New banking technology is all about speed

Vanessa Richardson Contributor • E-mail

The cash register’s “ka-ching” is nearly extinct. The "beep" of the automated teller machine may soon follow. Even the silent swipe of a card with a magnetic strip is destined to disappear.

In their place, you’ll wave a plastic card or a key chain fob over a receiver to complete a "contactless" purchase. You’ll deposit checks and cash without using an envelope and walk away with a more detailed receipt and nearly immediate access to those funds.

Two new technologies — contactless credit cards and no-envelope ATMS —  are being rolled out on a grand scale by banks to introduce their customers to the latest, coolest payment methods, hoping to build brand loyalty and save users time while waiting in line.

In addition to the magnetic strip on the back of your credit card, there soon may be an embedded radio chip that will change the way you pay at the point of sale. Instead of swiping, you’ll wave your card over a receiver to complete a  purchase. Or at least that’s what many banks, credit card issuers and merchants hope.

Big banks like Bank of America, Chase, Citibank, and Wells Fargo are running pilot programs in major metropolitan areas like New York, Washington, Atlanta and San Francisco. Even though contactless cards are still officially in testing phase, users already number in the millions.

Users can wave these cards around today at more than 30,000 shopping establishments, from local cafes to national chains like McDonald’s and Arby’s. That number is small compared to the total number of U.S. shopping establishments, but the number of merchants accepting contactless cards will surely increase, said Mike Friedman, director of emerging technologies at Mercator Advisory Group, a research firm focusing on the payments industry.

“Contactless lets merchants speed up transactions, take smaller payments . . . and push more customers down the checkout line,” he said, adding that flashing instead of swiping the card reduces transaction time by 25 percent.

Some contactless systems are connected to credit cards, adding purchases to account balances. Others work like gift cards, with specific amounts loaded into each card or key fob. Some are reloadable, carrying a value that can be replenished as it is used up.

Cost and security issues
The major drawback is the cost of the terminals. Many smaller merchants are reluctant to shell out for the machines when the cards are not yet widespread. “It’s a chicken-and-egg scenario,” said Friedman. “The cost of a new terminal in just one store can be tremendously expensive, especially when this technology is not yet proven as a sure thing.”

Another issue is security. A recent survey of Generation X and Y members by research firm Market Platform Dynamics found that more than 60 percent said they wouldn’t use contactless fobs or cards because of security concerns. Dave Kudrna, vice president of business development at Dataflo Consulting of Omaha, a data collection technology firm, said contactless cards could embolden identity thieves. “They don't have to hand a stolen card to a cashier or even show it. You walk up and it never leaves your hand. It’s far easier than a fake ID.”

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