April 1, 2008
American Express Shifts Contactless Strategy
By Tom Ryan
Six years after its launch, American Express is discontinuing its Express Pay contactless payments key fob following a poor customer response. Instead, it plans to focus on its traditional cards. The company will install computer chips in cards that will allow them to be held up to an electronic reader rather than being swiped through a device.
“We have actually found that our customers prefer to use the contactless technology through our traditional cards” rather than the key devices, Richard Flynn, a senior vice president who oversees “cardless” payments at AmEx, told The Wall Street Journal.
Contactless technology is expected to speed customers through checkout lines, and fast-food restaurants and drugstore chains have been among the most enthusiastic merchants to try the new technology. A report issued by Aite Group, a payment-industry consulting firm, estimated that some 40,000 merchant locations are already equipped with contactless readers.
Skeptics, according to the WSJ article, claim contactless technology is flawed because crooks can buy readers and swipe electronic data from unknowing card holders just by getting close to them. But card companies contend they pose no greater risks than traditional cards and are embedded with encryption software to prevent easy duplication.
Other card companies are still testing different devices. Bank of America offers a “mini card” that attaches to a key chain and is swiped through a traditional reader. MasterCard has tested a wristwatch with contactless technology. Visa recently made a “micro tag” key fob available to financial institutions that issue cards with its brand. Citigroup is testing a hard plastic contactless payment tag being used in the New York City subway system.
Card companies also are testing numerous types of contactless payments that are made through mobile phones. This technology is increasingly viewed as more promising than some of the other devices, but isn’t expected to be widely accepted in the U.S. for a number of years.
Contactless cards represent three percent of all debit cards in circulation and less than one percent of credit cards, according to Aite Group.
Discussion Questions: Why do you think Amex’s Express Pay key fob failed? What does this say about the hurdles still left to rolling out contactless technologies across retail?
BrainTrust
Recent Discussions
Discussion Questions
Poll
How big a key ring would you need to keep track of all those neat key fobs you get from everyone?
And, assuming you could hold all those fobs on one ring, where would you put it if you didn’t carry some kind of bag?
Of course the same is true with credit cards, loyalty cards, etc. The only difference is that many of the key fobs crack or tear under the strain of being constantly pulled out of and jammed into pockets, purses and wherever else people put them while cards merely junk up your wallet and, for men, make sitting an uneven proposition.
No wonder then that a growing number of shoppers are trying to figure out how to reduce the number of cards, fobs and other forms of plastic they are required to carry in order to get the best deals and/or charge purchases. I’d suggest those nice marketing folks who want us to carry all these fobs try it themselves. The physics work but they’re hell on the wardrobe.
Contactless payment key fobs like Express Pay (also Mobil/Exxon’s SpeedPass, Visa PayWave and MasterCard PayPass) use Near Field Communications (NFC) technology, which requires the embedded chip come within ten centimeters of the card reader. They are the basis of electronic wallet cards as well as the key fobs.
I would venture that the American Express discovered that users didn’t find the fobs convenient to carry even though the contactless service is acceptable. Cards fit in our wallets. Key fobs make our pockets bulky. I didn’t do a study, but it could be that simple an issue.
The real breakthrough in contactless payment will come from the next generation of cell phones, which will have NFC chips embedded and software support that will allow them to interact securely with multiple accounts. This is already in play in Japan’s DoCoMo cell phone system and in large areas of Europe. Most likely the phone you buy in 18 months will have NFC inside, enabling electronic wallet and other neat services.
Check out Contactless Data Inc.’s MobiFetch(TM) offering for a thought-provoking look at how NFC-enabled phones could also be used for coupons. (Disclosure: I am an adviser to this company.)
The technology will eventually find its way into the mainstream, but only when the issuers can resolve these issues:
1. Identity theft concerns (real or imagined).
2. Convenience – too many fobs, cards, etc., to carry.
3. Utility – Better marketing of why there is a value to the consumer for using the technology.
Kudos to Amex to listening to their customers. I really don’t think most consumers saw key fobs as a security concern (although what do you lose more: keys or wallet?) but merely more of an inconvenience. You can make the argument that carrying multiple credit cards as well as loyalty cards is just as much of a hassle, but I’m under the impression that consumers prefer carrying payment devices, including cash, all in one place.
Let’s also examine the time it takes to pull one of these cards out of a wallet vs. pulling your keys out. It probably takes four to six seconds more to pull a card from your wallet, and that’s all.
Just a side note, what’s with the word “fob”?
One Step closer to cellphone payment….
Until security concerns are addressed, I do not see contactless payment catching on in the U.S. in the near term. My credit cards reside in my wallet, and I guard my wallet as if my life depended on it. As long as a credit card is inside my wallet, it is not subject to unauthorized access. There are no known electronic devices which are able to read it while it is thus shielded.
Not so with contactless devices. If I had a key fob that was in my pants pocket, I would be very nervous about the possibility of unauthorized access by means of some electronic device which only needs to be within close proximity of my key fob to be able to access it and possibly use it to pay for an unauthorized purchase.
What is needed is either some kind of shielding of the contactless device when it is not being used, or else some kind of “kill switch” which would de-activate the device when the owner does not wish it be be accessed.
Until Americans are confident that contactless devices is as safe as a credit card, they will probably not use them.
American Express Card holders are a bit different than normal credit based on the terms of the card. They understand it’s real money. That likely has a lot to do with how owners of the card feel about carrying it and its use.
It’s sort of refreshing to think that there are consumers uncomfortable with card use enough to want it handled properly. Good for them.
As the Credit Card industry in the US matures further, banks are obviously trying new and innovative ways to gain market share by being the primary card in the consumer wallet. So, obviously we will see them trying many more things than key fobs.
I think this is a classic case of technology surpassing consumer acceptability. There are numerous examples of different payment systems catching on in certain geographical areas and not in others. For example, here in Canada, debit cards have been popular for years, and yet are just catching on now in the USA. Let’s remember too that back in the ’60s, credit cards were viewed with skepticism.
Combine all that with asking people to carry another piece of “hardware” with them, and it can all add up to poor acceptance. I believe American Express will see a much higher adoption rate with the introduction of the express pay feature integrated into the actual card.
I’ve been an American Express cardholder for many years and I’ve never even seen or had the opportunity to use an Express Pay key fob. I always have to swipe my regular card and, on top of that, put in my zip code. Maybe it failed because it simply wasn’t ever rolled out so that all the card members could use it.
What American Express did not state were the reasons why consumers declined to use the fob. Was it for security, as speculated by the WSJ, durability and convenience, as Ryan postulates or did they just not see enough benefit?
In spite of advances in smart cards, fobs, mobile phones and biometric identification, Americans seem to prefer what they have been using for 5 decades, the credit card.
It will be interesting to see how the Millennials change this process.
Technology adoption is all about convenience/suitability to lifestyles (which contactless would seem to be) and marketing (which contactless, by dint of clinging to overpriced signature-based credit and debit card payment options, discourages both merchants and consumers to use).
If the card companies offered contactless at PIN-debit rates or something fair to merchants and without ‘gotcha’s’ for consumers (such as surprise NSF fees on debit card transactions and a host of punitive fees and interest rates on credit cards), merchants would promote their use (with normal merchandising incentives) and consumers would be motivated to try contactless out and learn to enjoy its convenience.
Nobody young and mobile trusts signature-based credit and debit cards anymore; foisting this tired, increasingly cruel and worn-out-its-welcome payment paradigm upon new transaction venues is doomed to fail–no matter how well-cloaked in new technology it might be. Banks: How about a new pricing model already?! Somebody get creative! Please!
With all the fraud and identity theft going on, I don’t think customers respond well to these sorts of technology. Considering your keys are the most common thing you will lose or misplace, do you really want a credit card attached to that? Sounds like it’s more trouble than it’s worth.
It took 6 years for American Express to admit the key fob failure? Why 6 years? What did they learn after 6 years that they didn’t know after a year or 3 years or 5 years? Why didn’t they wait for the 7th year? Is this the longest continuously-running retail technology failure in history?
More Discussions
Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?OpenAI Names the Infrastructure Standard for Agentic Commerce
Will OpenAI or Google (or another entity) set the gold standard for agentic commerce?Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?
How big a key ring would you need to keep track of all those neat key fobs you get from everyone?
And, assuming you could hold all those fobs on one ring, where would you put it if you didn’t carry some kind of bag?
Of course the same is true with credit cards, loyalty cards, etc. The only difference is that many of the key fobs crack or tear under the strain of being constantly pulled out of and jammed into pockets, purses and wherever else people put them while cards merely junk up your wallet and, for men, make sitting an uneven proposition.
No wonder then that a growing number of shoppers are trying to figure out how to reduce the number of cards, fobs and other forms of plastic they are required to carry in order to get the best deals and/or charge purchases. I’d suggest those nice marketing folks who want us to carry all these fobs try it themselves. The physics work but they’re hell on the wardrobe.
Contactless payment key fobs like Express Pay (also Mobil/Exxon’s SpeedPass, Visa PayWave and MasterCard PayPass) use Near Field Communications (NFC) technology, which requires the embedded chip come within ten centimeters of the card reader. They are the basis of electronic wallet cards as well as the key fobs.
I would venture that the American Express discovered that users didn’t find the fobs convenient to carry even though the contactless service is acceptable. Cards fit in our wallets. Key fobs make our pockets bulky. I didn’t do a study, but it could be that simple an issue.
The real breakthrough in contactless payment will come from the next generation of cell phones, which will have NFC chips embedded and software support that will allow them to interact securely with multiple accounts. This is already in play in Japan’s DoCoMo cell phone system and in large areas of Europe. Most likely the phone you buy in 18 months will have NFC inside, enabling electronic wallet and other neat services.
Check out Contactless Data Inc.’s MobiFetch(TM) offering for a thought-provoking look at how NFC-enabled phones could also be used for coupons. (Disclosure: I am an adviser to this company.)
The technology will eventually find its way into the mainstream, but only when the issuers can resolve these issues:
1. Identity theft concerns (real or imagined).
2. Convenience – too many fobs, cards, etc., to carry.
3. Utility – Better marketing of why there is a value to the consumer for using the technology.
Kudos to Amex to listening to their customers. I really don’t think most consumers saw key fobs as a security concern (although what do you lose more: keys or wallet?) but merely more of an inconvenience. You can make the argument that carrying multiple credit cards as well as loyalty cards is just as much of a hassle, but I’m under the impression that consumers prefer carrying payment devices, including cash, all in one place.
Let’s also examine the time it takes to pull one of these cards out of a wallet vs. pulling your keys out. It probably takes four to six seconds more to pull a card from your wallet, and that’s all.
Just a side note, what’s with the word “fob”?
One Step closer to cellphone payment….
Until security concerns are addressed, I do not see contactless payment catching on in the U.S. in the near term. My credit cards reside in my wallet, and I guard my wallet as if my life depended on it. As long as a credit card is inside my wallet, it is not subject to unauthorized access. There are no known electronic devices which are able to read it while it is thus shielded.
Not so with contactless devices. If I had a key fob that was in my pants pocket, I would be very nervous about the possibility of unauthorized access by means of some electronic device which only needs to be within close proximity of my key fob to be able to access it and possibly use it to pay for an unauthorized purchase.
What is needed is either some kind of shielding of the contactless device when it is not being used, or else some kind of “kill switch” which would de-activate the device when the owner does not wish it be be accessed.
Until Americans are confident that contactless devices is as safe as a credit card, they will probably not use them.
American Express Card holders are a bit different than normal credit based on the terms of the card. They understand it’s real money. That likely has a lot to do with how owners of the card feel about carrying it and its use.
It’s sort of refreshing to think that there are consumers uncomfortable with card use enough to want it handled properly. Good for them.
As the Credit Card industry in the US matures further, banks are obviously trying new and innovative ways to gain market share by being the primary card in the consumer wallet. So, obviously we will see them trying many more things than key fobs.
I think this is a classic case of technology surpassing consumer acceptability. There are numerous examples of different payment systems catching on in certain geographical areas and not in others. For example, here in Canada, debit cards have been popular for years, and yet are just catching on now in the USA. Let’s remember too that back in the ’60s, credit cards were viewed with skepticism.
Combine all that with asking people to carry another piece of “hardware” with them, and it can all add up to poor acceptance. I believe American Express will see a much higher adoption rate with the introduction of the express pay feature integrated into the actual card.
I’ve been an American Express cardholder for many years and I’ve never even seen or had the opportunity to use an Express Pay key fob. I always have to swipe my regular card and, on top of that, put in my zip code. Maybe it failed because it simply wasn’t ever rolled out so that all the card members could use it.
What American Express did not state were the reasons why consumers declined to use the fob. Was it for security, as speculated by the WSJ, durability and convenience, as Ryan postulates or did they just not see enough benefit?
In spite of advances in smart cards, fobs, mobile phones and biometric identification, Americans seem to prefer what they have been using for 5 decades, the credit card.
It will be interesting to see how the Millennials change this process.
Technology adoption is all about convenience/suitability to lifestyles (which contactless would seem to be) and marketing (which contactless, by dint of clinging to overpriced signature-based credit and debit card payment options, discourages both merchants and consumers to use).
If the card companies offered contactless at PIN-debit rates or something fair to merchants and without ‘gotcha’s’ for consumers (such as surprise NSF fees on debit card transactions and a host of punitive fees and interest rates on credit cards), merchants would promote their use (with normal merchandising incentives) and consumers would be motivated to try contactless out and learn to enjoy its convenience.
Nobody young and mobile trusts signature-based credit and debit cards anymore; foisting this tired, increasingly cruel and worn-out-its-welcome payment paradigm upon new transaction venues is doomed to fail–no matter how well-cloaked in new technology it might be. Banks: How about a new pricing model already?! Somebody get creative! Please!
With all the fraud and identity theft going on, I don’t think customers respond well to these sorts of technology. Considering your keys are the most common thing you will lose or misplace, do you really want a credit card attached to that? Sounds like it’s more trouble than it’s worth.
It took 6 years for American Express to admit the key fob failure? Why 6 years? What did they learn after 6 years that they didn’t know after a year or 3 years or 5 years? Why didn’t they wait for the 7th year? Is this the longest continuously-running retail technology failure in history?