PRINCETON JUNCTION, N.J. – The United States has taken a strong leadership position in adopting new payment and identification applications that use secure contactless smart chip technology, according to Randy Vanderhoof, executive director of the Smart Card Alliance.

“Smart card technology is being widely used for many applications in other parts of the world, but recent developments illustrate how the U.S. market is leading the way towards the use of contactless smart chip technology, especially for fast, secure payments,” said Vanderhoof. “MasterCard, Visa and American Express have all launched contactless payment initiatives and major retailers, such as McDonald’s, 7-Eleven and CVS, have committed to deploying new point-of-sale terminals to accept the new contactless payment cards. Just recently, leading credit card issuer JP Morgan Chase announced that it would issue millions of new contactless credit cards; we are expecting other issuing banks to follow.”

Industry experts agree, predicting tens of millions of contactless payments cards in the next few years. Contactless smart chips are designed to work in many form factors - a plastic card, key fob, document cover or even a mobile phone cover. They are invisible to the eye, and are easily used by waving them near a reader device or payment terminal. Research shows that consumers, issuers and merchants benefit from the use of contactless payments. Consumers enjoy added convenience, speed and ease of use, while issuers and merchants enjoy faster transaction times, increased spending per transaction, lower operational costs and penetration into the cash payment market.

“Contactless chip technology is not only growing for retail payments, but for transit payments as well. Major cities around the country are moving to contactless smart card-based fare collection system as they upgrade their payment infrastructure,” added Vanderhoof. Examples include over one million contactless SmarTrip cards now in use in the Washington D.C. area for transit payments, and the technology is in various stages of deployment in 15 other major U.S. cities including Atlanta, Boston, Chicago, Los Angeles, and San Francisco.

Vanderhoof sees security as a primary factor motivating financial institutions’ investment in the higher-priced contactless smart chip-based cards. According to Vanderhoof, “Having the information embedded in contactless smart chips eliminates and virtually makes it impossible to replicate the card as can be done with today’s magnetic stripe cards. Contactless cards offer more security for the issuers and fewer worries for consumers because the data can’t be copied to fraudulent cards. Getting more security and convenience is a win-win.”

These strong security features have also attracted the U.S. federal government, which will use the same secure contactless technology chosen by the payments industry in the new electronic passport for enhanced travel security. It will also be used in new Federal employee ID cards, providing more secure building access at government facilities. The federal IDs also have a contact smart card chip that is used to secure access to networks and computers, provide machine-based verification of credentials and digitally sign documents.

A February 2005 study from Frost & Sullivan, World Contactless Smart Card Markets, forecasts increased use of contactless technology in all regional markets. In 2004, 121.7 million units were shipped and Frost predicts this number to climb to 847.3 million in 2009. “Surely the U.S. market is going to account for a significant share of this volume, and that will give this part of the global smart card industry a definite American feel,” said Vanderhoof.