December 13, 2002 8:01 AM PST

MasterCard tests high-tech payments

MasterCard is testing a new credit-card system designed to speed the payment process at check-out counters and replace cash transactions at places such as movie theaters and fast food restaurants.

The system, called MasterCard PayPass, allows consumers with specially equipped credit cards to simply tap or wave their cards against a reader to make a payment, rather than having to swipe the card. If the value of the purchase is under a certain amount, the cardholder needn't sign a receipt.

The cards come embedded with hidden computer chips and radio antennae, which transmit payment details wirelessly. The cards can also be used with traditional magnetic stripe readers.

MasterCard isn't alone in its efforts to adopt high-tech credit cards. Visa is introducing its own smart-card payment system designed to make transactions easier and speedier.

MasterCard is testing the system with a handful of merchants in Orlando, Fla., the company said Thursday. They include Chevron, McDonald's, Loews Universal Cineplex, Wolf Camera and the City of Orlando's parking department.

The company has deals with credit-card issuers Chase Bank, Citibank and MBNA to offer the PayPass credit cards to as many as 20,000 consumers in the Orlando area.

Several hundred people are already using for PayPass cards, said Beth Horowitz, senior vice president of product services at MasterCard.

MasterCard hopes to introduce PayPass in other U.S. cities, as well as internationally, after the trial period ends in June, Horowitz said.

The PayPass system operates over MasterCard's existing transaction network, so the company didn't need to make major infrastructure investments to get the system running. Merchants, however, do need to buy new reader equipment, costing less than $200 per unit, Horowitz said.

Potential benefits to merchants, namely processing customers more quickly and increasing average transaction amounts, should outweigh the costs, Horowitz said.

MasterCard hopes Pay Pass will increase the use of its cards and boost the number of payments the company processes, Horowitz added.

"In the last five to 10 years, our role has been to open up card use in new environments," said Horowitz. "We want things on MasterCard cards, not on cash. We?d like to eliminate cash and checks and replace them with payment cards."

The use of embedded computer chips in credit cards is an emerging trend that has taken hold faster in Europe than in the United States. Ten percent of MasterCard credit cards, about 126 million cards, have chips embedded in them, according to Horowitz. Ninety percent of its chip cards are issued in Europe, she said.

The chips allow information, such as account balance and cardholder authentication data, to be stored on the cards as part of programs to reward shopper loyalty and reduce fraud.

MasterCard worked with Infineon, Samsung and Philips Semiconductor to develop and manufacture the PayPass chips. It worked with Panasonic, VeriFone and others to develop the card readers.

 

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