactions, contactless or normal. As Craig Bennett says, “tap, tap, insert … it doesn’t matter.”

The transaction is really fast thanks to a new payment algorithm Welcome has added to the standard Visa Wave and Pay Pass chips. One of our partners in New Zealand also saw the fast demo and said, “I don’t know how you did that!” It's pretty surprising to see so much processing going on so quickly.

I have no idea why a merchant would want to accept basic, "old way to pay" contactless cards that are not of much benefit, unless someone pays him to upgrade his POS terminals (which is what has been happening for the most part) and if interchange fees are dramatically cut. Giving merchants a simple way to target their existing promotions using behaviour data stored in the chip suddenly changes the game. Merchants immediately get much more value out of payment cards, with no additional investment or effort. The contactless value proposition for merchants suddenly becomes real, and no longer has to rely essentially on free terminal upgrades and slashed interchange fees.

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