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MasterCard outlines mobile strategy

The last piece of the mobile contactless payments puzzle in the U.S. is the commercial roll-out of NFC-enabled handsets from major OEMs and carriers, according to MasterCard.

MasterCard Worldwide announced the issuance of the 50 millionth MasterCard PayPass card or mobile device, as of the fourth quarter 2008, which in the last year more than doubles the number of cards and devices in circulation worldwide. This significant PayPass momentum demonstrates not only the demand for contactless payments, but also the continued secular shift toward electronic payments, with recent data indicating that 41 percent of consumers use cash less often today than they did two years ago.

"PayPass is designed to do open up new acceptance channels to speed consumers through merchants' lines faster so they don't have to turn people away and inspire more acceptance and loyalty from consumers," said Cathleen Conforti, global PayPass product manager for MasterCard Worldwide, Purchase, NY.

"The objective is to displace cash, and from what we've seen, it's working, with 77 percent of consumers saying they are using it to displace cash," she said. "In a New York City taxi, instead of constantly asking if you have exact change or a bill less than a 20, consumers can tap to pay and add a tip with the push of a button."

PayPass and other contactless payments platforms provide a payment alternative to cash.

Consumers no longer need to fumble for cash and coins, swipe a card or even sign a receipt when making purchases of $25 or below.

They just need to tap their PayPass-enabled mobile device on the readers in the 141,000-plus participating merchant locations worldwide, as of the fourth quarter 2008, and they are on their way.

There are a number of PayPass trials and rollouts currently underway in 28 countries, including Australia, Canada, China, the Czech Republic, France, Germany, Indonesia, Italy, Japan, Korea, Lebanon, Malaysia, Mexico, Mongolia, the Philippines, Poland, Romania, Russia, Serbia, Slovakia, Spain, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, Britain and the United States.

U.S. merchants that have contactless PayPass readers at the point of sale include Best Buy, Duane Reade Inc., Walgreens, CVS Pharmacy, United Artists Theatres, Regal Cinemas, 7-Eleven, Arby's and McDonald's.

In addition, New York's MTA and NJ Transit have both tested contactless mobile payments with MasterCard.

The growing adoption of PayPass by consumers, merchants and financial institutions means that mass-adoption of mobile contactless payments in the U.S. is only being held back by a lack of commercially available NFC-enabled handsets.

The POS contactless-reader technology is there, for the most part. For example, businesses from McDonald's to New York City taxis have contactless payments readers.

According to a 2008 US Consumer Benchmark Study, 77 percent of consumers that have a PayPass-enabled card or device use it as their primary form of payment, which demonstrates its ability to bolster relationships for financial institutions with cardholders.

Sixty-eight percent of cardholders who have used their PayPass-enabled card report that it enables them to use cash and checks less often.

With PayPass, merchants are trying to grow both their customer base and loyalty as an increasing number of consumers with a PayPass-enabled cared or device -- 14 percent, up from 8 percent last year -- are making buying decisions based on PayPass acceptance, according to MasterCard.

Currently, the top merchants that have received a visit from a new customer because of their PayPass acceptance include quick-service restaurants at 20 percent, pharmacies at 17 percent, and supermarkets at 13 percent.

However, consumers who are aware that their card has contactless functionality are interested in using that feature at a wider range of merchants, including department stores at 61 percent, home improvement outlets at 46 percent, movie theaters at 42 percent, bookstores at 41 percent and sports venues at 37 percent.

Consumers also expressed interest in using alternative PayPass form factors, including tags at 42 percent, key fobs at 41 percent and mobile phones at 33 percent.

That relatively low number shows that the mobile ecosystem as a whole still has its work cut out for it to raise awareness about the possibilities of contactless payments from a mobile phone.

MasterCard's mobile strategy
In October, MasterCard announced the launch of the MasterCard Over-the-Air Provisioning Service, the first program of its kind that enables issuers to perform over-the-air personalization of their cardholders' mobile devices in a one-step process.

In June, MasterCard announced an agreement with Obopay Inc. to offer a fully-integrated on-demand person-to-person mobile payment service in the U.S.

The service, offered via MasterCard MoneySend, will give new and existing MasterCard issuing customers the ability to provide a mobile payments service to their MasterCard cardholders on all credit, debit and prepaid MasterCard-branded products.

There have been various tests and commercial deployments of MasterCard mobile initiatives, including contactless mobile payments, internationally.

In May, MasterCard Canada announced that it would test Near Field Communications-enabled phones with MasterCard PayPass capability on Bell Mobility's wireless network.

The four-month trial will be the next major step in bringing contactless payments via mobile phones to the Canadian market.

In January, U.S. Bank, MasterCard Worldwide and Nokia announced the introduction of a mobile payments pilot program in Spokane, WA.

Program participants received a new Nokia mobile phone equipped with MasterCard PayPass payment functionality, allowing them to pay for purchases with a tap of their mobile phone.

In the highly competitive Turkish marketplace, Garanti Bank, the country's second largest bank and one of the leading European issuers of MasterCard PayPass, has demonstrated their commitment to innovation by becoming the first issuer to implement a mobile phone pilot with PayPass payment stickers.

Technology is no longer an issue, as many OEMs, including Nokia, have NFC-enabled handsets. Consumers can even order them on Nokia's Web site.

In the U.S., the biggest barriers to adoption involve revenue-sharing among the various players in the fragmented mobile ecosystem and carriers actually rolling out NFC-enabled handsets on their networks.

Once carriers put their marketing muscle behind NFC-enabled phones, and once the various links in the food chain agree to play nice, the huge potential of mobile contactless payments will be realized.

"What we're waiting for is commercial availability of handsets incorporating NFC technology, which are not yet available to buy in the retail stores of major U.S. carriers," said Simon Pugh, group head of mobile payments for MasterCard, Purchase, NY. "A realistic perspective is that we're looking at a couple of years before consumers can download a Mastercard PayPass app onto their phone and be able shop, which is our vision.

"We're expecting to see the first commercial-grade NFC-enabled handsets in the U.S. towards the end of this year, but it's up to issuers and carriers to decide how quickly they become commercially deployed," he said. "When they appear in volume is a commercial matter not in Mastercard's control."

MasterCard's mobile strategy is more than just NFC contactless payments at the point of sale.

"We look at enabling not just face-to-face payments, but remote payments, buying stuff on the mobile Internet on your phone and sending money to friends and colleagues via a p-to-p network," Mr. Pugh said. "We want to use the interactivity and connectivity of mobile phones to enable value-added services such as mobile banking, alerts about account behavior, ?You have X amount left on your credit limit,' receiving targeted offers, rewards and coupons.

"We also use the mobile channel for direct marketing campaigns, texting people with specific offers based upon their interests," he said.