Waving Bye-Bye to Money
'Contactless' credit cards are the latest form of plastic
Is it time to say goodbye to cash? Growth in the use of "contactless" credit cards and related technologies could make the greenback a thing of the past.
A "smart" chip embedded in the plastic lets consumers pay and go simply by waving a credit card or a smaller key chain card in front of special readers. There's no receipt to sign.
Intended for purchases typically made with cash, contactless credit cards have rapidly caught on at gas stations, drugstores, and fast-food outlets. Now, card issuers are expanding the technology beyond traditional retail. Citigroup and MasterCard will test contactless cards at some New York subway stations this summer, allowing riders to swipe PayPass cards at readers on the turnstiles. MasterCard is also rolling out PayPass for use in vending machines; tests are set for the Philadelphia area.
More than 10 million contactless cards have already been issued under the American Express, MasterCard, and Visa brands for use at 30,000 merchant locations, including some 7-Elevens, CVS pharmacies, and McDonald's. 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 stations, convenience stores, fast-food eateries, bars, nightclubs, and vending machines) totaled $724 billion in the United States in 2004, the most recent figures available.
Dialing it in. Yet consumers may soon forgo cards altogether by using cellphones to make contactless payments. Thanks to near-field communication, a technology that enables two-way exchanges between electronic systems, U.S. cellular subscribers could use their phones not only to pay but to download content from other devices. "Imagine if outside the theater, there is a poster. You could tap your phone against the poster, download a ticket for the movie to get in, and also pay," says Oliver Steeley, a MasterCard vice president. The company plans to test mobile-phone payment later this year. And Chase has already wrapped up a similar test in which customers used their cellphones to buy food and drinks at an Atlanta sports arena.
Consumer advocates say contactless technologies raise new security concerns, particularly since cardholders often don't have to sign for purchases. But issuers insist 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--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. That's just another reason consumers may find themselves with a little less cash in their wallets.
This story appears in the July 17, 2006 print edition of U.S. News & World Report.
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