f you still think contactless payment is an exotic future technology that you don't need to deal with yet, you might have missed ExxonMobil's announcement in early March 2004 regarding the opening of the 1,000th store in its "On the Run" convenience chain.

Near the end of the announcement, it casually noted that "each U.S. store accepts Speedpass, the unique contactless payment system that is linked to a customer's credit or check card..."

Perhaps encouraged by the success of Speedpass and other contactless models around the globe, the major card associations are also rapidly developing contactless technology. MasterCard International and American Express Co. both have aggressive efforts underway. Visa USA is working with electronics giant Royal Philips Electronics on demonstrations and proof-of-concept.

As these programs move out of pilot and into the mainstream this year, it is important for ISOs and Merchant Level Salespeople (MLSs) to understand the ins and outs of contactless payments-and in particular, radio frequency (RF) technology.

To help you chart your course, a special panel on proximity, or contactless, payments will take place at the 2004 Electronic Transactions Association Meeting and Expo in Las Vegas.

If you're not attending ETA, The Smart Card Alliance (SCA) released a new white paper specifically focused on the benefits merchants will find in accepting RFID payments; download the white paper from the SCA's Web site: www.smartcardalliance.org .

Millions of consumers have already adopted contactless payment technologies. Electronic toll collection systems such as EZPass and FasTrak allow commuters to zip through toll booths; their payments are deducted from electronic accounts. ExxonMobil distributed millions of its Speedpass fobs not only for use at gas stations, but also in hundreds of Chicago-area McDonald's restaurants and some Boston-area Stop & Shop supermarkets.

Contactless as a broad payment vehicle really began to take shape in late 2002 and early 2003, with the expanding pilots implemented by American Express (ExpressPay) and MasterCard (PayPass). Both are seeking to introduce a new type of payment that will standardize contactless technology and provide a standard and cost-effective system that consumers and merchants will readily accept and use.

In a January 2004 cover story in Card Technology magazine, Celent Communications analyst Ariana Michele-Moore predicted that contactless payments will catch on in fast food restaurants, movie theaters and video stores-"three segments where consumers want to pay quickly and today mostly use cash."

The magazine noted those markets generated $160 billion in U.S. sales in 2002, and Michele-Moore contends that contactless devices will take 8% of that market by 2007. That's not the future, that's practically tomorrow.

Speed is the key benefit driver behind contactless payment. Market research firm Tower Group estimates that contactless payment using RFID fobs or contactless cards can save 10 to 15 seconds per transaction. Increased throughput, particularly in convenience and quick service settings, generally translates to increased revenue.

It's a widely held view that consumers make more impulse buys when they don't need to use cash. According to Card Technology, MasterCard found that PayPass cardholders used their PayPass cards 23% more often than during the same period a year earlier, and increased dollar purchases by 28%. Increased spending per transaction and increased frequency of transactions mean greater merchant loyalty and increased revenue.

Since 1994, when International Standards Organization (ISO) 14443 was introduced and adopted, approximately 250 - 300 million compliant contactless cards have been shipped, mostly for use in transportation applications for automatic fare collection.

Implementing contactless solutions and accepting contactless payments are relatively easy because the schemes tap into the existing credit/debit card infrastructure and the technologies being deployed adapt to existing POS systems.

Both MasterCard PayPass and American Express ExpressPay use a high-frequency RF device based on the ISO 14443 standard (Types A and B) to transmit payment data securely from the card to the merchant terminal.

These international specifications are often referred to as 'proximity' cards, communicating at up to 10 centimeters, which protects the account data from being captured by hidden readers. The new contactless payment systems store secured Track 1 and Track 2 financial data in the contactless card chip, and to date these chips are hidden from the consumer by embedding them into traditional mag stripe cards and specialized key fobs.

The chip communicates Track 1 and Track 2 payment account information to the terminal via a specialized RF reader, which can be integrated into the terminal or attached as a peripheral, just like a PIN pad. As far as the retailer and acquirer are concerned, there is little or no difference to a mag-stripe transaction.

While ExxonMobil Speedpass and American Express ExpressPay currently use key fobs, ExpressPay is expected to be available in a card form factor in the near future. MasterCard PayPass is available as a card and is also being used in Nokia cell phones in a Dallas-Fort Worth pilot. The obvious benefit to the card form factor is that consumer cards can be used in either RF mode or in traditional swipe mode.

Unlike smart cards, whose implementation requires an extensive retrofit of the POS infrastructure, contactless can be easily adapted to the existing system. As noted earlier, when used in a card form factor that incorporates mag-stripe, the card can be readily used in either the contactless and traditional contact or swipe manner, so consumers will not be confronted with an inability to use their payment cards.

Existing POS terminals can be readily adapted with an interface to a contactless RF reader. The preferred, long-term solution is a serial cable interface that provides bi-directional communications between a POS system and a contactless card reader.

This type of interface allows the POS system to read data whether it's coming from a contactless card or from a traditional mag-stripe card. Installing a magnetic stripe adapter is a quick and easy solution; MasterCard used it in its PayPass readers to convert the radio signal to magnetic stripe data.

To illustrate the success of contactless programs, let's take a closer look at Speedpass. Since the program began in 1999, VeriFone has delivered over 6,000 RF 250 units to ExxonMobil.

When customers go inside a Mobil-branded convenience store to buy coffee or other items, they can pay using the same key fob that they use for payment outside at the pump. They just present the key fob in front of the custom modified VeriFone RF 250 terminal built for Speedpass and complete the purchase.

POS manufacturers, including VeriFone, are taking the next steps to bring ISO 14443 A and B solutions to the market in both integrated and peripheral formats that support the new card association contactless initiatives. VeriFone's Omni 7000 and 7100 MPD PIN pads for the North America multilane retail market has an industry-first modular design.

The products can be upgraded at the factory or in the field with 'plug in' features, including a contactless card reader (available this spring). Retailers will now have the ability to upgrade 7000 and 7100 MPD systems to support both MasterCard PayPass and American Express ExpressPay programs.

This 'modular' approach to enabling PIN pads with integrated contactless readers gives retailers a 'future-proofed' solution that will support full-scale contactless rollouts.

In addition, VeriFone has worked closely with leading suppliers of RFID peripheral manufacturers ViVOtech and OTI to ensure that their readers will integrate with Omni 3740 and Omni 3750 terminals already using versions of VeriFone's SoftPay application in North America.

The benefits of contactless payment for consumers and the retailers have been proven in numerous implementations. Increased convenience for the consumer has resulted in increased sales and faster transaction times for the retailer. Retailers also enjoy lower costs due to fewer requirements to handle cash, improved operational efficiencies, and lower maintenance costs due to the reliability of contactless readers.

For ISOs/MLSs, the launch of new contactless payment methods represents an opportunity to attract new customers and increase revenues, especially in retail segments where speed and convenience are mandatory. By showing your customers a business case that helps drive additional sales for them, sales offices and agents who take the lead in promoting contactless to their customers will stand out from the crowd.

Robert W. (Rob) Regan currently serves as VeriFone's Director of Product Strategy, Global Financial Channels, reporting to the Vice President of Marketing. He is responsible for leading VeriFone's core product solution strategy, as well as managing VeriFone's relationships with the card issuing associations. Contact him at rob_regan@verifone.com .