A Consultant's View
Prairie Trail Software, Inc. ............................................................. March 2006
Now that merchants are installing fast internet connections, the card companies are seeking other ways to speed up using a card. Perhaps you remember Mobil's SpeedPass. People just waved a key "fob" at the pump. It worked- it provided faster transactions-but people quickly broke the system. Although quite a bit of fraud was rumored, a Mobil spokesperson claimed that none had occurred.
Card companies are now shipping their new RFID cards. Mastercard calls theirs PayPass. Chase has Blink cards, American Express has Express Pay, and then there's Visa Contactlesss. How secure are they? Who really benefits from using them? Should anyone be concerned about them?
The buzz on the web is that the John Hopkins researchers who cracked the Mobil SpeedPass in 10 hours were unable to break this new RFID card at all. The new cards use dynamic encryption; whereas, the Mobil card used a static encryption. That makes the job of cracking the cards much, much harder to do.
The only problem reported was at a store with multiple readers arrayed near each other. Several readers read the same card at once. I have not been able to verify this story; nevertheless, considering the dynamic encryption, I have strong doubts about this story's accuracy. Such double reading is far more common with static RFID tags, not these dynamic ones,
This story may be a mixing of experiences with the old and new tags, but even if this does happen, it would occur about as often as restaurants double bill, and it has the same correction. In other words, the fear and uncertainty that is running around the internet is just that.
So, what are the benefits of such a card? Card networks have the goal of replacing cash with transaction cards. This is one step along the way. So, the card networks are pleased with results.
Merchants benefit a lot from these cards- especially where speed is an issue. If the merchant has the option of not contacting the issuer for small payments, transaction are even faster. One company listed transaction times as:
| checks | 64.0 seconds |
| credit/debit | 48.4 seconds |
| PIN debit | 44.4 seconds |
| cash | 28.5 seconds |
| Pay By Touch | 15.6 seconds |
| contactless | 12.5 seconds |
Times are slightly different for the old drive up window. Close to 20 seconds can be saved over using cash.
Merchants like the idea of using cards of any kind. Quick service restaurants find that switching people to credit cards means a 20% larger ticket on average. It's that old human tendency: if I don't have to pay for it right now, I'll buy more.
The use of cards also reduces the amount of cash that can walk off. Unsophisticated employees can easily take money, but it takes knowledge and training to steal from a credit card.
Readers such as the OTI Saturn 5000 cost a couple hundred bucks to the individual merchant. As merchants tend to be cheap, they will need to evaluate their situation and ask if getting customers through the line will help them. If it does, then it makes a lot of sense to invest the money.
What benefit does the card holder get? The main thing that is being sold to them is the convenience: You don't have to let go of your card to pay. Some people report that they don't even have to dig the card (jut of their purse or wallet. Simply place a purse or wallet next to the reader and there it goes. For those who are physically oir visually challenged, paying this easily will be a real benefit. That appears to be why American Express is doing their initial rollout with drug stores.
There are some real benefits to merchants who accept RFID cards. OTI Saturn readers are already available through many ISO's. The ISO's benefit with larger transaction volume, and the card associations are one more step on their way to replacing cash.
The Treasury Department recently issued a warning about people using prepaid phone cards to launder money. "Cards & Payment" magazine ran an article on people using gift cards for the same.
The federal rules on reporting large cash transactions don't work when the money is loaded onto a bunch of gift cards. Reports from the southern border are that suspicious money transfers are starting to dry up because people can use prepaid cards instead.
There are three types of gift cards. The first type are issued by a small retailer. These aren't much of a problem because a card issued by a small store in Waco TX can't be used in Cancun Mexico where there isn't a branch of that particular store.
The second type are issued by retailers that have branches in both countries. Someone can purchase a card in one country and send it to someone in the other. The laundering happens when the goods are resold and the organization gets its money from those sales.
The third type of gift cards are issued through the banking system. They can be reloaded, and used anywhere. These cards have the most risk of being used for money laundering.
The value that most people like about gift cards is the anonymity, and that is exactly what scares the police. Gift cards can be used without any tracking of where the money is coming from and where it is going. Currently, there aren't any laws governing their use. That may change.
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Dave Randolph,
President, Prairie Trail Software