Airport Kiosks Gain Altitude If you’re like most business travelers, you’ve noticed that the lines at airline check-in counters have grown agonizingly long since the advent of new security rules in the wake of Sept 11. So have the airlines. In response, they’ve accelerated deployment of ATM-like machines near their check-in counters at airports to process e-tickets, spit out boarding passes, and take payment for upgrades. Coming online are such expanded features as payment for in-flight beverages and meals and the ability to process more complicated transactions, such as stand-by, as well as machines that can handle international flights. And the technology is moving beyond air travel. Already, some devices are handling transactions for multiple airlines, as well as for airline, hotel, and car-rental check-in, a combined-use approach that some say will expand rapidly. “That’s what’s keeping me busy,” says John A. Dungan, senior program manager for ARINC Inc., Annapolis, Md., a systems integrator that helped set up the first multi-airline machines last year. Airlines have hooked up about 5,600 of these ticketing kiosks in the nation’s airports since the first machine went live in 1995, and shipments for Lake Mary, Fla.-based Kinetics Inc., the largest maker of the systems, are growing 50% annually. Consumers are increasingly flocking to the machines, too. Some 28% of business travelers with electronic tickets now use them, up from 23% a year ago, according to Forrester Research, and some airlines claim much higher percentages among domestic, e-ticket-carrying customers. Continental Airlines, which deployed the first ticketing machine, now boasts a 70% usage rate among its 50 million passengers, for example. “It won’t be long before 90% plus will be the standard,” says Jim Brown, a spokesman for Kinetics. Top 10 Kiosk Deployers Delta 860 Continental 779 Northwest 750 American 700 United 600 US Airways 480 Southwest 430 Alaska Air 400 AirTran 200 America West Source: Digital Transactions 90 The reasons ticketing machines are flying high? Stringent security rules since the terrorist attacks of Sept. 11, 2001, for one thing, require passengers to obtain a boarding pass at the check-in counter, creating a chokepoint for travelers well before they ever get to the gate. By contrast, kiosks can process a check-in these days in under a minute. Beyond that, airlines have begun to realize sizable savings on transaction costs through the machines, which run $6,000 to $8,000 each in quantity. Continental, which will not disclose how much its 779 kiosks have saved, says the machines allow the carrier to serve more customers with the same levels of staff. They also allow the company to attract more business travelers, who want to move through airports quickly and who also pay higher average fares than other passengers. That helps support a revenue premium for Continental at 12% over the industry average on business travel. “We’re absolutely seeing our expected (return on investment),” says Scott O’Leary, senior manager of e-services programs for the airline. On self-serve ticketing in general, which includes Web transactions, airlines cut their check-in costs to 16 cents per passenger, compared to $3.68 when a counter agent handles it, according to Forrester. Kinetics estimates most airlines see a payback on these machines within a year, and sometimes in as little as six months. Now airlines, airports, and other parts of the travel industry are ready to exploit the technology even further. Last October, the first kiosks to be shared by multiple airlines debuted at Las Vegas’s McCarran International airport, perhaps best known for self-service devices of another kind—slot machines. Based on a software standard known as common-use self-service (CUSS), the 30 airport kiosks can check in passengers for a dozen carriers. Another six machines are hooked up at the Las Vegas Convention Center. By noon on the day the IBM Corp. machines went live, they had already tallied 3,000 transactions. “At our press conference to announce the machines, people were nudging cameramen aside to get to them,” recalls ARINC’s Dungan. McCarran owns the network, which it branded SpeedCheck. Now, says Dungan, he’s logging plenty of airline time himself talking to other airport authorities, which are attracted to the technology because it allows them to more efficiently allocate common-area space. Meanwhile, hotels are starting to get in on the action. Starwood Hotels & Resorts has deployed kiosks at its W hotels in New York and Boston that allow guests to check into and out of rooms as well as check in for flights. “We’re looking to expand to several dozen more Starwood properties,” says Kinetics’ Brown. The company is also talking to car-rental companies and cruise lines about the same idea. Says Brown: “We’re looking at the entire (travel) chain.” And the airlines are planning to make their machines handle more complex transactions, such as passengers changing itineraries, flying standby, and checking bags after checking in on the Web. Already, they make their machines accessible to passengers flying on tickets with airlines they have code-sharing arrangements with. “All the plain-vanilla transactions have been absorbed by the machines,” says Continental’s O’Leary. Next up? International travel. Carriers started dabbling in this last year, but observers say 2004 will be a big year for machine deployment in foreign airports served by U.S. airlines. The same forces driving deployment here, say experts, will lead to more and more kiosks overseas. Says Kinetics’ Brown: “This will be increasingly common.” Intuit-IMS: The Shape of Things to Come? Just as the merchant-acquiring business was adjusting to an invasion of private-equity players buying up independent sales organizations by the bushel (“Behind the ISO Consolidation Trend,” January/February), ISOs and processors may have to brace themselves for an influx of acquisitive companies from other markets. That prospect is only more likely now that Intuit Inc. has apparently made a success so far of its recent $116-million acquisition of Innovative Merchant Solutions, a 5-year-old ISO in Calabasas, Calif. Intuit and IMS closed on the deal last September, and “so far it’s been awesome,” says Joe Kaplan, IMS’s chief executive and a veteran of the transaction-acquiring business. As recently as a year ago, a company like $1.6-billion Intuit, purveyor of the popular Quicken and QuickBooks accounting-software packages, may not have seemed a likely buyer of ISOs, which were and are busily buying each other and being bought by private-equity funds seeking the steady returns promised by transaction traffic. But Intuit saw an opportunity to expand its QuickBooks business, and IMS looked like the vehicle to do it. The Mountain View, Calif.-based software giant had started its QuickBooks Merchant Account Services unit three years ago to meet the transaction needs of small businesses, the biggest customer base for QuickBooks. By the time it bought IMS, Intuit had signed up 40,000 clients for the service, which allows merchants to use Intuit’s banking links to set up card-acceptance accounts, and was generating $9 million in revenue from it annually. But the software doesn’t automate entry of terminal-based card transactions, and Intuit had no entity to sell and install terminals or to offer debit card acceptance based on personal identification numbers. That cramped Intuit’s style when it came to selling account services to the broader market of 2.5 million QuickBooks users. “It wasn’t a POS solution,” says an Intuit spokesperson. “Now with IMS we can own the process from soup to nuts.” It may be early to talk about “owning” the POS process, but both companies are working hard to exploit their relative strengths. Both are at work on the software tweaks needed to make transactions at the terminal flow into QuickBooks. And Kaplan is gearing up his sales force to go after the huge opportunity he sees in selling payment services to that installed base of QuickBooks clients. “If we do it right,” he says, “our world opens up.” IMS currently serves 100,000 merchant locations, and with Intuit behind it Kaplan figures it can expand that base by 50% this year. Best of all, says Kaplan, these new merchant relationships may prove hardier—and more profitable—than is typical between ISO and merchant. Says he: “Intuit has access to a customer base that’s very loyal, unlike the credit card side where merchants sometimes will leave you for a $1 advantage.” For its part, Intuit isn’t ruling out future acquisitions or other relationships with ISOs. “We think there’s greater opportunity with greater focus in this area,” says the spokesperson. Others are watching closely. A number of outside companies serving merchants and other small businesses could be candidates to buy ISOs or transaction processors, say industry observers, particularly if the Intuit-IMS integration continues to run smoothly. “There’s going to be a lot of large players entering the game,” says Kaplan. “It just makes sense.” From Air Carrier to Check Processor It was one of those moments when a company has to decide what business it’s really in. When banks began rallying behind a bill in Congress that would allow them to exchange check images as if they were legally the same as paper checks, shudders went down the spines of executives at AirNet Systems Inc. After all, the Columbus, Ohio-based company had made a thriving business out of flying timesensitive items, mostly checks, around the country on a fleet of 120 planes in hangars around the country. Every night, it hauls 125,000 pounds of checks, or 70% of the nation’s check volume, and claims the country’s 100 largest banks among its clients. Already, the shift in payments to electronic transactions had made a dent in that business, as products like debit cards took market share away from checks. Indeed, the company’s banking revenues leveled off last year at $102 million. So AirNet did what any company that feels threatened by new legislation does: it lobbied hard against it, leaning in particular on five Ohio congressmen on the House Finance Committee. AirNet figured if it could hold off the passage of the bill, which ultimately became law last fall as the Check Clearing for the 21st Century Act (Check 21), that would give the company time to diversify into other small-package delivery markets and passenger charter. Diversify AirNet did, but in a much more interesting way. Check 21, which takes effect in October, allows banks without imaging technology to turn the check images they receive back into paper items, called image replacement documents (IRDs), for processing. IRDs, though not as efficient as images, are still cheaper and clear faster than paper. AirNet saw an opportunity to set up high-volume printers at its seven regional hubs that could receive images and then print IRDs that the company’s planes would then carry, on shorter routes, to the receiving banks served by the hubs. The combination of faster settlement time and reduced transportation cost would cut banks’ per-item costs, since carrier costs typically account for about 20% of banks’ check-handling costs. And AirNet would keep its planes flying and extend the shelf life of its critical banking market. The result: AirNet went into the transaction-processing business, launching in December a new subsidiary, called Fast Forward Solutions. The new unit came about, in part, because AirNet’s legislative maneuvers were looking less and less fruitful. “We thought, we could sit here and continue to ask the Ohio Republicans to continue stonewalling implementation (of Check 21), which wasn’t winning us many favors with our bank clients, or we could say, let’s embrace change, and what can we do to be a part of it,” says Jeff Harris, the banking veteran and AirNet executive who took over as president of Fast Forward Solutions. Embracing change may well be the best move the air carrier ever made. Fast Forward has made a deal with NetDeposit Inc. to use the Salt Lake City-based software company’s check-processing gateway and is working on capacity studies at its hubs to get its printer network established. And Harris, who says Fast Forward can cut banks’ paper-check costs by 10% to 20%, expects to announce the company’s first customers shortly. “What Fast Forward is selling is a forward-collection solution that transportation is a part of,” says Harris. NetDeposit, a subsidiary of Zions Bancorporation, approached AirNet with the IRD idea a year ago. Now the 3-year-old company will benefit from the introduction it will get into AirNet’s client base. Indeed, Harris likens the Fast Forward relationship to NetDeposit to that of computer makers to Intel. “Fast Forward’s desire is to be powered by NetDeposit like Intel Inside,” says Harris. Harris has no delusions about the permanence of paper. Check imaging, he says, is inevitable. But IRDs will prove to be a workable solution for the next three to five years, he figures, for banks that can’t immediately make the investment in imaging gear. Even for large banks that may have some of the infrastructure already in place, the cost of installing imaging equipment could run as much as $5 million. That buys AirNet the breathing room it was looking for. And, by the way, says Harris, paper checks aren’t going away completely. “There are still over 10,000 banks in America,” he says. “There will always be a need to move checks.” Chip And PIN Come To Canada Plastic cards embedded with integrated-circuit chips for payment processing and other advanced functions have struggled at the point of sale in North America for years (“Why Uncle Sam Yawns at Smart Cards,” January/February). But now, with a major rollout of chip cards combined with personal identification numbers going on Europe, the chip and PIN combo is leading smart cards back to Canada. An ambitious multi-application smart card pilot launched late last year in Barrie, Ontario, is moving to its next phase, which involves signing up more merchant locations in an effort to reach a goal of 200 in the town of 60,000 people. Toronto-based Scotiabank, the issuer of the cards, will not release how many it has issued so far, though it said in a statement announcing the project in 2001 that it planned to have 12,000 residents participating. “That’s still in the ball park,” says Gregg E. Friday, director of business development for credit cards at the bank. The key for now, he says, is to test the card’s basic PIN security function. Then the plan is to add on a loyalty feature and an electronic purse that could be used for smallvalue payments, relying on technology from Cardis Enterprises International B.V., a company based in the Netherlands. Paymentech Canada, which is processing transactions for the pilot, is signing up merchants in Barrie that are already clients of the processor. “It’s going about as we expected,” says Drew Brown, president of Paymentech Canada, which until its October 2002 acquisition by Dallas-based Paymentech L.P. was the merchant-acquiring unit of Scotiabank. The terminals for the project are supplied by Ingenico Corp., formerly IVI Checkmate. The first multi-application chip card project in Canada that is compliant with the so-called EMV standard for smart card transactions, the Barrie pilot features Visa credit card transactions secured by personal identification numbers. Instead of signing receipts, cardholders enter a PIN and insert their cards in a chip reader. The entered PIN must match the PIN encoded in the chip. This is the same standard being followed by U.K. issuers in a nationwide rollout of EMV-compliant cards now underway. Scotiabank is hoping the cards, if they test successfully, will help build up the banks’ card portfolio and transaction volume as cardholders spooked by rising fraud from identity theft respond to the added security of chip-based PINs. Sponsoring the test, the bank figures, will also help. “There are advantages to being there ahead, and disadvantages to not being there,” notes Friday. For now, Friday is optimistic. “Eventually this will roll out,” he says. “Chip cards are here to stay.” The EMV standard, missing in previous tests, may make a difference this time. Barrie was the site of an earlier, non-EMV smart card pilot based on the Visa Cash Card. That project, in which Scotiabank was also the issuer, ran from 2000 until last year, giving Barrie the longest exposure to smart cards in Canada. Two other Canadian chip pilots involving other issuers, one starting in Guelph, Ontario and later moving to Sherbrooke, Quebec, and one in Kingston, Ontario, also were in operation for a time. Philips and Visa Report On Their Digital Content Alliance Philips Electronics NV and Visa International have joined forces to show how the latest contactless technology can change the way digital content and services are distributed, paid for, and accessed by today’s universally connected consumer. Following the announcement of an alliance between the two companies in May last year, Philips and Visa have set up demos and concepts across different industries, including communications, consumer electronics, computing, and digital content providers. The two organizations are showcasing proofs of concept demonstrating the combination of Philips’s Near Field Communication (NFC) technology and Visa’s Verified by Visa (VbV) security system “Both Visa International and Philips share a vision of secure universal commerce and connectivity, whereby consumers can access and pay for physical and digital services anywhere, at any time, using any device,” says Gaylon Howe, executive vice president, consumer product platforms, Visa International. The partners are highlighting the unique value derived from combining the latest consumer electronics, wireless connectivity, and secure, universal payment. In one scenario, music lovers can download the right to listen to a song to their PDA or their Visa payment card either by holding the PDA near a smart poster of their favourite Universal Music pop star or by holding their contactless Visa card near a store kiosk selling songs. The smart poster contains an embedded microchip that sends the information to the PDA using NFC technology. Payment is by VbV and the song rights can be stored utilizing Visa Smart Secure Storage (VS3). The kiosk is enabled with RFID technology to capture payment information from the card and transfer the rights to be stored in VS3. To hear the song, the user transfers the song rights to a Philips Streamium internet radio using NFC, and the song is then played over the internet. Mobile phone users can pay for concert or movie tickets at the box office by holding their phone next to the payment terminal. The contactless chip in the phone transfers Visa payment data to the terminal and, once payment is confirmed, sends the tickets back to the phone. The phone user can then transfer a ticket using NFC to a friend’s mobile phone. Payment is made by a new Visa person-to-person payment concept. Once at the venue, both ticket holders can use their phones to gain access and may also receive an electronic discount coupon for an on-site merchant. “As we move into the rollout phase of NFC technology, we are proud to present showcases which represent the first step in providing people with secure access to attractive content using their mobile devices as the central element,” says Scott McGregor, president and chief executive, Philips Semiconductors. Among the partners working with Philips and Visa is global entertainment company Universal Music France. “(We are) delighted to work with Philips and Visa as they both share our belief that content should be securely and easily available in any form—physical or digital—to anybody, in any environment using a flexible pricing plan,” says Pascal Nègre, president of Universal Music France. “The ability for users of Universal Music France’s E-Compil music portal to access services through any channel on any device is central to our vision for the future of the entertainment industry.” Having demonstrated the technical concept of these applications, Philips and Visa will continue to assess market demand and develop stakeholder business cases. Visa Expands Its CEMEA M-payments Project Visa International CEMEA (Central and Eastern Europe, Middle East and Africa region) has announced the expansion of its new mobile-payment solution, enabling users to recharge mobile-phone airtime via shortmessaging service (SMS). Following the extension of the agreement between Visa CEMEA and technology-provider Upaid, the service is to be offered to banks and mobile-network operators across the region. The service was launched in October in Morocco with Banque Marocaine du Commerce Extérieur (BMCE) and mobile operator Méditel. The solution enables prepaid mobile phone users to recharge air time direct from a Visa card account simply by sending an SMS/text message. Customers can top up their own mobile phones as well as those of families and friends. No special handsets or technology are required, making it a mass-market mobilepayment solution. “(Visa CEMEA) have taken an extremely consumer-oriented approach which we feel is key to encouraging the use of a mobile phone to make payments,” says Ashley Ward, Upaid chief executive. The service is provided as a so-called plug-and-play solution to participating banks and operators, which is suited to the needs of many Visa members in the CEMEA region. Once customers become familiar with using their mobile phones to recharge their air time, a much wider range of payment applications becomes possible. Upaid is providing the technology behind the service, offering advanced platform functionality and a fully hosted service. Visa member banks connect to the platform once to gain access to all participating operators, and vice versa for operators. Initially contracted to partner Visa for the Morocco project, Visa and Upaid have now extended their agreement until December 2005 to facilitate wider deployment. The Upaid technology enables multiple banks and mobile operators to connect to a host platform that authenticates and processes top-up transactions. The platform interacts with operator and bank systems to authenticate the end-user based on his MSISDN (mobile phone number), combined with a PIN used to initiate transactions. It then handles the transfer of transaction authorization and top-up message requests between the bank and the operator. Commenting on the service, Hilary Mitchell, vice president New Payment Solutions, Visa International CEMEA, says: “We have selected Upaid as our ASP provider on the basis of their platform and their people. The functionality and flexibility of the Upaid platform means that the service can expand in line with CEMEA’s strategic roadmap to enable a range of customer-friendly solutions for remote payments.” Within the CEMEA region, an estimated $10.5 billion will be spent on prepaid mobile recharges by 2005. Air-time top-up via a mobile phone and bank account will bring added convenience and costefficiencies to operators and consumers alike, while reducing the reliance on top-up vouchers, which are considered expensive and inconvenient to administer. A Research Report Forecasts a $7 Billion Mobile Infotainment Market Not only are wireless infotainment services expected to generate worldwide revenues of $7.2 billion by 2008, but their success can make the mobile phone, more than ever, the indispensable tool for modern living. These are some of the key findings from a new research report, “Mobile Infotainment: News, Travel & Information,” now available from Alexander Resources, a specialist in wireless communications. According to the report, infotainment encompasses personal/ peer-to-peer and third-party services that are designed to support and enhance a user’s daily life while on the move. Personal/peer-to-peer services include personal data/management as well as short-messaging service (SMS) and multi-media messaging (MMS) applications. Third-party services include several subsegments: mobile news, sports and weather services, mobile travel services and TV, celebrity, financial, and other services. Increased reliance on the mobile phone is vital to the mobile industry as a whole and to its future profits, potentially positioning infotainment as the cornerstone for future non-voice and voice-adjunct mobile services. The report forecasts worldwide revenues for wireless infotainment to grow from $1.5 billion in 2005 to $7.2 billion in 2008. To reach these revenues the market must first overcome some significant hurdles. These include market pricing, user willingness and ability to pay, the need for enhanced carrier billing systems, and improved security and privacy measures. The articles in this section are published by arrangement with Mobile Payments World, an online-only newsletter published 22 times a year in the UK by European Card Review, Europe’s leading payments card magazine. More details: www.mobilepaymentsworld.com.