Booklet: Retail Payment Systems
Section: Payment Instruments, Clearing, and Settlement
Subsection: Emerging Retail Payment Technologies
 

 

 

 

 

 

This section discusses several emerging retail payments technologies that financial institutions are implementing or considering. The success of emerging retail payment methods depends upon four key drivers: reliability, cost, convenience, and speed. In terms of the preferences by consumers, merchants, and payment processors, the key drivers are technological advances, convenience, and lower transaction costs. The evolution of such preferences is facilitated by traditional financial institution relationships and established payments networks and infrastructure. Internet, mobile, and contactless payments may be used alone or together to facilitate electronic transactions, further reducing the use of paper checks. The use of currency is expected to retain some appeal because of its anonymity; however, the substitution of electronic payment vehicles for cash micro payments (transactions under $5.00) is expected to increase.

While the environment for emerging payments is highly dynamic, the most important emerging payments today are electronic bill presentment and payment (EBPP), P2P, A2A, and stored-value instruments. Several more recent emerging payment mechanisms are contactless payments, biometrics, and proximity payments as well as the format and transmission mechanics used to effect these payments.

Contacless Payment Cards, Proximity Payments and Other Devices
Contactless cards and key fobs have an embedded computer chip with financial and personal information used for payment transactions, and they employ RFID technology for payment transmission. The contactless cards include a microcontroller (or equivalent intelligence) and internal memory aFinancial institutions offering advanced payment technologies (i.e., commercial POS systems to merchants or consumer proximity devices) need to perform the same due diligence and vendor management as they would on any service provider. This includes ensuring an appropriate level of security in the devices. nd have the ability to secure, store, and provide access to data on the card. The microcontroller also supports the use of improved security features including authenticated information access and information privacy. Traditional plastic cards are easily transitioned to these new contactless cards. Other smart-card technologies provide similar capabilities but do not have the radio frequency interface that would enable them to be read quickly and conveniently at a short distance from the reading mechanism.

Proximity payments are POS transactions made with a mobile device like a cellular telephone, smart card, PDA, or virtually any device that can house a microchip. If the payment is executed with a mobile phone, it may be referred to as an M-payment. Proximity payments are faster, cheaper, and easier than traditional payment mechanisms such as cash or credit card type transactions, particularly for micro payments. Many of these transactions use the same credit/debit card network, and provide lower costs to institutions and to merchants.

Proximity payments and contactless cards permit the consumer to maintain physical control of the access device rather than relinquishing such control to an operator at a POS. Bankcard companies and governmental agencies have become the leaders in facilitating these transactions. Currently, there are multiple transmission types in use, and several are discussed below. Other transmission types are undergoing market test trials.

Financial institutions offering advanced payment technologies (i.e., commercial POS systems to merchants or consumer proximity devices) need to perform the same due diligence and vendor management as they would on any service provider. This includes ensuring an appropriate level of security in the devices.

Biometrics for Payments Initiation and Authentication
Biometric payment services allow a consumer to make purchases or to cash checks using a biometric identifier such as a finger scan linked to his or her personal identification information, accounts at a financial institution, or loyalty programs. Other biometric methods include voice scanning and iris and retinal imaging. Biometric technologies are used increasingly for consumer account authentication. However, a biometric identifier alone is only a single factor, and it may need to be combined with other technologies or factors for proper authentication of high-risk banking transactions. additional information. As new payment systems emerge, industry demands for anti-fraud measures may result in greater use of biometrics.

Emerging Network Technologies
The previously discussed emerging payment systems rely upon, and may be integrated with, underlying network communication technologies and protocols. If not properly implemented, new and emerging network communication technologies may expose the payment device or system to additional vulnerabilities. This is particularly true with any network that relies upon broadcast technology to send and receive information. Even close proximity wireless devices, such as RFID, have been found to be vulnerable to eavesdropping at distances greater than they were designed for. Care should be taken to ensure that the underlying network communication technology has security appropriate to the information being transmitted. Currently, there are four types of short-range wireless connectivity technologies that can be used to connect payment devices to POS devices. These include: Infrared, RFID, NFC, and Bluetooth.

Infrared
Infrared communication technology works similarly to a television remote control as information is sent from a device to a payment terminal via a frequency that is invisible to the naked eye. These devices can have signals that are stronger than other contactless technologies and can work from several yards away. Security concerns arise regarding the ability to compromise a transmission because of the strength of the signal. This concern is somewhat mitigated because there must be a direct line of sight for the transmission to work. The Infrared Financial Messaging Group (IrFM) is a consortium of technology and financial companies (including Visa) that work together to promote uniform and interoperable standards additional information. for infrared devices. These standards include encrypted channels.

Radio Frequency Identification
RFID is a method of remotely storing and accessing data on devices called RFID tags/transponders. An RFID tag can be incorporated into a plastic card (as with contactless cards), a fob, or other device. RFID tags also can be embedded into any product to track inventory. RFID tags contain antennas that enable them to communicate via radio frequency with an RFID transceiver. The technology protocol most widely used for RFID is the ISO 14443 standard. This standard is very general and can be used for multiple types of media and a broad range of hardware.

Near Field Communication
NFC is another short-range communication technology similar to RFID, but based on the ISO 18092 standard. NFC chips can be embedded in a mobile device such as a telephone to enable it to act as a contactless payment card. NFC has additional functionality such as the ability to act as a reader of other NFC devices, thus enabling two consumer devices to share data or transact payments with each other. NFC chips can also be integrated with other applications within the mobile device to permit transactions from multiple accounts.

RFID and NFC have become very flexible solutions for alternative payments. Financial institutions are adding RFID tags to credit and debit cards to speed transactions. In some parts of the world, consumers can link their credit or debit accounts to cell phones enabled with RFID or NFC technology to make purchases at retail sites equipped with payment readers.

Bluetooth
Bluetooth is a close-range wireless radio frequency communication protocol that has been implemented in a wide range of technologies. Bluetooth uses a stronger signal than RFID or NFC and is detectable at greater distances. There has been limited adoption of this protocol.