Credit Cards That Don't Require Swiping

Contactless payment trials put stickers on cell phones and food into stomachs.

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Today's guest post comes from Jeremy Simon, a reporter for www.CreditCards.com.

While your credit card still requires the old swipe through a card reader, businesses are testing technology that would let you make payments with nothing more than a wave or a tap -- and often don't require the presence of a card at all.

Trials of the technology conducted by banks and retailers suggest cardholder stomachs are the quickest route to contactless payment acceptance. Businesses are investigating radio-frequency identification or RFID, a technology that transmits payment information via electromagnetic waves, thereby eliminating the need for a card to be swiped. Instead, RFID payments let consumers make purchases just by waving or tapping RFID-enabled devices, such as mobile phones or credit cards, near a reader that picks up a radio frequency and then charges the consumer's account.

[For more, read: "Suze Orman and the New Rules of Credit Card Debt."]

"Contactless" payments haven't yet caught on in the United States. In a March story, CreditCards.com reported that most stores with contactless readers are found in major metropolitan areas, but that RFID is spreading. Visa said that 20 retailers with 32,000 outlets now accept its payWave card, while MasterCard said its 37 million PayPass cards can be used at more than 130,000 locations worldwide.

Banks are hoping for increased RFID acceptance. In its latest trial, U.S. Bank is experimenting with a contactless sticker placed on the cardholder's cell phone. Earlier, the bank found that when it came to contactless, "participants liked it because it was faster and better than cash," U.S. Bank's Dominic Venturo tells industry publication Contactless News. However, "people have a personal relationship with their mobile phone and strong opinions about that phone." That's why "they love the idea of payments but they want that capability on their own phone, not one provided for them," says Venturo, chief innovation officer for U.S. Bank’s retail payments solution division.

Enter the sticker. Through a pilot program that began late last year and will run for 6 months, U.S. Bank employees are provided with a Visa debit card on a sticker, which can be placed on a cell phone. Meanwhile, U.S. Bank is also testing contactless-enabled vending machines in its corporate facilities, although Venturo says the success of that program remains to be seen.

Banks aren't alone in experimenting with contactless technology. Retail technology Web site StorefrontBacktalk reports that visitors to the Dairy Queen in Rochester, Ind., recently were " offered something beyond ice cream and hamburgers: A pile of identical tiny RFID tags, each with peel-off adhesive strips, sitting right next to the waffle cones."

While not particularly tasty, those tags could be stuck to wallets, watchbands or cell phones. By keeping track of what specific customers buy over time, the tag can then provide individually tailored discounts and offers to each DQ customer. Compared to both e-mail and traditional coupons, the RFID tag trial "is much more spontaneous, according to Dairy Queen's Web site manager, Jamie Guse. Because who knows when the sudden urge for a Blizzard will strike?

[For more, read: "Budgeting Finds Its Groove -- Online."]

StorefrontBack talk explains how easy it can be: "The consumer attaches the tiny tag to something they always have with them -- a cell phone is suggested but hardly required -- and can use it when they happen to be near a Dairy Queen. For the duration of the trial, though, it’s only available at that single location in Rochester."

Dairy Queen's program offers the benefits of a mobile payment system (in the form of a cell phone) minus the problems of dealing with a variety of phone manufacturers and wireless carriers. "In the Dairy Queen trial, the phone is little more than a prop, a piece of plastic that can house the RFID tag," StorefrontBacktalk reports.

Phone or no, consumer rights groups have previously raised concerns about RFID, specifically highlighting three areas of concern:

Privacy. Marketers can not only track what people buy, but where they are when they buy it.

Security. Fraudsters could potentially intercept RFID in transmission using a reader.

Dispute rights. Since contactless purchases can be made through a variety of methods (credit card, debit card, cell phone, etc.), a consumer's right to dispute billing errors or recover stolen funds varies greatly.

In the end, whether RFID gains widespread popularity depends on cardholders' hunger for the ability to skip the plastic swipe in favor of the cellular wave.