One particularly interesting feature of the rollout of contactless payments in the US is that there are significant differences between this rollout and those in operation and being considered in the Asia Pacific region and Europe.

These differences are in terms of the technology that underpins the basic product, and also in terms of product positioning.

US contactless forms are all based on magnetic stripe technology, necessitating online authorization It is important to note that the technology underpinning the contactless payment programs in the US has a number of fundamental differences to that in Asia Pacific and Europe.

At the heart of this difference is migration to the EMV standard. In both Asia Pacific and Europe, contactless payment programs are built to leverage an EMV compliant card and acquiring infrastructure. In these regions, contactless devices are built around the EMV compliant chip, with the only point of difference between contactless and standard card transactions being the interface with the POS terminal. This means that all EMV-based contactless programs offer the same security standards as a regular card transaction. 

Contactless payments allow payment cards to expand into areas traditionally dominated by cash “The card and terminal conduct a standard EMV transaction, but through the contactless mechanism. These transactions are therefore as secure as any standard EMV transaction” 

Perhaps of more practical importance, this means that EMV compliant contactless programs can be accepted offline. As a consequence, the time taken for such a transaction is considerably less than an online contactless payment. The time to authorize an online payment is in the region of two seconds, while offline transactions are verifiable within 0.5 seconds.

The US has not progressed well with EMV, and contactless programs are built on magnetic stripe technology
In contrast, the US market has not really progressed with EMV. There are a number of reasons for this, many of which are covered in greater detail in EMV Migration in Europe, November 2005, BFFS0402. As a consequence of this, US contactless programs operate in a different way to those in other markets. Each contactless piece contains an embedded smart card chip (not EMV compliant) with antennae, which is used to transmit Track 2 data (the basic data required to verify a card payment) to the POS terminal.

This is less secure than EMV compliant systems, as it based on magnetic stripe technology. As a result, all US contactless transactions are verified online.

There are also important differences in product positioning between the US and other markets
In addition to the differences in the technology behind the programs, there are also key differences in the way that contactless products are positioned in the US and other markets.

In the US market, contactless is positioned as another way of presenting the card at the POS, with little distinction drawn between contactless and standard card transactions. In contrast, the product positioning in other markets is centred on contactless as a product innovation specifically targeted at low value payments.

As one executive interviewed commented: “In the EMV region, the product is positioned as a new advanced proposition; contactless is not just another technology and is not positioned as such…in the US, contactless is positioned as another way of using the card; there is no distinction in terms of payment values in the US. You present the card as for contactless, and just authorize as required”