One of the keys to the success of contactless payments is that it benefits everyone in the payments value chain – merchants, financial institutions and consumers alike. Merchants benefit from the faster throughput that contactless payments allow, speeding up lines and freeing their staff to focus on more than just payments. For financial institutions, contactless payments help grow their businesses as more acceptance locations are opened up to non-cash purchases, and their card holders continue to rely less on cash, finding that electronic payments offer better record-keeping and flexibility.

As we look to 2006, we expect to see the adoption and appeal of contactless payments grow considerably in the U.S. marketplace. As more consumers become comfortable with “tap and go” payments, they will show preferences for those merchants that allow them to speed through check-out with a tap. This shift in their shopping patterns will encourage broader acceptance by more and more national, regional and even local merchants.

New developments will arise, such as the issuance of non-card form factors. Citibank, for example, has already announced the rollout of its contactless debit key fobs in the U.S. MasterCard also continues to work closely with handset manufacturers to pilot the use of mobile phones as contactless payment devices. We have made great progress with the technology involved. At the outset of our mobile phone trials, PayPass functionality was only possible through an add-on in the phone cover. We have now integrated PayPass technology into the actual phone itself. Although we do not expect commercial availability of this option in 2006, we believe this payment option shows great promise in the future. Additional innovative form factors are also in development.

As more cards and devices are enabled with contactless payments technology, consumers will find they have additional choices about how they will pay for their everyday purchases. Not only will they be able to use contactless payments to tap through check-out at their favorite convenience store, but they will soon be able to tap a vending machine to purchase snack items, rather than being limited to the change they have on hand.

In 2006, contactless payments are also expected to gain greater momentum in various global markets, including Europe and Asia. MasterCard currently has a number of PayPass-related projects underway in various countries around the world. For example, in Taiwan, MasterCard is working with the Kaohsiung City Transportation Bureau and others to make public transportation tap and go a possibility. And, in Canada, Citi Cards Canada and Petro-Canada, one of Canada’s largest oil and gas companies, are teaming up to launch PayPass.

It was just this year, 2005, that contactless payments expanded from a series of regional trials to a broader more nationwide adoption of a new way to pay for everyday purchases. In the last year, we saw Chase, Citibank, HSBC, Keybank, GE Consumer Finance and MBNA begin to issue MasterCard PayPass enhanced credit cards, debit cards and key fobs. Major merchants also announced plans to accept MasterCard PayPass, including McDonald’s, CVS, Duane Reade, 7-11, WaWa, Sheetz, Regal Entertainment Group, Ritz Camera Centers and Boater’s World Marine Centers, as well as the NFL stadium homes of the New York Giants and Jets, Washington Redskins, Philadelphia Eagles, Seattle Seahawks, Kansas City Chiefs and Baltimore Ravens.

Since contactless payments offer consumers a fast, convenient and secure alternative to cash, their purchases are no longer limited to the cash in their wallet–a win for them and for merchants. This is a welcome option for consumers, as they have increasingly shown a preference for electronic transactions over cash

A recent MasterCard survey revealed that as a method of payment, cash is becoming considerably less popular. In fact, 60% of respondents had only $20 or less in cash on-hand – representing an 11% jump as compared to a similar survey conducted in September, 2003. Sixty five percent of respondents said they would be likely to use a contactless card instead of cash for everyday purchases, citing convenience, speed and security as the primary benefits of contactless payments.

MasterCard has conducted extensive research and development over the years to create PayPass, to test it through market trials and to make it available to financial institutions, merchants and consumers. A large component of MasterCard’s R&D efforts has focused on the security behind PayPass in order to protect all parties involved in contactless transactions. Today, MasterCard PayPass provides the most sophisticated and powerful security measures available in contactless payments, providing peace of mind and confidence to consumers as they speed their way through checkout. MasterCard PayPass also provides zero consumer liability in North America, just like all MasterCard payment programs.

At MasterCard, we understand that the revolution of contactless payments has only just begun, and that we need to continue working with financial institutions, merchants and the vendor community to ensure that contactless payments continue to help us all grow our businesses, while providing consumers with faster and more convenient ways to pay for their everyday purchases.

Visit MasterCard’s Paypass site on the web at www.paypass.com.