With the addition of NFC to a phone, or secure element that facilitates payments on the internet, one of the more obvious functions for a mobile phone in payments is replacement of the functions currently performed by card. However, in order to understand the value that this could add, it is important to understand why cards might need to be replaced. After all, the format has been with us for a long time and the approximately 30bn transactions or an average 60 transactions per capita made with EU-issued payment cards each year, the format seems to be well embedded.
Recently the card format has come under considerable scrutiny as the advent of contactless payments arrived and pervasive nature of the USB standard bought viable challengers.
In essence the card format is a historical symbol, which owes its existence to the moment where the credit card business really began. The story began in 1949 when a man named Frank McNamara had a business dinner in New York’s Major’s Cabin Grill. When the bill arrived, Frank realized he’d forgotten his wallet. He managed to find his way out of the pickle, by leaving an IOU scribbled on the reverse of his business card. McNamara developed the idea further began to pay his bills with a small, business card-sized, cardboard card. Coined the Diners Club Card and used mainly for travel and entertainment purposes, it claims the title of the first credit card in widespread use. It was these humble beginnings that laid the format for today’s payment instrument – the ISO 7810 ID-1 standard size (85.60 × 53.98 mm) – and the general layout of identification data on the ‘front’ side.
The first major evolution for the card was embossing (raised letters and numbers) that allowed the card details to be quickly copied by a ‘zip-zap’ machine loaded with carbon paper. The magnetic stripe was added later to allow electronic capture of this same information, and the chip introduced to do the same but securely. And so, 60 years on, we still have the same information being collected by the merchant.
Another piece of card folklore tells that in 2002 an unnamed member of the MasterCard Chip Solutions team in Waterloo, Belgium asked the question as to whether new proximity technology could be adapted for payments “because it would be cool to pay with your watch” and following a development exercise with industry vendors, the card became contactless – previewing at the Cartes and Security exhibition in Paris in 2003. The underlying principle for what has become the technology for proximity payments using mobiles equipped with NFC.
What the ensuing contactless pilots achieved, however, is to highlight the real problem for consumers with a payment card. It is, in essence, a passive device. Before you use it you need to use some other means to find out if you have enough funds for your purchase (or just risk rejection). The fact that it needs power to reveal its secrets also means that the cardholder has to entrust it to the device of a merchant (or carry their own) and its suitability as a method of payment can only be assessed at the POI.
In addition, the huge deployed base of these passive devices means that security advances are slow to implement, partially because of the needs of global interoperability between the card and reader, but also due different approaches in different markets – meaning that Europe still supports a magnetic stripe legacy stretching back 40 years while having all-but migrated its own infrastrucutre to EMV.
Advocates of transactions using mobile handsets seek to overcome this through the potential ability to upgrade cryptography and personalisation across large numbers of phones in a single day, responding quickly to new threats and issues.
However, the traditional ID-1 format for payment cards has enabled global technical interoperability. It has been the defining factor for terminal, wallet and suit pocket design. It is a handy size that is easily held by the disabled and yet small enough to be convenient to carry on its own. It can be accepted by millions of devices around the world and can now be produced with built-in interactive elements such as balance readers and one-time passcode generators. Great economies of scale have bought the price of cards down to miniscule levels and it has overcome the tangibility barrier previously only associated with cash. The card format is truly pervasive, but is this due to it being a winning design or a lack of alternatives?
- Contactless Payments: Changing The Way You Pay (creditcard.com.au)
- Are Digital Wallets The Way Of The Future? (creditcard.com.au)
- iPhone 5 NFC snub won’t hinder contactless uptake: Datacard (zdnet.com)