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To
UK consumers, cash is still king. Every year we make
around 27 billion cash transactions, worth some £250
billion, according to estimates from Visa International.
More than three-quarters (80 per cent) of these cash
payments involve so-called ‘low value’
transactions – that is, purchases that total
less than £10.
For card issuers, cash’s stranglehold over consumer
hearts and minds represents both a challenge and an
opportunity: If the issuers can break that stranglehold
by providing consumers with a card that enables them
to make low-value transactions quickly and conveniently,
then they can earn fees on a source that is, at present,
largely untapped.
Increasingly, the issuers claim that contactless payment
cards provide an answer. These cards use Radio Frequency
Identification (RFID) technology to transmit data
to a retailer’s card reader, without the need
for the cardholder to enter a signature or PIN –
or even, in some cases, take the card out of their
wallet.
For retailers, contactless payment offers equally
compelling benefits. Anecdotal evidence from the US
– where contactless payment cards have taken
off in the last year – suggests that contactless
payments speed up transactions by three to five seconds
where they replace standard credit and debit cards,
and by around seven to nine seconds where they replace
cash.
Rising up
Not only that, but retailers that accept contactless
payments have seen the value of transactions rise,
says Cameron Olsen, business development manager at
Smart Technology Solutions (STS), a provider of smartcard
software to Boots, Waitrose, Gap and HMV, among others.
“Take, for example, a coffee shop: it may well
find that a customer that starts to use a contactless
payment card for their daily, £2 cappuccino
is more likely to make spontaneous add-on purchases,
such as sandwiches and muffins,” he says. “Using
card tends to have a psychological effect on consumers
– because they aren’t fumbling for cash,
they tend to spend more.”
Contactless payment cards are already proving highly
popular elsewhere in the world. According to Erik
Michielsen, an analyst with ABI Research, the rollout
of contactless payment capabilities to millions of
people in the US during 2005 proves “just how
fast a major technology can be deployed”.
“Issuers such as Chase Bank, HSBC, American
Express and others have distributed contactless cards
and key fobs to millions of their customers,”
he says. “Many constituents are involved: merchants,
consumers, card-issuers, associations, and all the
members of the contactless payments ecosystem –
chip manufacturers, antenna designers, operating system
developers, inlay makers, and card plastics packagers.”
Catching
up
So far, Europe has lagged behind the US in the introduction
of contactless payment cards. However, the Royal Bank
of Scotland recently announced plans to run limited
trials of Mastercard’s PayPass system in the
UK this summer.
“We believe that the use of the MasterCard PayPass
contactless technology provides an exciting opportunity
to address the low value payment needs of both consumers
and retailers,” says Iain Clink, managing director
of RBS Group Cards Business at the announcement of
the scheme.
Mastercard’s PayPass contactless technology
can be added to existing MasterCard EMV cards or issued
as a standalone card. Currency specific, with a maximum
transaction amount of €25 in the Eurozone, the
programme works by allowing the cardholder to ‘tap’
their card at the point of sale and dispenses with
the need for PINs or online authorisation.
By reducing the average costs associated with each
transaction, contactless card payments can become
profitable down to, and even below, five euros, claims
Alexander Labak, president of MasterCard Europe. “Clearly,
a low-value payment solution is required to help the
players involved unlock this previously untapped opportunity
– we’ve worked with European banks to
find a win-win for them, their cardholders and, importantly,
merchants traditionally accepting cash,” he
says.
Similarly, Visa Europe has announced that it is to
pilot contactless payments in several EMV card-using
countries, including the UK, during 2006, with a view
to commercial roll-outs in 2007. To support these
pilots, merchants in Europe will have to add contactless
card readers to their EMV-based PoS infrastructure
and encourage customers to use contactless cards.
With Visa surveys showing that contactless cards increase
spend totals, retailers are keen to tap this incremental
spending potential and in the UK, are already working
with banks to maximise the opportunities.
The upgrade path need not be too challenging for retailers,
according to Neil Garner, managing director of IT
systems integration company, Glue4 Technologies Limited.
“What we’ll probably see in Europe are
EMV debit and credit cards that also incorporate contactless
technologies – we refer to these as ‘dual
interface cards’. For many retailers, introducing
contactless payments will simply be a matter of integrating
contactless readers into their existing EPoS environments,”
he says.
In the US, each transaction is authorised online just
like a credit or debit card transaction. In the UK,
by contrast, transactions under £10 will usually
be made offline – the card will interact with
the card reader, but the authorisation process will
be skipped – making transactions even faster.
To provide security, shoppers must enter a PIN after
a set number of offline transactions.
Christophe Uzureau, an analyst with IT market research
company Gartner, warns that although lowering the
security requirements for contactless transactions
may make them faster, this risks scaring off security-conscious
users. But with a pin-free transaction limit of just
£10, contactless cards are unlikely to become
big targets for criminals.
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