he Bailey Company has earned its stripes volunteering for risky missions on the retail front. It made its Arby's franchises nonsmoking in the early 1980s, a decade before the chain (the first to do so) banned smoking nationwide.

And the Bailey Co. embraced credit cards in 1991, years before plastic was accepted at many other fast-food stores. In 2005, the company installed contactless payments at drive-up windows in its Colorado stores using terminals it helped design, according to Jeff Gordan, Controller of the Bailey Co.

Gordan gave the merchant's-eye view of contactless payments in the small-ticket arena, the topic of a Web-based roundtable discussion hosted by Peppercoin July 19. He expects the technology to take the same trajectory created by credit cards.

"We've seen 25% a year growth unabated since rolling out credit cards," Gordan said. "We assume it will go to 60% or 70% of sales." He attributed the growth to faster speed of service enabled by new technologies. And in fast food, speed is everything. "Contactless and new credit card processors with DSL have enabled us to cut [transaction] time from 30 seconds to less than 10," he said. "Now, using credit cards is faster in many cases than cash. Contactless was an easy sell because the customer could see the benefit: They didn't have to give up their cards."

Finding the value proposition

The challenge to other roundtable participants was how to sell contactless as a small-ticket option to customers and merchants. "From Visa's perspective, small-ticket purchases under $25 are an important opportunity, representing $2 trillion and 20% of all consumer spending," said Pam Zuercher, Visa U.S.A. Vice President of Product Innovation. "We don't think there's a one-size-fits-all solution."

Matt Talbot, Vice President of Product Management for TSYS Acquiring Solutions, pointed out that convincing very small merchants to buy another terminal poses difficulties. "The ROI has to be very clear, rather than just soft dollars for a soft return," he said.

Hidden shrinkage and insurance costs associated with handling cash and checks are selling points when converting merchants to contactless. "When we put that on the table, merchants really get a sense for the benefits" of using emerging forms of payments, said Mia Shernoff, Executive Vice President, Chase Paymentech Solutions.

Contactless's ability to tie rewards to small-ticket purchases is another advantage, she said. Merchants recently surveyed revealed they are now interested in leveraging payment options at the POS for revenue growth. Consumers know they need to shift to plastic to get rewards. The "law of repeated exposures" holds that customers seeing terminals and rewards signage at the POS will shift them toward contactless debit.

As the unbanked become bankable, Shernoff predicts they may replace their stored-value cards with debit. "Elimination of signature for purchases under $25 places bankcards on par with stored value from a convenience and speed perspective, and thus will drive adoption among those consumers," she said.

Many small-ticket merchants will not accept cards until some hurdles are overcome. "To get them to choose contactless, the industry must address transaction processing costs, customer care costs and customer profitability," said Peppercoin President and Chief Executive Officer Mark Friedman. He thinks Peppercoin's Small Payment Loyalty Platform can be a catalyst for converting merchants to emerging payments methods. "Small payments really is the final frontier," he said.