TORONTO — Like Dick Tracy, we may soon be using our watches for more than time telling. The comic hero used his two-way radio-equipped watch to contact the police. MasterCard wants to equip watches with payment technology so that when we walk up to vending machines, we will no longer have to fish for change. We’ll simply be able to aim our watch at the machine to make the payment and receive our goodies.
This and other innovative payment technologies were up for discussion during a panel at MasterCard’s Financial and Payment Services Leadership Summit late Monday afternoon.
While panelists on “The Future Now: Payment innovation from around the world” were enthusiastic about the possibilities, they were also cautious.
“A lot of payment innovation doesn’t work in practice,” said panel moderator David Medeiros, director of research for global payments at the Tower Group. Much of the success of innovative payment techniques often depends on what’s happening behind the scenes, he said. Factors to consider include whether or not the technologies behind new systems are ready and how companies can make money processing a large number of payments at a small margin?
There are several forces driving the need for innovation, said Arthur Kranzley, executive vice-president for advanced payment solutions at MasterCard International in Purchase, N.Y. The economics are changing, he said. The launch of the Internet opened up new channels that the industry needs to think about, he said. New players — both big and small — are entering the marketplace. Small companies are getting into the field because it’s cheap for them to enter the market using networks and computers, Kranzley said. Larger companies, such as Yahoo, are also coming on board.
“All this is driving the need to innovate,” he said.
Kranzley said new products need to address what he calls the three S’s: Scope, simplicity and security.
Consumers are looking for simplicity and security and they are interested in carrying around less cash, he said.
U.S. consumers are relying less and less on cash he said. In fact, 74 per cent of consumers say they find it less and less necessary to carry large amounts of cash and 56 per cent believe most retailers will accept something other than cash.
Speed is one of the draws to new payment methods for merchants, Kranzley said in an interview. Some 75 per cent of consumers leave a line if they have to wait for more than five minutes and 25 per cent leave lines if they have to wait longer than two minutes. So if a vendor’s line is longer than five minutes, they will lose three-quarters of their potential customers, he said.
Kranzley went on to discuss a new “contactless” payment method launched in by MasterCard in 2002, PayPass, which cuts down the average payment time from 14 seconds to 3 seconds.
It’s a card with an embedded chip and radio frequency antenna which consumers tap on point of sale devices in order to make payments. In some cases, where transactions are below US$25, they don’t have to sign for the transaction.
By 2008, 65 per cent of transactions won’t be magnetic swipe, he said.
MasterCard wants to put the same technology on other devices, such as phones and watches, he said. While it’s easy to put a java applet on a phone, it’s difficult to make such transactions secure. Doug Kreviazuk, vice-president of policy and research at the Canadian Payments Association (CPA) said security needs to be a paramount consideration for those creating innovative payment methods.
The CPA is a not-for-profit association that operates national systems for the clearing and settlement of payments.
“We work as a risk reality check for payments and clearings,” he said.
Often, new payment method providers don’t consider the needs of merchants and consumers, he said.
“Not all innovation is welfare enhancing for all participants.”
The CPA doesn’t approve all new innovations, he said. One new method, which the CPA rejected was tele-cheques. They are paper payment items that resemble cheques except that they are neither created nor signed by the payer. Instead, they are created, and may be signed, by a third party on behalf of the payer, who has purportedly authorized the withdrawal. But financial institutions have no way of confirming the authorization.
MasterCard is currently doing pilot tests of PayPass in Canada.