The trouble with contactless
Written by Scott Thompson
It’s been the next big thing for longer than Retail Systems can care to remember. As Scott Thompson finds, contactless is finally gaining traction, although the future is uncertain
RIP coins and notes, in the capital at least...London buses stopped accepting cash fares on all routes during July. There was some controversy in the build up to this. The Labour Party strongly urged TfL to retain it as a payment method. Valerie Shawcross, London Assembly Member for Lambeth and Southwark, argued: “There may not be many occasions on which you need to pay in cash, but actually they could be crucial and I think TfL should think again about taking this facility away, especially on the night buses.”
TfL pressed ahead, however, and so passengers now need to be in possession of a prepaid or concessionary ticket, Oyster card or contactless payment card. It claims that the move will have no impact on the vast majority of passengers as over 99 per cent already pay for their journeys in these ways. A decade ago around 25 per cent of journeys were via cash but that figure has now fallen to less than one per cent.
According to Mark Austin, director of mobile and contactless, Visa Europe: “London has had a long romance with the speed and convenience of the Oyster card and contactless payment cards are now bringing that same experience to our day-to-day shopping habits. Consumers are really embracing the use of contactless payment cards and across the UK, we already make around 20 million Visa contactless transactions each month. This popularity is set to grow even further as people get used to using their payment cards to pay on London buses.”
But is that really the case? Is there much love for this way of paying or is it just being forced upon consumers by the banks, card schemes etc in their rush to do away with cash? “Certainly I agree that the visibility of contactless is higher and that popularity is set to grow. However, there are a few things that are worth noting,” says Matt Simester, director of cards & payments, Piran Partners. “Firstly acceptance is still reasonably localised and much stronger within the M25. There is often a danger that London and the south east is a proxy for the rest of the country. It’s different elsewhere, where the value proposition/drivers to use contactless from a consumer POV are not front of mind. Secondly, while there is growth, if you look back at the forecasts, two, four, six, eight years ago, the expected adoption rate has not materialised. This adoption rate might be a reasonable proxy for the true adoption of mobile payments. It will be interesting to note whether London businesses actively talk about the problems of card clash like London Underground does – this reinforces a perception for some about lack of security.”
Huw Thomas, managing director at PMC, adds: “There are many suitable applications for sub £20 contactless retail transactions and the market for that is well utilised. However, contactless as a general standard will never take off whilst there are payment limits. Also, there are basic problems with ease of use; for me I would want to present my wallet not take the card out and present it separately. This can cause issues where you have multiple contactless cards.”
Thirty eight per cent of UK shoppers are avoiding contactless payment methods because they do not know enough about the technology and are worried about security, according to a recent survey conducted by Vista Retail Support. The poll also shows how a further 24 per cent do not use the technology because they do not know which of their cards are enabled for contactless payments, or because nobody has ever demonstrated how to use it. “Security issues will always be a problem where consumer concerns are not addressed. I personally have not seen any evidence of the card schemes addressing this with consumers. Also, I do not believe that the card schemes are issuing enough cards to drive greater uptake. In a quick check around my immediate family there are tens of payment cards, none of which are contactless,” says Thomas.
The company has also surveyed retailers with 57 per cent per cent citing the cost and disruption of installation as the chief reason for not rolling it out, while another 14 per cent were put off by the financial burden of maintenance. None of the 100 retailers taking part in its poll thought the technology currently offered the best return on investment (ROI) compared with other new offerings such as in-store tablets or Wi-Fi. However, 62 per cent stated that raising or removing the current £20 cash limit on individual transactions would persuade more companies to adopt the technology. According to 71 per cent, increased demand from customers would be the decisive factor.
If only it were that simple. “They do not know about the technology as there’s not really a great value prop for the consumer and retailers have failed to promote it effectively even when they have this acceptance capability,” Simester comments. “Security will always be the most important payment processing issue for consumers. However the fear factor is not helped by stories about chip technology being hacked and the issues around card clash. There needs to be a concerted effort to educate consumers and answer the question ‘what’s in it for me?’. The focus is on the technology. We need to get the marketeers on the case.”
There also needs to be a push to solve a significant in-store issue. Whilst contactless is a great way to simplify the transaction, it doesn’t tackle the route problem retailers have been mulling for years, argues Daren Ward, partner at Reply UK. “Nearly all retail store surveys place queuing as the biggest issue for consumers. Whilst contactless might take a couple of seconds off each transaction, it doesn’t prevent the queue. We need to further explore new mobile payment methods and tackle what we used to call ‘queue busting’. The technology is pretty much there, but there is still work to do on the in-store operation; how do we know that person leaving the store with a bag of goods has paid?”
Lots of challenges to confront, then, but the TfL announcement was an undeniable publicity coup and many of the banks are now getting behind this. TSB, for instance, recently announced that it has rolled out 2.2 million new contactless debit cards following its announcement in January that it would issue them to all eligible customers; it has seen contactless spend increase in June to nearly six times the amount spent in January and taps by TSB customers have increased fourfold. According to the bank’s data, the average payment has been consistently between £6 and £7 during January-June, with many using their cards for smaller purchases at Marks and Spencer, McDonalds, Boots and on TfL buses. Jatin Patel, products director, TSB, says: “We are extremely proud that in just six months all of our eligible debit card customers have been issued with new TSB cards with contactless functionality. Life is increasingly busy so offering our customers the opportunity to ‘tap and go’ was an important step to ensure they can benefit from the latest and most convenient payment options.”
Does the card have a short shelf life, however? After all, there’s only so long you can be the next big thing before a new kid on the block comes along to steal your thunder. And that young upstart, in this scenario, is mobile. “Contactless might skip the card quickly and I can see phones or wristbands being more widely adopted,” says Simester, who adds: “Limits need to be much higher – the industry re-enforces the fraud and security issues by having such a low floor limit (£20).”
Thomas comments: “I personally do not see a great future for contactless in the payments market. There are plenty of other great applications for contactless but with financial usage limits I do not believe payment is one of them. There are lots of other more versatile payment initiatives entering the market that will probably steal a march on it.”
Perhaps the future will be contactless 2.0, that is, a much needed reboot whereby the smartphone replaces the card, security issues are addressed and payment limits are considerably higher. In short, an offering that is unrecognisable from the not particularly mind blowing experience currently being served up to London’s bus users.