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The Cashless Reality

RFID payment systems might not spell the end of notes and coins, but they could transform consumers' spending habits and open new opportunities for companies.
By Mary Catherine O'Connor
Aug 01, 2005—Back in February 1950, a lawyer named Frank McNamara ate dinner at Major's Cabin Grill restaurant in New York. When the bill was presented, he pulled out his wallet and handed the waiter a small, cardboard card-a Diners Club card-and signed for the purchase, ushering in the age of charge and credit cards. Ever since that meal-known in the credit card industry as the First Supper-pundits, analysts and futurists have been predicting the death of cash and the rise of the cashless society.

Fifty-five years later, some businesses and governments in the United States, Asia and Europe have introduced cashless payment systems that use radio frequency identification devices to identify purchasers. Many of these systems are being used to speed consumers through tollbooths, transit turnstiles and gas stations.

Now retailers, restaurants and other establishments have begun to recognize the benefits of RFID payment systems: Businesses can increase sales by serving more people more quickly during peak periods, and customers tend to buy more when they don't need to worry about having cash. There are benefits for customers, too: no more waiting on long lines, fumbling with coins or worrying about having enough cash. All it takes to make a purchase is a wave of an RFID card or keychain fob by an interrogator, or reader.

There are a variety of ways that these RFID payment systems can work. Some let consumers set up prepaid accounts, which they can refill by mail, online or at select bank or merchant locations. Others charge the amount of the purchase to a credit card. But it's the recent decision by American Express, MasterCard and Visa to issue credit cards embedded with RFID transponders that's expected to drive adoption. Still, before RFID payment systems gain widespread acceptance, cost, privacy and technology issues will need to be resolved.

Proprietary Systems
Consumers have overwhelmingly embraced RFID payment cards that are used in closed-loop systems. Over the past 15 years, millions of commuters around the globe have switched to electronic toll collection systems that use RFID. And in the past five years or so, many municipal transportation organizations have banished tokens and magnetic stripes in favor of RFID.

Asian countries have taken the lead. South Korea has 20 million RFID transit cards in circulation, the most of any country. More than 9 million commuters in Hong Kong use an Octopus card to pay for a trip on a ferry, bus or train, or to purchase fast food. They can buy a card for HK$50 (US$6.40) or HK$100 (US$12.80), and the amount of any purchase is deducted from the value stored on the card. Tokyo-based bitWallet has issued more than half a million RFID stored-value cards, called the Edy, since 2001.

Europe has been catching RFID-payment fever as well. RATP, the mass transit operator in Paris, has installed 2,000 RFID card interrogators in all 500 Metro stations in the city. It has issued some 500,000 RFID cards so far and has a goal of issuing 5 million within two years. More than 4,000 buses are also equipped to accept the cards. In England, Manchester City Football Club season ticket holders use RFID cards instead of paper tickets for quick entrance into the new, RFID-enabled stadium, where the cards double as payment devices for food and souvenir purchases.

In the United States, some 6 million people use Exxon Mobil's Speedpass to purchase gas. The system, which was rolled out nationally in 1997, links the unique identification number in the RFID transponder to the user's credit card. When drivers fill up their tank, they wave their keychain fob by an RFID interrogator built into the pump. The amount of the purchase is charged to their credit card. The company's market research finds that more than 92 percent of Speedpass customers are highly satisfied with the technology. Exxon Mobil won't disclose its return on investment, but it told rfid journal that Speedpass customers are more loyal because they prefer to shop where they can pay with an RFID keychain fob, and that translates into a significant increase in revenue. Initial results were so positive that in 1999, the company began putting the technology in its stations' convenience stores.

Sports fans at the Detroit Lions' Ford Field and the Philadelphia Eagles' Lincoln Financial Field can use a PowerPay key fob from Smart System Technologies to purchase food and souvenirs. And at AT&T and CNBC corporate cafeterias, employees can pay for meals with an RFID key fob, which draws funds from their bank, credit or payroll account. The cashless payment system from FreedomPay has reduced their wait on long lines by up to 35 percent.

Some RFID payment systems are expanding their service to provide additional benefits to consumers. New York's E-ZPass toll collection system, for instance, is now accepted at tollbooths along most of the East Coast. It can also be used to pay for parking at LaGuardia Airport. And some businesses are combining cashless payment systems with loyalty programs. When fans of the Detroit Lions or Philadelphia Eagles use their PowerPay key fobs, they accumulate points toward prizes.
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