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Just wave and pay 'Contactless' credit, debit cards are coming to your wallet

Say goodbye to swiping your card. Now you can just wave it.

Consumers in Western New York and other parts of the country will soon have a new way to pay for their Big Mac, Slurpee, drugs or movies.

Rather than sliding their credit, debit, or prepaid card through a reader or giving it up to a store clerk, they can just flash their card or keychain attachment in front of the machine or tap it and be on their way. No need to sign a receipt or get change, and no need for long lines.

Just as with the EZPass toll system for highways and bridges, or Exxon Mobil Corp.'s SpeedPass for gas, the new "contactless" system uses radio frequency waves, or RFID, to transmit encoded information. You have to be very close to the receiver, but there's no need to give up your card to a clerk or insert it into a machine to read the magnetic stripe. And there's no need to dig for cash or coins.

"It is the new wave," said Dave Jentsch, senior vice president of card products for HSBC Bank USA. "People don't want to have to swipe a card and then wait to either sign a receipt or enter PINs. They want to get in, get out and pay quickly."

Such "contactless" payments are the newest effort by banks, credit card companies and merchants to extend the reach of plastic payments and reduce Americans' reliance on cash. The goal is to make it possible to pay for small-dollar purchases by using credit or debit cards where they haven't been used before, but without tying up the consumer and merchant.

Banks and merchants say the electronic payments are faster, easy, more secure and more convenient than cash, and they're cheaper for the business to handle. And by accepting fast plastic for purchases, merchants hope to bring in more business -- and larger purchases -- from consumers who are in a hurry or who don't have enough cash on them.

"Those merchants recognize that people don't want to stand in line," said Tom O'Donnell, senior vice president of marketing for J.P. Morgan Chase's Card Services division. "Customers will keep driving if the line is too long, if there's too many sets of taillights, or if there's too many people parked at the convenience store."

For consumers, no signature or personal identification number is required for purchases of less than $25. And bankers say using cards means it's easier for consumers to track spending.

"Right now, if you take out $50 from the ATM, by the end of the day it's gone, and you're sitting there scratching your head trying to figure out where did it go," said David Sanderson, debit card product manager for Cleveland-based KeyCorp.

Such pie-in-the-sky initiatives have been unsuccessfully tried before -- witness the colossal failure of "smart" cards in the United States because of a lack of participation. But the contactless movement -- known as "tap 'n go" or "wave 'n pay" -- appears to be for real.

Three major credit card brands and several major U.S. banks and card issuers -- including KeyBank, HSBC, and J.P. Morgan -- have already begun issuing contactless credit and debit cards to customers, using the same technology standards to ensure consistency. All of the cards also can still be used with traditional magnetic stripe readers.

Key said in August that it would issue 2.1 million MasterCard Paypass contactless debit cards to existing and new customers, beginning Sept. 1. HSBC followed this month, also with PayPass, and will reissue 1 million cards by year-end.

And major merchants like 7-Eleven, CVS Corp., McDonald's Corp., Ritz Camera Centers and Regal Entertainment Group have started -- or even completed -- rolling out new machines that can read the cards. CVS and 7-Eleven expect to have terminals in 5,300 locations each by early 2006, while Ritz will install them in 1,100 of its shops.

> McDonald's likes them

McDonald's, which has been looking at electronic payments for five years, now has 8,000 U.S. restaurants accepting contactless payments, and 12,000 accepting cashless payments. The cost is subsidized by MasterCard International.

"It's going very well for us," said spokesman Bill Whitman. "This is something that our customers see tremendous value in, given that it helps speed service at the front counter and the drive-thru, whenever they come into our restaurants. Anything that benefits our customers is of great interest to us."

Locally, contactless card readers are already in place at a number of CVS drugstores and McDonald's locations, but the cards are just getting into consumers' hands so there's not much use yet.

But merchants are eager for that to change. "We'll be able to provide quicker service," said Lori Tschohl, owner of four McDonald's. "By the time they tap their card or slide their card, it's actually faster than having to give them change."

However, consumers locally have mixed feelings. Dwayne Cox, 54, of Buffalo, eating breakfast at Tschohl's McDonald's on William Street, said he would use such a card if he had it. "It sounds good. You wouldn't have to have money when you went out," he said.

"It's easier and simple," agreed 25-year-old Nefertiti Abernathy of Buffalo.

But Paul Walker of Buffalo was more reticent. "It would be something I'd have to think about," said the 57-year-old McDonald's patron. "I'd have to know more about it. You have to know about things before you use them."

> The 'cashless' push

The financial services industry has been aggressively pushing more transactions into electronic form, either through credit, debit or prepaid cards, or by converting checks to electronic transactions. That reduces the need to use cash and checks, which cost more for banks, merchants and the government to hold, safeguard, transport and process.

It also ensures the U.S. payments system can't be interrupted by natural disasters or terrorism disrupting travel. And bankers say it increases business for them and develops customer loyalty.

But one holdout area has been cash-intensive businesses that handle mostly small transactions, like fast-food restaurants, gas stations, convenience stores, movie theaters, parking garages, transit services and unstaffed vending areas. These businesses generated $160 billion in U.S. sales in 2002, with 95 percent of them cash, according to Ariana Michele-Moore of Celent Communications, a research firm.

Such businesses rely on speed and convenience to satisfy customers, so card purchases took too long because of the need to connect to the computer system, get approval and sign receipts. Also, the credit card network fees were too high.

Visa U.S.A. and MasterCard, together with their member banks, developed a faster processing method, and cheaper merchant fees, for small transactions. They've been actively promoting it to merchants, who want to reduce lines and encourage more spending.

> How they work

The contactless cards and other devices are the latest attempt down that road. They contain small microchips and radio frequency antennas that send out a limited wireless signal. The signal, which is encrypted, contains a one-time use card number for each transaction.

It's read by the receiver on the payment terminal, which sends the information through the regular payment system to be decoded and approved. The receiver will light up and beep to acknowledge the transaction.

All of the cards, machines and technology use the same technology standard, so that any contactless card will work with any contactless reader, regardless of issuer or merchant. And since the transactions are going through the major credit card networks, they will work at any merchant who is part of the network and has the reader.

To ensure security for consumers, the signal is only good for up to four inches, and is only activated when the card comes in range of high-frequency radio waves emitted by the receiver. The signal can be read through a wallet -- so you could just tap the wallet without ever taking the card out -- but the customer must be in front of the machine.

"You have to have a payment that's tee-ed up and ready to be paid, and you have to bring the card within close range of the reader," O'Donnell said. "It has to be a very intentional act."

The terminal can only read one card at a time. The tight distance and encryption also means it's not that easy to steal the signal. And since it's still a credit or debit card, consumers have the same protections as before.

"People don't have to be concerned if they walk next to the terminal if they're going to pay for someone else's groceries," Key's Sanderson said. "We wouldn't have gotten into it if there were any flaws."

e-mail: jepstein@buffnews.com

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