Cash as Competitor: ABI Research Sees Contactless Payments Vie for Consumer Spending

Oyster Bay, NY - February 22, 2005 - The U.S. Mint and other government-run money factories around the developed world won’t be going out of business any time soon. But their product – cash – is facing a compelling new threat. It comes in the form of “contactless payment” systems that require a user only to wave a small object - credit card, key ring, cell phone or similar – near a reader terminal. Radio Frequency Identification (RFID) technologies, backed by banking and transaction processing systems, take care of the rest.

According to ABI Research, which has just published a new study, “RFID Contactless Payments”, the coming year will see a sharp increase in the number of contactless payment opportunities for consumers.

“As consumers continue to use card-based transactions for smaller, traditionally cash-based purchases,” says Erik Michielsen, the firm’s director of RFID and ubiquitous wireless research, “contactless payment capabilities make more sense, especially for card issuers looking to increase customer loyalty and convenience.”

In the past, contactless payments were limited to closed-loop systems, such as the ExxonMobil SpeedPass, that were not tied to financial service networks. 2005 will be a year of transition.

“What’s lifting this to the next level,” continues Michielsen, “is the expansion of contactless payment from these closed, branded systems, to open systems tied to bank accounts and major credit card issuers. These financial institutions now want a bigger share of what was in the past the cash-based economy.”

Merchants with a high-throughput of low-value transactions offer the best chance for all parties to benefit from the new technology. Quick-serve restaurants are a good example. McDonalds will deploy Mastercard PayPass contactless systems in nearly all its North American locations this year. American Express’s ExpressPay system will be rolled out in nearly all CVS pharmacies. Other key markets include transportation and parking meters, filling stations, and convenience stores.

Founded in 1990 and headquartered in New York, ABI Research maintains global operations that support annual research programs, intelligence services and market reports in wireless, automotive, semiconductors, broadband, and energy. For more information please visit www.abiresearch.com, or call 516.624.2500.