RFID Payment Fobs Fail to Woo Consumers

These benefits will include a greater penetration into what have traditionally been cash-based transactions, as well as faster provisioning of new accounts. "When someone applies for a credit card today," Collins explains, "there are a number of days during which the order is processed, the card is manufactured, and then sent to the cardholder via mail. With NFC phones, setting up an account will be almost instantaneous." This, he notes, will entail using the phone to communicate with the bank, as well as conducting an over-the-air initialization to save account data to the phone's NFC software.

Bruce Cundiff, research director for Javelin Strategy & Research, which advises financial institutions on e-commerce, agrees that NFC represents the area with the greatest traction for RFID-based payments. "The only contactless-only device that really resonates with consumers, to date, is having the [payment] capability embedded in a mobile handset," Cundiff states.

According to Faust, AmEx is very focused on NFC-based payments and is involved in technology trials based on the technology. But with Nokia the only handset maker offering an NFC-enabled phone in the U.S. market, adoption in this country is likely to be slow. In many parts of Asia, making payments with mobile phones is commonplace.

A newly published report by Aite Group, a research and advisory firm focused on financial services, finds that there is still plenty of room for growth in the contactless industry in the United States, where JPMorgan Chase has issued the vast majority of cards—nearly 9 million. The second largest issuer, the report indicates, is Citibank, which has put less than a third as many contactless cards in consumers' hands.

Nineteen million contactless payment cards are currently in circulation in the United States, according to the report, which did not track the issuance of payment fobs, because the number is small, relative to the number of cards. What's more, cardholders are issued a fob in addition to a card, so determining the number of cards issued is sufficient for determining the technology's deployment.

Nick Holland, a senior analyst with Aite Group, says one recent sign contactless card issuance is still growing is last week's announcement from Washington Mutual, indicating the bank's plans to issue 12 million to 15 million contactless MasterCard PayPass debit or credit cards in 2008. In January, Washington Mutual began issuing PayPass cards nationwide to new customers opening its signature WaMu Free Checking account, as well as to all WaMu small-business customers. In March, the bank began issuing PayPass-enabled MasterCard debit cards to customers whose cards are being renewed.

The size of Washington Mutual's commitment to contactless card issuance, Holland says, has "altered the landscape." He declines, however, to provide a forecast estimating the general growth rate for contactless cards. "There are simply too many factors at work to confidently predict the way that the contactless card will evolve in the U.S."