From December 2007

By Patricia A. Murphy

Image, as they say, is everything, but it may not be enough to convince millions of Americans to immediately embrace tap-and-go payments.

The image that Jack in the Box likes to project is one of cool innovation. It was, for example, the first hamburger chain to open drive-up windows and serve breakfast sandwiches, so it took a serious look at contactless payments: today, most of its 2,000 units accept payments initiated using contactless devices like key fobs.

“We’re trying to reinvent our brand,” division vice president Michael Verdesca said during a recent STORES Knowledge Series webinar on contactless payments. “This fits right in with what we’re trying to do.”

Contactless payments offer additional benefits, such as improvements in customer through-put. Jack in the Box, for example, has been able to shave nearly 10 seconds off the time it takes to complete a transaction because cashiers don’t have to exchange cards, cash and coins with customers, Verdesca said.

Gavin Waugh, senior vice president for Arby’s Restaurant Group, concurred; Arby’s has been accepting contactless payments at its 1,100 U.S. stores since June 2006. “We can’t say for sure what the payments highway will look like in the future, but we’re pretty confident it will be compatible with NFC technology,” Waugh said during the same webinar.

NFC (near field communication) describes a type of contactless chip that can be embedded in cell phones. A short-range, standards-based wireless technology, NFC is becoming standard on mobile telephones, according to the Smart Card Alliance, a multi-industry association that champions smart card adoption (and a co-sponsor of the webinar).

An NFC chip loaded with account information and embedded in a mobile phone can act as a card and/or a reader, enabling users to connect and share information, content and data and make fast and secure payments.

“It’s a very easy leap to use cell phones for payments,” says Chris Allen, senior manager of Boston-based Dove Consulting.

A recent test by wireless provider Cellular South found that 87 percent of consumers using the company’s Wireless Wallet at 50 merchants in the test markets of Jackson, Miss., and Memphis, Tenn., were interested in using their cell phones as electronic wallets once the service becomes commercially available.

Cellular South, which worked with Bank of America to pilot Wireless Wallet, plans an official rollout of the product in 2008 – and it’s unlikely to be alone. Jupiter Research projects that, by 2011, 12 percent of mobile phones in circulation worldwide – nearly 470 million – will offer support for contactless payments using NFC technology, and the market for mobile payments will top $11.5 billion.

Fraud deterrent
It is perhaps an innovator’s worst nightmare. A new product or technology starts to take off, acceptance grows, and then questions arise about the safety or propriety of adoption.

For contactless payments, the bad press came about a year ago when several media outlets, including The New York Times, reported that a group of scientists had devised a way to lift personal data off the computer chips that drive contactless cards, key fobs and the like.

The chips, which contain basic account information, use radio frequency technologies to communicate with POS terminals. The scientists, a group affiliated with MIT, described “surprising vulnerabilities” that allowed them to crack the codes protecting the chips.

Very little has been written since then, however, and experts say that’s because contactless cards actually offer better protection against fraudsters than traditional cards.

Safer than mag-stripe
“There’s no doubt that contactless technology is safer than ordinary mag-stripe alternatives,” says Steve Mott, president of technology consulting firm BetterBuyDesign.

For starters, fraudsters would need to develop the tools necessary to lift card account information from a contactless device. Considering that information is available relatively cheaply on the black market, “It’s just not worth the cost and risk,” Mott says.

And most banks’ systems for identifying potentially fraudulent contactless transactions “are similar to those used for card-not-present transactions,” says David Guerin, vice president for payments at San Antonio-based BSG Clearing Solutions.

“Contactless is definitely a superior product to the mag-stripe product from a security perspective,” Waugh said, and “it will be a critical part of securing credit and debit card payments in the future.”

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