Putting Contactless Technology To Consumer Use

Nov 27, 2007 4:20 PM

           

A new technology is in the works for a system that allows customers wave their cell phone over a scanner to make a payment, and its security is said to be rock solid according to USA Today.

Encrypted payment information travels through the air from the phone to the scanner. The system is based on contactless technology already in some smart cards -- credit cards and key fobs embedded with chips so they can be used instead of swiping a magnetic credit card. Chips are finding their way into driver's licenses, passports and other forms of identification, and contactless cards are used in many transit systems.

"It's relatively easy to make cell phones very secure devices," says Allen Weinberg, managing partner at Glenbrook Partners, Menlo Park, Calif., a financial services and electronic payments consulting firm. He told USA Today that the encryption is "as good as or better than what you do with an ATM or at-home banking. No one is going to pick up your phone and start moving money around the world. It's just not going to happen."

MasterCard introduced contactless cards in 2002 under its PayPass program, which allows for transactions of $25 or less without a signature, says Simon Pugh, head of MasterCard's mobile group. With more than 19 million PayPass cards in use, MasterCard has simply taken the PayPass card proposition, in Pugh's words, and moved it to the phone. PayPass is now available in cell phones in South Korea, Taiwan and Japan, as well as in trials in the United States in Dallas, New York, Chicago, Wilmington, Del. and other cities. "We built security and encryption into the protocol," Pugh says. A cell phone transaction is "equally secure," he says.

The convenience of whipping out your phone as a payment mechanism is driving the transition. You wouldn't need to fumble for change at a parking meter, in a taxicab or at the ballpark, reports USA Today.

"This is how consumers want to pay," Pugh says. "As we look at how behavior is evolving, what are the three things people take as they leave their house? Their car keys, their phone and their wallet. If they only had to take two -- if their phone becomes their wallet -- and it's MasterCard and it's secure, we think that's something consumers will want."

Weinberg says Apple's iPhone woke the mobile industry up to consumers' desire for an easy way to access the Internet. Once they're online, they're using their connection to buy things on Amazon, eBay and other sites. "It really lit a fire under Apple's competitors to bring out better, more useful mobile devices," he says.

"I would say the big hurdle is not security," Weinberg says. "The big hurdle is continuing to improve ease of use and consumer awareness."

With all that convenience, however, consumers want to know that their data is secure. The solution is in the chip. Because the chip in the card is communicating directly with a chip in the scanner, it's easier to encrypt and harder to crack.

It's already working in contactless cards, says Randy Vanderhoof, executive director of the Smart Card Alliance, an organization in Princeton Junction, N.J., with more than 180 members, including major card associations, banks and security technology companies.

"We're taking the same core functionality that's in the cards and embedding that in a mobile handset," Vanderhoof told USA Today. "The chip in the mobile handset acts like the chip in the card."

The cards use a dynamic key generated for each transaction, meaning a random set of numbers is communicated from chip to chip, and then disappear. So even if someone was able to hack the transaction, it could not be duplicated.

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