Saturday, August 19, 2006
Banking and credit card companies roll out credit cards with
It's a common ritual in a country with more than 500 million credit cards floating around. Customers and clerks swipe these pieces of plastic with magnetic stripes through readers that verify encoded information. With a little luck, the transaction is approved in seconds.
But the banking and credit- card industries are beginning to cut the last cord: They'll no longer require any physical contact with those swipers. In what could turn into a worldwide wireless revolution in payment methods, companies are rolling out credit cards with embedded radio frequency chips.
Customers simply hold up the cards - complete with their own minuscule antennae - and they're wirelessly linked to a new reader. There's nothing to sign either.
The idea is that transactions are faster and easier than with conventional credit cards, moving lines more rapidly and potentially changing the way we spend money. Variations on the same technology used by EZ Pass and ExxonMobil are hitting the banking world, allowing credit to compete even more with cash for convenience.
American Express already has rolled out a new Blue card with embedded chips and Chase over the past year has issued more than 1 million in Georgia and Colorado equipped with the technology that it calls blink. Expect the rest of the nation to follow.
In addition to such contact less cash transactions, these new cards also are equipped with a traditional magnetic stripe for a swiper. And that's something that's catching on at many nationwide chains.
At places like 7/11 and CVS and Walgreens, in many locations it's now as easy for card members as holding the card up to the reader and blinking their transaction, said Tom O'Donnell, a senior vice president at Chase. They take their goods and get their receipt, and they're on their way.
Analysts see these microchips in credit cards as a change that could affect millions and even billions of transactions.
It's a new payment form, a wireless payment, said Erik Michielsen, an analyst at ABI Research, in Oyster Bay. It increases merchant operation efficiency, raises average bills. Consumers have an easier, more fluid experience, which increases customer satisfaction. And it drives loyalty.
Michielsen reports that millions of these type of cards are being rolled out in 2005 and he expects to see tens of millions in 2006.
Some in the banking industry describe the shift to radio frequency technology as the biggest development in credit card technology in decades.
If you think about it, the use of a credit card hasn't changed in about 30 years, when the magnetic stripe was introduced, O'Donnell said. It's been 30 years since a brand new feature like this has been added to plastic. It's a big change.
It should make credit transactions even faster than using cold cash. And lines will move faster. The new system may make it even tougher to pirate a card number.
The idea for the merchant is to decrease the amount of time people spend online, O'Donnell said. This is a safe and secure way to pay. The credit card itself and the microchip are very safe and secure. They use a high level of data security.
Chase plans to bring it to this region, though there is no time frame for its arrival. But it's a high priority, he added.
Merchants with large numbers of small transactions such as CVS and 7/11 already are setting up readers in New York and nationwide. Chase believes that eventually many more merchants will also shift, creating a large number of venues equipped to take the cards.
Experts predict that once smaller purchases are shifted to credit cards, people are more likely to add items. Bigger purchases would shift later.
What's next?
Wireless payment technology isn't likely to remain limited to credit cards. Debit cards also are expected to cut the cord too. (Key Bank in Cleveland has already rolled out debit cards with microchips.) As for Chase, O'Donnell reports that We're currently developing our plans around debit cards, although we're not ready to introduce a time-frame yet. We think this new feature makes sense for credit cards and debit cards.
So is this the death knell for the familiar old magnetic stripe? Don't count on that.
Banks traditionally don't introduce something to replace something, said John Hall, a spokesman for the American Bankers Association. Generally, it's something to enhance a current system. Therefore, contactless transactions may reduce the number of checks that are written, but aren't likely to replace checks.
O'Donnell agreed.
Right now we think they'll exist together. There are millions of locations where people can swipe their cards. But it's clearly a faster and easier way to make those payments, he said. Over time, we believe we will migrate to making payments that way. How long is to be determined by the consumer and merchant.
And where will it all end? Microchips may be the beginning of an even bigger shift.
Michielsen believes chips will be inserted in phones and the phone itself could be used to make a payment instead of a credit card.
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