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These days you’d never dream of leaving the house without cash in your wallet. But the day is coming when you may never carry cash again, or even a wallet.
Cash is being replaced by cashless payment systems, a variety of cutting-edge technologies that let you swipe a smart card or your mobile phone across an electronic reader to buy lunch, ride the subway or go to a soccer game.
Cashless payment systems are booming overseas in places like Japan, South Korea, Hong Kong, and London. Interest in the United States has been slower to develop but is picking up steam now that more people are using smartphones, and merchants are starting to see the value in switching. Several recent high-profile trials, including the Democratic National Convention in August, are casting the spotlight on cashless transactions.
Change is coming…or make that, the lack of change jingling in your pocket. Some 24.8 million people in the United States will use some kind of cashless payment system this year, a number expected to double by 2013, says Bruce Cundiff, an analyst with Javelin Strategy & Research, a Pleasanton, Calif., financial services researcher. That’s also around the time Cundiff expects people in the United States will use smart cards or smart phones to pay for merchandise as much, or more, than we use credit cards. According to Cundiff and other industry experts, people will like the convenience of carrying a wallet in a phone, and merchants will like being able to keep better tabs on customers’ spending habits.
One example of how cashless payment systems are developing is taking place at Dick’s Sporting Goods Park in Denver, the official home of the Colorado Rapids, the major-league soccer team. When the Rapids open their 2009 season next April, the team will join a growing number of professional sports organizations offering smart cards that fans can use to make purchases and rack up points toward gifts and prizes.
Currently, all Rapids season ticketholders are issued a plastic loyalty card they can swipe inside the stadium when they buy a hot dog or sweatshirt to accumulate points toward prizes such as autographed merchandise, a private lunch with a player or coach, or if they rack up enough, a trip to London.
By next April, the Rapids will upgrade to a loyalty card with a special computerized tag inside that will store value that a season ticketholder can load via computer from their bank account or credit card. You can use the card to buy food and merchandise in the stadium. Executives have high hopes for the cards, says Jason Linscott, the team’s senior director of ticket sales and service. “Our demographic studies tell us our fan base is highly educated and affluent, with an average household income that’s higher,” he says. “We’re dealing with a fan base that’s techno-savvy. It’s attractive to our fans.”
The Rapids smart card is a trial run not only for the team’s owner, Kroenke Sports Enterprises, which also owns Denver’s Pepsi Center arena, but also the teams that play there: the Denver Nuggets, Colorado Avalanche, Colorado, Crush, and the Colorado Mammoth. If everything works out, KSE has designs to implement it for the company’s other teams, Linscott says.
Inside the Rapids’ new smart card is a near field communication (NFC) tag from First Data, a Denver company that previously tested the device at the Democratic National Convention at the Pepsi Center. NFC is a short-range wireless connectivity technology that stores data that can be picked up by a reader from a few centimeters away. At the convention, First Data passed out 5,000 buttons with the company’s NFC tags, called GO-Tags, attached to the back. Each GO-Tag was preloaded with $10, which delegates and journalists used for food and drinks at Pepsi Center concession stands.Going Cashless on the Subway
First Data’s GO-Tags were also part of a four-month test at San Francisco’s Bay Area Rapid Transit (BART) system earlier this year. During that test, 230 Bay Area residents received Sprint mobile phones embedded with GO-Tags they could use to tap on the turnstile to ride the subway, or to tap on credit card readers at Jack in the Box to pay for meals. Riders could also swipe their phones across posters in BART stations to earn discounts at the fast-food chain. According to a post-trial survey, riders averaged 50 trips each and used an over-the-air feature to reload their phone wallets with additional cash an average of five times. Eighty percent of trial participants said they found the wallet phones easy to use, according to the survey.
Officials at BART don’t have plans to implement a mobile phone-based ticket system right now, according to BART spokesman Linton Johnson. However, BART is upgrading its existing ticket system to a smart card that can be loaded with money from a bank account or credit card to pay for rides on four separate Bay Area bus and subway systems. The TransLink payment system is expected to continue rolling out through fall.
A Secure Method
While contactless payment systems aren’t 100 percent secure -- scientists working in laboratory environments have been able to simulate stealing information from them over the air -- they’re safer than today’s magnetic stripe credit cards, says Cundiff, the Javelin analyst. “It’s much easier to replicate a mag-stripe card, and that is the greater danger at this point,” Cundiff says. However, in order to prevent identity theft and protect the privacy of consumers’ personal information, makers of smart cards and electronic wallet technology have limited the type of data stored on contactless chips, Cundiff says.
Increased security hasn’t been a driving factor in the adoption of these systems in the United States, Cundiff says, with most merchants feeling that fraud is at acceptably low levels. Contactless payment systems are being adopted faster in other parts of the world where one or two wireless carriers and a handful of credit-card companies have had enough clout to set the standards for an entire country, and in places with large mass transit networks, which have been early adopters of cashless payment systems.
The United States, on the other hand, has too many wireless carriers and credit card processors for one to call the shots, Cundiff says. To date, isolated experiments of cashless payment systems in regional mass transit networks have gone well. Cundiff believes the switch to cash-free living is on the horizon. “I’m optimistic about it happening,” he says. “I see the value of it.”
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