Insecure Consumers

Consumer concerns about security and privacy may be slowing the adoption of contactless payment systems, but they are largely unfounded.

Contactless cards are better protected than their magnetic strip equivalents. Special applications on the embedded chips encrypt data in transit and use whats known as a dynamic card verification value to validate each transaction. The value is similar to the static, three-digit code seen on the back of credit cards. But the chip in each card generates a unique number for each transaction. That number must match what the network expects to see before the transaction is approved.

The products theyre putting out there today, while not impervious, are orders of magnitude more secure than the magnetic stripe cards, says Ken Warren, smart card business manager at Crypto­graphy Research Inc., a developer of mobile security intellectual property.

Still, some consumers may be nervous. Tales of skimming, where someone with a card reader brushes up against your contactless card or mobile phone on a bus or subway and siphons money out of your account, are already circulating.

That scenario is overblown, says Jonathan Collins, an analyst at ABI Research. The movie plot threat is that fraudsters can just grab information from the air and use that, he says. But even if that were possible, dynamic verification values would make it difficult to successfully replicate and use a card for illegal transactions.

Moreover, the card associations protect merchants from fraud by guaranteeing transactions of $25 or less without requiring a signature, and consumers are protected by the same liability limitations that apply to standard credit cards.

Theres another related concern, however. Consumers give up more privacy as they increase the number and types of transactions they conduct electronically. Your credit card transactions appear on your credit card statement. Your cash payments dont. Its one more transaction that is linked to an account, says Collins.

But Peter Ho, product manager in the card services division at Wells Fargo, sees that visibility into personal finances as a plus. The banks online My Spending application categorizes card purchases so customers can see where their money goes, he says.

As the cards are increasingly tied to loyalty programs, and credit card associations and merchant networks link together more tightly, other privacy issues may arise. For example, what information on a shoppers spending habits will a grocery store share and with whom? Will consumers need to opt in, or at least be able to opt out? These questions still need to be worked out.

Some of these issues may not be resolved until acceptance of contactless payment technology reaches critical mass, which Collins says is still five or more years away. For the card associations, acceptance of new technology is a road theyve traveled before.

Its the same problem that Visa and MasterCard had 30 or 40 years ago when they built the network itself, Collins says.

If the past is any indicator, it may take some time before credit cards become fully integrated into the world of wireless payments.

Copyright © 2007 IDG Communications, Inc.

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