MasterCard PayPass

What types of merchants will benefit the most from MasterCard PayPass?
How does pricing work for merchants? Are MasterCard PayPass transactions more or less than traditional credit and debit transactions?
How does this "non-verified" transaction change the payment guarantee for the merchant?
What are the costs involved?
What type of technology is used for MasterCard PayPass?
Which vendors are working with MasterCard Worldwide on MasterCard PayPass?
Is MasterCard PayPass currently being used? If so, where?
What did MasterCard learn from its PayPass trials in Orlando and Dallas?
How much does MasterCard PayPass technology speed up an average/standard cash and credit retail transaction?
What were the most significant findings from MasterCard consumer payment trends research?

MasterCard PayPass is ideal for traditional, cash-only environments where speed is essential, such as fast-food restaurants, drive-thrus, convenience stores, movie theaters, self-serve gas stations, mass transit, pharmacies, parking garages, and toll roads. The most significant time savings were recognized at drive-thrus, where MasterCard PayPass shaved between 12 and 18 seconds from the purchase time, as compared to cash.

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The use of the MasterCard PayPass technology has no bearing on pricing. Pricing is entirely dependent on the underlying, existing payment application.

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The use of MasterCard PayPass does not change the payment guarantee for merchants. Existing rules in place for the product/merchant category in which the transaction takes place continue to apply when data is passed across a contactless interface.

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To accept PayPass payments, merchants can choose to implement a plug-in peripheral reader or a fully integrated system. Costs will vary depending on the selected solution.

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In keeping with our overall strategy to create globally interoperable payment solutions, MasterCard PayPass was built following an open industry standard for radio frequency communications - ISO 14443.

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Current vendors developing products/services for MasterCard PayPass include: (a) Chip Manufacturers: Infineon, Atmel, Philips Semiconductor (b) Card Manufacturers: Colorado Plastics Inc., Oberthur USA (c) Card Personalization Bureaus: First Data Corp, and (d) ECR/POS Providers: Verifone, OTI Inc., Panasonic, Verifone, ViVOtech, Hypercom, Counter Solutions.

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On September 30, 2003, MasterCard reached an important milestone with the conclusion of its nine month MasterCard PayPass market trial in Orlando, Florida, with Chase, Citibank, and MBNA. More than 16,000 cardholders and more than 60 retailer locations participated in the market trial. In addition, MasterCard worked with Nokia, AT&T Wireless, and JPMorgan Chase to incorporate MasterCard PayPass into mobile phones in Dallas, Texas. Here, consumers simply tapped their phones to make payments. Additional financial institutions will begin issuing MasterCard PayPass cards starting in 2005.

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Consumers respond to PayPass. Trial results in Orlando indicated that consumers find MasterCard PayPass to be simple, fast, and convenient. MasterCard PayPass cardholders value the added security that they receive from retaining possession of their card while paying. Consumers also like the convenience of not carrying cash for everyday purchases and not having to go to the ATM as frequently. MasterCard saw a top-of-wallet trend emerge among PayPass cardholders. Specifically, there was a nearly 23% increase on transaction volume versus the same period in 2002, and an even higher increase of nearly 28% in total weekly spend versus 2002. MasterCard also saw a pattern of frequent usage emerge. Month over month, more than a 12% increase in transaction volumes at PayPass merchants was observed. MasterCard saw clear evidence that consumers were using their PayPass cards where they once would have used cash. The average PayPass transaction size during the trial was around $21, and 80% of PayPass transactions were for purchases under $25. Results of the Orlando trial also verify that MasterCard PayPass can offer significant time savings to retailers. In some locations, MasterCard PayPass reduced purchase times so substantially that retailers were able to support additional transactions and thus potentially increase revenues. The most significant time savings have been realized in the drive-thru environment, which shaved between 12 and 18 seconds off the purchase time as compared to cash. Initial results from the MasterCard PayPass trial in Dallas reinforce speed and convenience as top benefits.

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The MasterCard PayPass program builds upon the successful employee trial that recently took place at MasterCard's Purchase, NY, headquarters. Initial results from the employee pilot showed that purchase transaction time was reduced by up to 64%. In addition, the average transaction amount increased by 10% when using a payment card in lieu of cash. However, transaction times are clearly dependent on a number of additional factors relating to a particular merchant's implementation of the technology (e.g., integration into existing point-of-sale systems, dial-up vs. highspeed connections to acquirers, etc.). MasterCard PayPass reduces the transaction time for some elements of the process (no card or cash handover to merchant, no card orientation issues, faster data transmission for card transactions, no change for cash transactions, etc.) so the overall transaction time is generally quicker than the equivalent process today.

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In late 2003, MasterCard carried out a national telephone survey to gain additional insight into consumer payment trends and preferences. Many of the survey's results confirmed the trial's findings. For example, according to the survey, nearly 40% of U.S. adults carry less cash with them compared with five years ago. Twenty-six percent say they carry "a lot less" cash. Findings also showed that nearly half (49%) of consumers carry $20 or less in their wallet and 86% of consumers reported that they want to use cash less often than they currently do. These survey results are also in line with 2002 studies which showed that 53% of consumers would use MasterCard PayPass to replace cash payments if their financial institution offered it to them.

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