May 9, 2012, 9:52 AM

MasterCard launches a digital wallet

American Airlines and Barnes & Noble are among the first to use PayPass Wallet Services.

Lead Photo

MasterCard has launched PayPass Wallet Services, a digital wallet, payment acceptance network and interface that banks, merchants, technology providers and consumers can all tap, MasterCard says.

American Airlines and Barnes & Noble are two of the first major brands to offer the payment feature. Barnes & Noble will add the PayPass checkout button to its site and American Airlines will add that option to its site and also integrate PayPass Wallet into its mobile app. Other retailers using PayPass Wallet Services include Newegg and Barnes & Noble is No. 27 in the Internet Retailer Mobile Commerce Top 300, Newegg is No. 34.

The offering consists of three services:

  • PayPass Acceptance Network: This includes PayPass Online and PayPass Contactless—two payment methods for web and bricks-and-mortar merchants, respectively. In stores, consumers who sign up for the service can pay at checkout using PayPass Contactless, which will use NFC, or Near Field Communications, technology. NFC is a wireless technology that enables two-way communication between devices, such as tapping a smartphone with an NFC chip against an NFC-enabled payment terminal to complete a transaction or redeem a coupon. On the web, consumers can sign up and use PayPass Online by entering their card information and personal details. Then, when they visit a web site that offers PayPass online, they can click the PayPass button to check out without having to enter their personal information.
  • PayPass Wallet: A digital wallet that banks, merchants and service providers can offer consumers under their own names and brands. Consumers can tie PayPass wallet to several cards including MasterCard, American Express, Discover, Visa and other branded credit, debit and prepaid cards.
  • PayPass Application Programming Interface: The API allows those participating in the program to connect their digital wallets, enabling customers to make purchases wherever PayPass is accepted—on the web, the mobile web and in-store.

MasterCard will roll out the service to banks, merchants and other businesses in the U.S., Canada, U.K. and Australia in the third quarter. The company is first offering the program online and will expand to bricks-and-mortar merchants over time. Bricks-and-mortar merchants will have to upgrade their point-of-sale terminals with NFC technology to be able to accept PayPass in stores. That cost has long been a barrier to store merchants accepting contactless payments, including MasterCard PayPass and similar tap-and-go payment systems from Visa and American Express.

Rick Oglesby, senior analyst at consulting firm Aite Group LLC says merchants will only embrace the service if consumers do. “Consumers will need to register for the service and learn to recognize it and use it,” he says. “If MasterCard achieves a level of critical mass on consumer enrollment, then merchants will definitely accept it. That being said, it is a competitive environment with others offering similar services, so driving consumer enrollment and activation will be key.”

The service may pick up more quickly online, experts say. Speed and convenience are playing an increasingly important role with online consumers, and online retailers won’t have to invest in costly terminal upgrades to offer PayPass on their sites.

“In the e-commerce space, speed and convenience of a transaction is critical. It’s so easy to for a consumer to switch to another web site; a merchant whose checkout process is a bit lengthier than others can be at a big competitive disadvantage,” Oglesby says. “The ability to store payment credentials in order to complete a transaction as quickly and easily as possible is a competitive differentiator. By providing this service, MasterCard hopes to enable quicker checkouts, making online purchases more convenient for customers while helping merchants better compete.”

Oglesby adds, that MasterCard does have something that many other similar services such as Google Wallet or PayPal don’t  or at least did not at first in that it already has strong relationships with financial institutions. “They have a strength in the relationships that they have with financial institutions,” he says. “As financial institutions have strong payment relationships with their existing customer bases, MasterCard will look to partner with them to drive enrollment.”

Still, he adds that other players have their own strengths. For example, he says as the primary payment vehicle for eBay, PayPal first grew its consumer base by facilitating eBay transactions. EBay also has strength in mobile shopping services through the acquisitions including bar code scanning app RedLaser, and Milo, a mobile service that searches the inventory of local stores to help consumers find items and compare prices. Meanwhile, the wireless carriers distribute phones to consumers, so if they can embed wallet services in smartphones that would be a big opportunity for them, Oglesby says.

“MasterCard is a service that is likely to appeal to banks and their loyal customers,” Oglesby says. “It’s another option available in the marketplace that will appeal to a certain set of customers.”

In the future, MasterCard says it plans to offer consumers using the service features including spending controls and alerts, coupons, and loyalty rewards.

Banks working with MasterCard on PayPass include U.S.-based Fifth Third Bank and Citibank. Technology partners include m-commerce technology provider Kony Solutions, online payment provider CardinalCommerce Corp. and Digital River Inc., a provider of e-commerce technology primarily for software publishers.

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