MasterCard Pursues No-Touch Retail

The credit card giant is developing the next generation of contactless payment, which could improve convenience and security for customers while leaving traditional credit cards behind.

MasterCard International Inc. Vice President Oliver Steeley is working to make contactless payment available to millions of Americans. Contactless payment is where a customer authorizes a charge to a credit card without the credit card being touched, often by using a key fob, a smart credit card or a chip embedded in something else (such as a cell phone or wristwatch).

The authorization is sent to a reader wirelessly, from which it is then communicated to a POS (Point of Sale) unit, which might be a significant distance away.

The major card companies—including MasterCard, Visa International Service Assoc., American Express Co. and Discover Card—are embracing contactless payment for its convenience.

Credit card firms are also working to make it easier for retailers to use contactless payment in all kinds of purchases, including small purchases where cash would typically be preferred.

/zimages/4/28571.gifHow safe are the new contactless payment systems? Click here to read more.

But the initial credit card contactless offerings still require customers to present the card to make the purchase.

Steeley, MasterCard Internationals vice president of wireless payment devices, said he envisions a much more convenient world in which almost anything can become a virtual POS and MasterCard can play a major role.

A customer walking up to a display for a new movie, for example, could point a payment-enabled cell phone at one part of the display and instantly order movie tickets; another part of the display might download movie-themed ring tones for immediate use.

These ideas are just drawing board concepts and are years away from deployment, but they allow a sneak peek into the thinking of one of the worlds largest credit card firms as it envisions a very different future.

Another scenario from Steeley would allow a consumer to take a picture on a cell phone, then tap the phone against a television to have it display the picture.

A video could be played through a home surround system. A phone conversation could continue while the consumer walks around the house, where a series of microphones turns a suburban colonial into the worlds largest speaker phone.

Developments like these are the next logical step for the contactless technology already in use, such as key fobs that automate a customers payment for cash at the pump (ExxonMobils SpeedPass) and a visor-based chip that can speed cars through a tollbooth without ever stopping (EZPass).

/zimages/4/28571.gifIs cash losing its cachet? Read more here about contactless payment options.

MasterCard said it wants to take a central role in expanding contactless payment. But, Steeley said, the first step might very well be ditching the credit card itself and giving that payment power to some other device, most likely a cell phone.

"People think of MasterCard as a credit card company. But the truth is that were about a payment brand and, in the future, well be less about the card itself," Steeley said. "The form factor issue is a crucial and critical one for the payments industry. Payments will be less about the cards and more about how devices communicate with one another."

David Robertson, publisher of credit card analysis firm The Nilson Report, said he agrees that contactless payments are leading the credit card companies in the next logical change.

"This is confirming the evolution of this industry. Mastercard and Visa were the first U.S. credit card companies. Then they were international credit card companies. Then they were international credit and debit card companies," Robertson said.

"At Visa, there are more debit card transactions than anything else. But people still think of them as a credit card company. With Mastercard, they still have more credit card transactions."

There has been lots of talk about the security of contactless payments, raising questions about the actual distance required to read the devices and how much of that might be useful to thieves intending to steal either money or identities.

Steeley sides with those who argue that contactless payments are neither safer nor riskier than the magstripes on which current cards depend. Contactless cards are safer in some ways and riskier in others, but overall, the new model appears to be a security wash, he said.

The most frequently cited argument for the safety of contactless devices is that they never leave the customers possession. The counter argument is that thieves could theoretically read the data on a contactless card without the customers knowledge, which is quite hard to do with a magstripe card.

Streeley agreed with these arguments, but added that the MasterCard devices are set to be accessed from "zero to four centimeters maximum. You have to be pretty friendly to me to get that close to my phone," he said.

Next Page: Contactless payment security.