Jul 14, 2006

What is the unique value of contactless, if magstripe cards can be equally fast?

When Blink was launched, the advertisements promised “No more lines” as customers didn’t have to sign and could get through the checkout faster. Since then, it has become clear that contactless rides on existing Visa and MasterCard programs which eliminate the need for a signature when paying with any magnetic stripe card. See my prior posts on Visa's No Signature Required program and MasterCard's Quick Payment Service program. Both associations have recently expanded these programs to a large number of merchant segments, in essence all of those addressed by contactless.

Since you can get fast, no signature transactions with all magnetic stripe cards already issued, speed cannot be the unique selling proposition of contactless and "no signature required" cannot be the main advertising theme. (Although I loved Chase's Blink ad - see my post here.)

How about this angle: "The card never leaves your hand." True. The customer doesn't hand their contactless card over to the cashier. But that is certainly not a unique feature to contactless. Customers already run their own cards through readers at automated locations like petrol pumps, as well as in lots of retail outlets like supermarkets and convenience stores.

How about the novelty of tapping the card rather than swiping it? This one is totally unique to contactless, but how long before the novelty wears off?

Industry hype has allowed contactless to generate more press and analyst interest than the much bigger programs that offer the same fast transaction benefit. But at some point contactless is going to have to find its own unique selling proposition which is not available through Visa's No Signature Required program or MasterCard's Quick Payment Service program.

A hint on what the unique value of contactless could be? Contactless cards are chip cards, so they can do much more than traditional magnetic stripe cards.


Bruce Cundiff said...

I completely agree as I've often seen contactless as a 'trojan horse' for the proliferation of chip cards in the US. Every other attempt has resulted in yawns from all involved--merchant, consumer, issuer.

Question is, will the present momentum be enough to carry it through? If not, what's the next big thing that will re-generate that momentum? Will contactless become the standard and will we see cards (and other devices, of course) that drop the mag stripe? It's clear as mud right now...

Aneace Haddad said...

Yes, it's all definitely clear as mud! Especially in the US, where banks don't own the merchant relationship and are unable to easily modify what happens at the moment of payment. We are working with banks in other parts of the world, where the banks still are heavily involved in acquiring. In those regions, it is much easier to do deep payment innovation and get full value out of chip cards, whether contact or contactless. However, that then opens up other issues in countries migrating to EMV (i.e. everywhere else in the world). For example, if you can get the same fast transaction benefit out of low cost contact cards, plus the additional benefits of leveraging the behaviour data in the chip, then what is the unique selling proposition for contactless? Back to the same "clear as mud" situation!

There is one thing though that I feel real clear about in your comment. I can't see the mag stripe dropping off anytime in the near and even not so near future. Most cards are still embossed so they can be used in the old zip-zap machines with carbon paper. Cards already include at least 3 identification technologies: human readable print (so you can read the card number, expiration date, etc.), embossed print and electronically encoded characters on the magstripe. None of these technologies have caused the prior technologies to drop off of the cards. Chip is another additional technology which will coexist on the cards for a long time.

Thanks for your comments, and for reading my blog.