Contactless Cards

By Joseph A. Naujokas, Naujokas & Associates

In a previous column, I predicted that in the USA, wide usage of smart cards will begin with contactless IC cards ahead of cards with contacts. Contact IC cards offer no advantage to consumers. A business case is not possible in the USA because extensive and inexpensive telecommunications negate any need for data storage or account authentication on a card.

Now it is a different story with contactless cards which definitely offer a convenience factor to consumers. The convenience factor for a consumer translates to a marketing factor to business. There are actually two major categories of contactless cards now being widely used in
the USA.

The first category is not normally thought of as a "contactless card." It is the contactless bar coded card (CBCC) which is just waived over the slot scanners used extensively in retail applications. These are machine readable cards that do not require any card surface contact with the reader, therefore they are contactless cards. Even when used with the hand scanners, there is no card surface contact with the reader.

While CBCC have been used for years in membership and other ID applications, the major breakthrough application is the retail loyalty application, primarily supermarkets, but also others such as sporting goods and office supplies. First appearing in 1997, these pre-encoded standard sized cards are issued at the POS usually with two smaller breakaway micro sized cards designed for storage on key rings. Now, virtually every supermarket chain in the USA issues these cards.

The consumer can have loyalty to several stores without having a wallet or purse bulging with standard size cards. The slot and handheld scanners are amazingly efficient and capture the code with the first or second waive.

You might be a little surprised that I call the bar coded cards as contactless, but indeed they are. I bring the CBCC up as an example of a card technology that is very user friendly to the consumer and brings real benefits to the consumer and merchant.

The second category of contactless cards use RFID technology and in ISO standards parlance, are called contactless integrated circuit cards (CICC). From a cardholder view, the CICC and the CBCC work the same way. Wave the card past the reader and you are ready to complete the transaction.

The first major application in the payments field of a CICC is the Speedpass™ which isn't a card but a key fob. Since its introduction in 1997 as a payment device for Mobil petrol stations it is now also being used at Exxon (ESSO in Canada) petrol stations, McDonald's restaurants and Stop & Shop convenience stores. It has been rapidly gaining acceptance by both consumers and merchants.

The first major mass application of the ISO standard CICC in the US is the Washington, DC metro system starting in 1999. It is used as an addition to the existing mag stripe ticket system. The Chicago mass transit system began using CICCs in 2000. They are being used in other cities around the world and increasingly draw interest from new prospects.

The Seattle Seahawks introduced a new mini-sized CICC in 2003 which was one of two finalists in ICMA's Élan competition for Technical Achievement. Both MasterCard and VISA, who were initially reluctant to use CICC because of security concerns, are now experimenting with the CICC.

The US is among the countries committed to issuing passports embedded with a contactless IC and antenna by October 26, 2004. The International Civil Aviation Organization (ICAO) conducted a long and arduous investigation before making the decision to implement CICC for passports worldwide.

Meanwhile, progress in the USA systems using IC Cards with contacts continue to move very slowly.

The ISO/IEC JTC1 WG8 working group is very active with several amendments and NP in process. All are aimed towards improving functionality, speed or reliability. An NP for a limited use CICC, essentially a paper ticket with an IC and an antenna, has been initiated.

Contact IC cards will be the "eight track tape" of the payments industry. In one example, the UK is migrating their mag stripe credit cards to IC cards with contacts. I believe the banks are doing a disservice to the merchants. The investment being made into contact card technology by the merchants will be worthless when CICC becomes technology of choice. The merchants will have to do it all over again, being forced by the consumers to do so.

I firmly believe that any implementation of contact IC technology for consumer oriented mass applications is short sighted. Consumers prefer the convenience of contactless. What do you think?