ontactless or proximity payments, which are made by transmitting data using wireless or radio frequency (RF) technology, are a type of payment that I find very exciting for our industry. ViVOtech Inc., a provider of contactless payment solutions, is one company leading the way in this field. I recently had the opportunity to interview Mohammad Khan, one of ViVOtech's founders and the company's President and Chief Operating Officer.

Matthew Swinnerton: Why was ViVOtech started?

Mohammad Khan: The main idea in starting ViVOtech was to leverage the recent proliferation of mobile phones and other wireless technologies to offer better solutions for the payments industry. We had questions such as:

Why can't we pay using a cell phone? Why not carry all of our credit cards in a cell phone instead of a bulging wallet? Why not use wireless technologies such as radio frequency identification (RFID) or infrared to make a transaction rather than swiping a card? Why can't we have a better solution than a magnetic stripe card?

These questions drove the formation of the company. Jorge Fernandes, ViVOtech's Chief Executive Officer, and I believed we could provide answers to the above questions. We believed that making and managing payments could be a lot more fun and an easy experience for a consumer. We believed that it was important to provide enriched payment solutions that would allow merchants and card issuers to replace cash faster while also allowing them to reward their loyal customers with savings and personalized services.

We wanted payment solutions that would enable merchants and card issuers to differentiate their offerings. Jorge was the entrepreneur, and I was the payments industry expert. We both were evangelists by nature (and still are!). It was a perfect match for us to start a payments technology company.

MS: How was the company founded?

MK: In February 2001, our mutual acquaintance, Dale Achabal, Ph.D. (a professor at Santa Clara University in California) introduced us so we could figure out whether such a thing was possible or not. My 15 years of experience in the payments industry (mostly at VeriFone Inc. from 1983 - 1998) helped me identify the current pains, opportunities, and what could or could not work well in the industry. After spending three months on this, we decided to move forward and incorporated the company in May 2001.

Our objective was to focus 100% on providing enriched payment solutions using contactless technologies and innovative software. We wanted to enable wireless devices such as cell phones, PDAs, cards and fobs to make a payment locally at millions of POS locations worldwide. For the first two years, we were based out of Los Altos Heights, Calif., where Jorge had allocated half of his house for this start-up effort.

Through friends and borrowed money, we funded development of our early products: payment software for PDAs; payment management server software; a contactless reader with RF and infrared support; and adoption technology to enable an existing POS to accept a transaction from a wireless device. We gathered a good team that had engineers from both payments and new technology backgrounds.

The first commercial business order ViVOtech received for its product was from MasterCard International in early 2002. MasterCard wanted us to develop a contactless RF card reader for its PayPass contactless payment program that uses ViVOtech's quick adoption technology to provide an easy add-on to an existing POS system with no software changes. This was our first commercial ViVOpay reader product.

ViVOtech received its first venture capital funding of $5.3 million in August 2002, right after we delivered the first working ViVOpay product to MasterCard in early July 2002. In September, we moved to our current Santa Clara, Calif. facility. In 2004, we received an additional $6 million in funding, and we now occupy a 20,000 square foot space with 55 full time employees and about 10 consultants.

MS: What is ViVOtech's greatest achievement to date?

MK: The greatest achievement of ViVOtech has been providing an easy-to-install contactless payment acceptance solution to MasterCard for its PayPass pilots in Orlando, Fla. and Dallas. ViVOtech's solution allowed many brand-name retailers to participate in the PayPass program in both cities without requiring any software changes to their POS systems.

American Express (AmEx) has also successfully used ViVOtech technology to enable a long list of brand-name retailers as part of its ExpressPay contactless payment program pilots in Phoenix, New York and Singapore.

Besides MasterCard and AmEx, a major retailer in North America has also deployed ViVOtech technology to enable a large number of its POS locations to start using contactless programs. We're also working with Visa International for its Visa contactless payment roll out, starting in early 2005.

ViVOtech finished 2004 with almost 50,000 contactless readers shipped that year. This is a large number jump considering that ViVOtech had shipped less than 2,000 readers only a year before.

This shows that it's not only at the pilot stages, but also in the commercial rollout stages; ViVOtech contactless products are succeeding to have the largest market share.

MS: What's in store for ViVOtech in 2005?

MK: If 2003 and 2004 were the "pilot" years for contactless payments in the United States, 2005 is turning out to be the commercial rollout year, with several major deployments scheduled.

Speed and convenience are the driving forces for these deployments, but not the only factors. Increased transaction volume and transaction amounts along with "top-of-wallet" effects have been recognized in the pilot programs as clear benefits for retailers that predominantly deal with cash transactions and have long lines of customers at their check out lanes during peak hours.

A considerable number of national brand retailers will start accepting PayPass, ExpressPay or Visa contactless cards/fobs at their store locations. To date, McDonald's has already announced its acceptance of PayPass devices at all of its 13,500 fast food locations.

Similar deployments are expected from other national and regional retailers. Equally, multiple card issuers plan to issue contactless payment cards/fobs by the millions in 2005 here in the United States.

Retailers will also expand their loyalty, gift and prepaid card programs using ViVOtech contactless technologies and software products. There will also be dozens of closed system contactless payment solutions targeting stadiums, universities, corporate campuses and ethnic communities.

Some of these developments already started in 2004, leveraging ViVOtech's prepaid and loyalty transaction management software, ViVOplatform; ViVOpay readers; and ViVOwallet-enabled cards/fobs.

This year will also be exciting on two additional fronts. First, ViVOtech contactless products are already being planned for additional pilots and limited rollouts outside of the United States. Secondly, ViVOtech will participate in a few exciting pilots here in the United States and abroad using near-field communication (NFC)-enabled mobile phones.

MS: What are ViVOtech's long-term goals?

MK: Our long-term goals are to provide contactless payment solutions that allow:

• Making and managing payments a fun and an easy experience for a consumer.
• Merchants and card issuers to replace cash faster and reward their loyal customers with savings and personalized services.
• Merchants and card issuers to differentiate their offerings.

The continued proliferation of increasingly capable cell phones and the major rollouts of contactless RF cards and fobs as part of the PayPass, ExpressPay and Visa contactless programs are all moving ViVOtech closer to its long-term goals. Our objective is to see:

• Hundreds of thousands (even millions) of POS locations enabled to start accepting contactless payments. That's why we have developed intelligent ViVOpay readers that work with existing and new POS systems. These can support PayPass, ExpressPay and Visa contactless devices and software downloads in the future to provide differentiating applications for both merchants and card issuers (i.e. contactless prepaid devices with integrated loyalty, instant rewards, e-coupons, cross-selling and other applications). These software applications could also support payment transactions from mobile phones.
• Millions of intelligent contactless payment cards and fobs that are issued to consumers by both card issuers and retailers that will enable ViVOtech to deliver software-based value-added applications that merchants and card issuers can offer to their customers.

  
  
  That's why ViVOtech developed ViVOwallet software to be used in contactless cards and fobs as well as in NFC-enabled phones. Besides card companies, ViVOtech is also working with some major retailers to provide its ViVOwallet software-based contactless cards and fobs for their programs.

  
  
  Starting in 2005, we will also see NFC technology-enabled mobile phones in pilots and ready for commercial rollouts a year later. At their booths at CARTES 2004 in Paris, Visa and MasterCard demonstrated ViVOtech technology working with Nokia, Motorola and Philips.

• Merchants who take their existing programs such as gift, prepaid and loyalty cards to the next level using the contactless technology and ViVOtech intelligent software that resides in cards/fobs/mobile phones, ViVOpay readers, and at the back-end transaction management server, ViVOplatform.

  
  
  ViVOtech developed ViVOplatform server software to provide added functionality so it's possible to use contactless technologies with existing back-end (legacy) systems.

MS: Do you think there is any misconception about what ViVOtech does? If so, what do you think it is?

MK: The biggest misconception about ViVOtech is that it's a hardware company. However, this misconception will change with time. It's ViVOtech's software that will allow the company to achieve its long-term goals.

It was essential to develop a hardware reader that can communicate with wireless consumer devices on one side and connect to the existing or new POS systems on the other side with the least amount of effort.

It was important to have such enabling on ViVOpay readers installed at hundreds of thousands (even millions) of POS locations so that they can support existing contactless programs' payment devices but can also support ViVOtech software applications to enable merchants and card issuers to deliver differentiating application services in the future.

ViVOpay devices are the intelligent readers that will bridge the gap between consumers and merchants and will allow merchants to deliver better services to their customers.

ViVOtech has multiple software products that are in an early adoption cycle by multiple customers. Some of these customers are also ISOs who want to leverage contactless technology to expand their transaction services to their merchants. These software products will start becoming visible in 2005.

For instance, ViVOtech announced its contactless gift card software in early 2004. In January 2005, we will announce our contactless loyalty software products. Both software products are based on the ViVOplatform server for back-end processing, and are supported by ViVOwallet software and ViVOpay readers on the users' side.

To allow its customers to get started with a small amount of investment, ViVOtech also offers an application service provider (ASP) model for the use of its ViVOplatform-based software products such as contactless prepaid, gift or loyalty.

MS: ViVOtech's headquarters are in the Silicon Valley. Has this location had an influence on the company?

MK: It's been a great value being based out of the Silicon Valley. We attract very capable engineers to work with the latest technologies on both software and wireless devices.

Our location allows ViVOtech to marry the growing payment software requirements with the latest technologies in order to deliver the right solutions to the market: Solutions that the payments industry can easily adopt with the least amount of investment and that deliver maximum value propositions to all involved parties.

Besides having our HQ and development team in the Silicon Valley, our U.S. sales and payment industry experts are located in New York, Atlanta and Santa Clara, Calif.

MS: Is ViVOtech an international company?

MK: We have a presence in the Asia Pacific (ASPAC), Europe, the Middle East and Africa (EMEA) and Latin America regions. ViVOtech is represented through its distributors in many different countries in these regions.

At the same time, we have representatives located in Singapore and Tokyo for ASPAC; Tokyo for Japan; the United Kingdom for EMEA; and Miami for Latin America. We currently have more than 2,000 systems installed outside of the United States. Most of them are in Canada, Singapore, Malaysia and Japan. Most of the pilots in Asia will turn into a commercial rollout in 2005.

MS: What changes do you predict will occur in the upcoming years?

MK: I believe contactless technology is a driving force in the payments industry today in the same way as the magnetic stripe technology was in the early 1980s.

Contactless technology delivers the following value propositions to all involved parties even in its simplest form, which is a branded credit card payment:

• Convenience and speed for consumers
• Speed and sales uplift for merchants
• Cash transaction replacement for acquirers/ISOs and card issuers
• "Top of the wallet" and "wallet share" for the issuer.

Over the next three to five years, contactless payments should see high growth on both sides:

1. Branded contactless payments such ExpressPay, PayPass and Visa
2. Closed-loop payments driven by merchants and cafeterias/campuses

Merchants and card issuers will be able to offer personalized services and savings to their loyal customers using contactless technologies.

NFC-based cell phone payments and related applications should be getting big and very exciting over the next two to five years. This year will be the year of pilots for this type of technology; 2006 will be the year for early commercial rollouts, and 2007 will be the year for mega rollouts.

Finally, biometric payments might also be able to benefit from the contactless technology rollout, especially if NFC-enabled cell phones also start supporting biometric fingerprint pads. There are already a few phone models in Japan that have such capability.

The end result of all this will be a much faster replacement of cash and check transactions; customers will maintain the possession of their payment devices, even in restaurants; paper receipts might start disappearing faster than we think; loyal customers should start getting well rewarded; and cross-selling, e-coupons and e-ticketing might finally become common.

MS: What effect will ViVOtech's solutions have on the feet on the street?

MK: ISOs and MLSs will benefit from ViVOtech developments based on contactless technologies and innovative software. Some ISOs are already implementing exciting contactless loyalty and prepaid solutions for their merchants using ViVOplatform software, ViVOpay readers and ViVOwallet-based cards and fobs. ISOs and MLSs offering solutions using ViVOtech's technologies will benefit from:

• Additional transaction services
• Add-on contactless reader hardware and/or replacement of a POS system
• Increased reoccurring revenue

MS: Thank you, Mohammad Khan for taking the time to do this interview. I have no doubt that 2005 will be a great year for your company. I wish you the best.

Matthew Swinnerton of Merchant Services Direct has sold credit card processing solutions for the last seven-plus years as an independent agent. To find out more about Merchant Services Direct, visit www.msdirect.net or e-mail Matthew directly at matt@msdirect.net or call him at 512-255-9791.