Shuffling the cards
Written by Hannah Prevett
The banks have been telling us for years that contactless is the new way to pay, with some even hailing it as the beginning of the end for cash. Hannah Prevett asks: a realistic expectation or just wishful thinking?
In 2007, Barclaycard launched Barclaycard OnePulse, a three-in-one Oyster, credit and contactless card. Three years on, all Platinum cards now include contactless technology and more than 1.5 million contactless Barclaycards are now in issue. What's more, Barclays Bank started rolling out contactless debit cards in 2009 and estimates that it will have over 10 million cards in circulation by the end of this year.
It's not surprising, therefore, that industry insiders are predicting that 2010 will be the year that contactless really takes off as the new way to pay. Advocates include Peter Ayliffe, chief executive at Visa Europe, who earlier this year said 2010 would be 'the tipping point' when the British consumer finally adopts the new technology. This could be true: the technology has certainly proved itself and most of the initial teething problems around interoperability and security have now been ironed out, but will it ever really be ubiquitous so retailers can realise the benefits?
For retailers, it is important to establish the case for contactless: what is the actual value proposition? "The benefits for retailers vary across sectors, but the four key areas are speed, higher transaction values, lower card processing costs, and, for some, lower cash processing costs," explains Brian Cunnington, head of debit cards at Barclays.
Ian Green, head of product management and commercial development at HSBC Merchant Services, says that reducing the costs associated with handling cash is a big draw for retailers. "That's a big discussion point in the retail community," he says. "But a lot of those benefits will only come when contactless is more ubiquitous."
While stakeholders with a vested interest, including the banks and payment technology companies such as Mastercard and Visa, are doing all they can to push contactless as an alternative payment method for small transactions (the current limit is £15, recently raised from £10), it remains the decision of the consumer as to whether or not they choose to pay with the contactless-enabled cards in their wallets.
"While there are significant benefits for both retailers and for banks, ultimately it will be up to the cardholder if they wish to use the contactless feature of their cards - they will always be able to pay with cash or to use their card with their PIN if they so desire," admits Gregor Rankin, marketing manager NER at payment solution provider Ingenico.
Thanks to the huge popularity of London's Oyster card - it now represents more than 80 per cent of all TfL trips - most people in the UK (and especially those in the capital) have an understanding of what a contactless card is. They understand the basic proposition that instead of inserting their card into a machine at the PoS and entering their PIN, they will be able to wave it over the card reader which will scan the RFID chip embedded in the card.
But you only need to glance at the comments posted on online news stories and forums to realise that not all UK consumers are happy to have their debit cards automatically upgraded by the banks to include contactless capabilities. One even threatened to leave Barclays if he was automatically given such a card.
The main gripe seems to be security: many are wondering how a transaction can be secure if there is no need to authenticate who is using the card, especially as often no receipt will be issued. Such concerns are not entirely unreasonable, says Green. "We invested a lot of time in the move over to chip and PIN where we were saying that the use of the PIN made the whole thing more secure, and now we're saying you don't need to use anything," he says. "But in reality, the same protection as consumers have when they verify themselves at the PoS through a PIN or a signature still applies to contactless card payment. As long as you follow the guidance you're given by your card issuer in terms of reporting the card as soon as you know it's been lost or stolen, then the same protections that you enjoy today will apply for any contactless payments."
As an extra security precaution, approximately every six transactions the user will also be asked to enter their PIN, to make sure it's still in the right hands. Visa's Lewis Nolan, head of UK contactless at Visa Europe, is even more bullish: "Contactless cards are safer than paying with cash," he asserts.
Such reassurances certainly seem to have been enough to convince some retailers of its viability. Coffee and sandwich chains Pret a Manger, EAT and Caffè Nero all completed their contactless deployments last year. "Fast food and coffee outlets are the obvious success stories for contactless, with their focus on quick, low value transactions," says Barclays' Cunnington. Visa estimates that there are currently more than 23,000 contactless enabled locations, a number that is growing every day. Yet despite this, anecdotal evidence suggests that contactless technology isn't quite as penetrative as the banks and other stakeholders would have us believe. 23,000 retailers may have deployed contactless solutions and one in seven people may have the capability in their wallets to pay via contactless by the end of this year, but how do you make them use the card? Not having to carry cash for, say, vending machines, or car parks, which are next in line to be fitted with the technology, will certainly be an incentive, but what are the tangible benefits elsewhere? Are customers that interested in saving 20-30 seconds on the transaction while waiting for a coffee in the morning? Will any customer opt for one coffee shop over another based on the fact it accepts contactless card payments? Unlikely. If anything, it is more likely to be a nice to have than a make or break.
For the banks and payment providers, contactless technology on cards is just the beginning. The ultimate aim is to transpose the technology onto mobile phones, enabling them to become 'mobile wallets'. Again, Barclays is the trailblazer, after signing a deal with Orange last year in a partnership which is expected to bring mobile payments to a customer base of 28 million people - around half the UK's population. Indeed, Ingenico's Rankin's eyes are firmly fixed on the long game. "This process is beginning on cards but will ultimately allow for contactless payments using mobile phones in the very near future."
So, is it too early to hail the end of days carrying around pocketfuls of cash? Rankin thinks not. "Ultimately this is the beginning of the end of cash. Although its actual demise will probably still be a very long way off."