The New Cashless Economy

On his drive into work at Texas Instruments in Dallas, Trevor Pavey can stop at any number of restaurants and retailers where he can use his cell phone to pay for his purchases. Once he gets to work, he can use his cell phone to buy lunch in the company cafeteria or even from the vending machines in the hallway.

Pavey’s new payment form comes courtesy of a MasterCard test program, but it’s no coincidence that the glimpse of the future is happening in the shadow of the TI headquarters.

The company has been in the midst of the move toward an economy driven by beamed payments since it helped Exxon Mobil develop the SpeedPass, supplying chipsets and silicon components for the key fob device that heralded the arrival of the rapid payment alternative — and the often-speculated eventual demise of the cash economy.

Tapping’s the Trend

More recently, Texas Instruments has worked with American Express, serving as the technology provider behind that card company’s ExpressPay system, which has some 13 million cards now in the market, and for the MasterCard PayPass — both of which enable users to complete purchases without signatures and without swiping their cards.

“Tapping versus swiping is definitely the trend at checkouts,” Pavey, who manages the contactless payment programs at TI, told the E-Commerce Times. The technological hurdles for spreading the technology have rapidly begun to fall to the wayside, he added.

For instance, TI has developed a quarter-sized antenna that can be installed in a range of form factors, from keychain devices to rechargeable paper tickets.

“Once you get away from the card form factor, that’s where the possibilities start to multiply and get very interesting,” Pavey noted.

Remember Money?

Nevertheless, the wheels are in motion to create an economy free of paper money and coins. The first steps of that quiet revolution have long been in place for years and touch tens of millions of consumers every day. This includes consumers rolling through tollbooths without stopping, their in-car transponders beaming information to an RFID (radio frequency identification) reader and triggering a process by which tolls are transferred from a credit card or bank account to the highway authority.

Millions more use SpeedPass devices to pay for gasoline, simply waving a key fob in front of a reader built into a gas pump, paying for gas without every opening their wallets.

Human habits and cultural attachments to the traditional idea of money may be the only hurdles that continue to prevent all payments from being made with the wave of a key fob or a ray of infrared light from a cell phone.

The Funding

“The technological barriers have just about all fallen,” Mark Levine, a partner with the venture investment firm Core Capital Partners, told the E-Commerce Times. “It can be done, and it is being done in other societies. Now, it’s more of a cultural phenomenon,” he stated.

Levine and other venture investors are again backing a new breed of companies aiming at the payment alternatives field. Those startups are joining a slew of established technology giants who are helping to build the infrastructure to enable consumer and business payments to be made purely electronically.

Levine’s firm recently invested in FreedomPay, which provides cashless payment solutions to food services businesses. Core Capital Partners has “cracked the code on consumer control,” a key ingredient in getting users to buy into remote payment options, he noted.

FreedomPay uses Web-based accounts under the user’s direct control to enable payment at food service establishments, often those inside government agencies or corporations. Merchants also win by dramatically increasing the speed and efficiency of transactions. The system works because merchants can continue to take cash and still get benefits of using the contactless approach, Levine said. So, if the market warrants it, they can easily move to 100 percent cashless.

Such controlled environments may make good test beds for larger-scale contactless payment options.

Tipping Point Ahead

One reason remote payment will work is the huge base of infrastructure already in place in the form of magnetic card readers and the technology that makes them work, Mohammad Khan, president and founder of ViVOtech, a maker of contactless payment hardware and software solutions, told the E-Commerce Times.

ViVOtech focuses on providing RFID solutions that work with that existing infrastructure. In addition, no-contact payment solutions are being built on widely accepted standards supported by the major credit card companies as well as those on the technology side, Khan said.

ViVOtech’s experience underscores the rapid adoption of contactless solutions. In the past 18 months, the company has sold some 220,000 RFID readers for point-of-sale deployment at some 46,000 merchant sites. In the same time frame, card companies have issued 20 million contactless enabled cards, which can be used to make small payments without a signature.

Those readers are in Jack in the Box restaurants — both at registers and drive-throughs — 7-Eleven convenience stores, McDonald’s restaurants and Regal movie theaters, he noted.

Merchants are eager to drive adoption of contactless, Khan said. “The lines are moving quicker, people are happier,” he stated. One grocery store chain found in reviewing its own sales data that users of contactless solutions visited the store more often than others. Exxon Mobil has reported the same increase in customer loyalty in connection with the SpeedPass.

A tipping point is near at which the adoption of contactless payments will accelerate dramatically, driven by both consumer demand for convenience and merchant desire to boost efficiency, cut costs and increase customer loyalty, Khan stated.

Side Benefits and Security Questions

Card companies have also touted contactless solutions as offering a chance for the millions of consumers who don’t have credit cards to become part of the electronic economy. Contactless cards can be prepaid cards, or established as debit cards to withdraw from checking accounts.

Some security concerns remain. Core Capital’s Levine says the transactions happen so rapidly that interception and decryption are all but impossible. Still, some security firms have warned that it may be possible for RFID readers to be duplicated or forged. Those concerns may help slow adoption somewhat, but most experts say there is no going back on the trend.

In fact, the move to the cell phone as the contactless payment device of choice may be the straw that finally breaks the back of the cash economy.

“Once you move to the cell phone as the e-wallet, it just opens up so many different doors,” Khan said.

Back in Dallas, Pavey’s firsthand experience has helped him come to see the cell phone as an exciting next phase of payment form factor.

“It’s got a communications pipe into it, a display — you can do all sorts of interesting things with it,” he said. “There are still a lot of hurdles to overcome, both from a technical and business perspective, but when that happens, I’ll be the first in line to buy one.”