"Contactless" credit cards let buyers wave and go
Is it time to say goodbye to cash? Well, as "contactless" credit card use and technology expand, the time-honored greenback seems a little dated.
The technology enables cardholders to pay and go at select locations simply by waving a credit card in front of special readers, without generating a receipt to sign. Cardholders typically may wave a credit card or use smaller key chain card. Chase, which introduced its "blink" system last year, offers cardholders a typical credit card with a special computer chip embedded in the center of the card to make contactless payments.
Contactless cards are intended for purchases of $25 and below that are typically made with cash. A recent report by market analyst Datamonitor estimates the market for such payments to be around $226 billion a year. Cash payments of $25 and under in six key sectors (gas purchases, convenience stores, fast food, bars, nightclubs, and vending machines) totaled $724 billion in the United States in 2004, the most recent figure available.
At the end of the first quarter of 2006, more than 10 million contactless cards were in circulation under the American Express, MasterCard, and Visa brands. A growing number of merchants now accept the cards, including select 7-Elevens, CVS pharmacies, and McDonalds.
Card issuers are also beginning to extend the technology past the corner grocery store. Citi and MasterCard will begin testing the use of contactless cards at some New York subway stations this summer, allowing trial participants to pay for subway fares by swiping their Citi MasterCard PayPass cards at readers on the turnstiles. And consumers may forgo cards altogether; Chase recently tested its blink technology on cellphones. "The more convenient it is to make a payment, the more apt you are to use that form of payment," says Curtis Arnold, publisher of CardRatings.com.
But consumer advocates worry that the technology raises new security and safety concerns, particularly since cardholders often do not have to sign for purchases. Issuers say that the same liability and fraud protection applies to contactless cards as to regular credit cards. "Our base promise to our cardholders is that they are always protected, no matter what," says Scott Rau, a senior vice president with Chase.
Advocates are also concerned that the growth in contactless payment systems will only encourage cardholders to spend more–and sometimes money they don't have. Studies have shown that the average price of a transaction increases at the register when cardholders use contactless credit cards.
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