ATM operators are divided about the prospects for contactless. And understandably so.
In many respects, contactless isn't there yet. Or more accurately, the architecture isn't quite there yet for integrating and securing consumer applications being marketed for contactless use.
Still, contactless is worth watching. Here's why:
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1) It significantly speeds up transactions — A CVS study found that contactless transactions take one-third to one-half of the time of traditional card reader transactions. (And it's "baked in" to a lot of POS devices today, simplifying the merchants' decision whether to use it.)
Even allowing for PIN entry at an ATM, contactless could significantly increase ATM transaction speeds over dipping a mag-stripe card or inserting a contact EMV card. Plus, it would eliminate the need for the ATM user to "give up" their smart card for the duration of a transaction. And this would remove the chance of customers leaving an ATM with their contact card still in it.
2) A U.S. appeals court has blessed it — In March of 2010, SmartMetric Inc. filed a patent infringement suit against Visa and MasterCard (and, eventually, American Express) claiming that the companies' use of contactless payments infringed on a process it owned. In brief, the patent covered insertion of a chip-enabled card into a reader, thereby automatically initiating contact with a network.
A U.S. Federal Appeals Court decision on April 11, 2012, confirmed a lower court ruling that the patent did not apply to contactless payments because they do not meet the patent language specifying card insertion.
SmartMetric has a second case pending against the card companies over contact card use. And the contactless decision could strengthen SmartMetric's claim. But it could take a couple of years for the case to make its way through the courts, leaving the future of contact somewhat up in the air.
3) The nation's biggest bank is pursuing it — Within the past week, Olivier Piou, CEO of Gemalto, disclosed that the company had been tapped by JP Morgan Chase to manage its customers' credit and debit card data for contactless payments. If other major banks follow suit, it won't take contactless long to reach critical mass among consumers.
4) It powers the mobile wallet — This smart phone capability promises the simplicity and ease that consumers crave. And it's becoming an option for ever more of them. Nielsen estimates that by 2014, 90 percent of Americans will own a smart phone.
And the list of NFC-enabled smart phones is growing fast. Among the larger mobile companies, Blackberry, HTC, LG, Motorola, Nokia and Samsung offer NFC-equipped models. Rumors persist that Apple will introduce NFC soon, though the company is characteristically coy about its plans. An NFC-enabled iPhone may well be the tipping point for the mobile wallet.
One damper on consumer adoption of the mobile wallet is concern about privacy and security. Panel research conducted in March by marketing agency Catapult found that this was a worry for 91 percent of consumers.
However, digital security firms such as MagTek are developing increasingly sophisticated mobile data tokenization that they say will put control in the user's hands, thus increasing consumer confidence in mobile wallet apps.
5) The major card brands are promoting it — For obvious reasons. A study by MasterCard Advisors found that cardholder spending rose approximately 30 percent in the 12 months following first use of a contactless card and that consumers showed a greater top-of-wallet preference for the contactless card.
To help drive contactless enthusiasm, Visa debuted its v.me mobile wallet last November. In May of this year, MasterCard introduced its PayPass mobile wallet, which will round out its partnerships with other mobile wallet providers. And this week, American Express announced a plan that will deepen its relationship with Isis, the mobile wallet joint venture between AT&T Mobility, T-Mobile USA and Verizon Wireless, which is expected to launch this year.
For more on this topic, visit the EMV research center.