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February 2, 2017updated 21 Jan 2022 11:33am

No end in sight for UK’s contactless surge

Since the launch and popularisation of contactless payments in the UK, there seems to be no peak in the solution’s use. Much has been made of contactless’s success in the UK and, according to new research, the success is not over yet. Patrick Brusnahan reports on how this boom has changed the payments landscape

By Verdict Staff

Since the launch and popularisation of contactless payments in the UK, there seems to be no peak in the solution’s use. Much has been made of contactless’s success in the UK and, according to new research, the success is not over yet. Patrick Brusnahan reports on how this boom has changed the payments landscape

According to Verdict, the global contactless card transaction value will almost quadruple between 2016 and 2020, while the global mobile near-field communication (NFC)transaction value will grow more than fivefold.

The research also forecasts that, in the short to medium term, contactless cards are set to dominate the global contactless environment. This is especially true in the UK.

Since 2013, the UK payment cards market has seen a startling uptake in contactless technology. The number of contactless card transactions rose from 1.7 million in 2010 to over one billion in 2015, according to the UK Card Association (UKCA). Additionally, the number of contactless transactions rose by 194.2% year-on-year in August 2016. Major issuers including Barclays, RBS, Lloyds Banking Group, HSBC, Nationwide, Santander, and American Express have all issued contactless cards.

According to the UKCA, 325 million purchases were made with contactless technology in November 2016, accounting for one in every four purchases.

A key driver of contactless payments in the UK has been its introduction to London’s public transport system; more than 500 million journeys have been made using contactless payments on London’s transport network to date.

The UKCA expects the trend to continue, as a result of an increase in the contactless spending limit, and the growing popularity of mobile and wearable NFC-enabled payments.

Apple Pay, bPay, and Android Pay’s respective launches also supported a growth in contactless payments. Apple Pay entered the UK market in July 2015 in partnership with some of the country’s largest banks, including HSBC, RBS, Lloyds and Santander.

Almost simultaneously, Barclaycard launched bPay contactless mobile payments with wearable band and NFC sticker solutions. More recently, Google launched its contactless mobile payment (m-payment)solution, Android Pay, in the UK in May 2016. The expected launch of Samsung Pay in 2017 is anticipated to add even more competition into the market.

While cashless payments have overtaken use of notes and coins, cash is still a popular mode of payment for low-value transactions. This is particularly true in the cases of vending machines, supermarkets, confectionery, tobacco, newspapers, fast food, personal care, pubs, coffee and the Post Office. More merchants are anticipated to facilitate the shift from cash to contactless payments, to avoid costs incurred in cash handling.

Total spending on contactless cards reached £7.75bn ($9.33bn) in 2015, up by 233.3% on 2014. It registered a similar trend in 2016, reaching £9.27bn during the first half of the year.

In addition, a record £2.9bn was spent using the technology in November 2016, an increase of 184% from November 2015.
Overall, 1.1 billion contactless purchases were made in the UK during the first half of 2016, more than the amount of purchases made in the whole of 2015.

Greater market share

The number of contactless cards reached 81.6 million in 2015, equivalent to 46.5% of all UK payment cards. It rose to 98.9 million by September 2016.

In August 2016 alone over 275 million contactless transactions were made in the UK: 242.1 million debit card transactions, and 33 million credit and charge card transactions.

To encourage contactless payments, the UKCA increased the spending limit on contactless transactions from £20 to £30 in September 2015. The logic behind this, according to the UKCA, is that the average payment at a supermarket is £25, therefore raising the limit will give contactless payment technology a boost.

Payments travel fast

Oyster is the UK’s most popular contactless prepaid card. Until September 2014, it was the UK’s only contactless payment solution available to travellers on London’s transport system. Following its success, Transport for London (TfL) began accepting Visa, MasterCard, and American Express-branded contactless payment cards.

Following successful launches on the tube, trams, DLR, London Overground and most National Rail services in London, TfL has become Europe’s fastest-growing contactless merchant.

According to TfL, more than one million journeys are made on the network every day using contactless cards. One-in-10 contactless transactions in the UK were carried out on the TfL network in 2015. By the end of March 2016, around 7.5 million journeys a week were paid for using contactless. Contactless payments accounted for 26% of all pay-as-you-go tube and rail journeys, as well as 23% of bus journeys.

In a further attempt to increase contactless transactions on transport, the Mayor of London and TfL decided in December 2015 to allow London taxis to accept card and contactless payments.

Following negotiations with TfL, card issuers agreed to reduce costs for drivers for card payment acceptance. From October 2016, all 22,500 licensed taxis began to accept card and contactless payments, and customers were no longer required to pay surcharges on fares.

Collaborating with the UK’s public transport operators, the UKCA developed a new framework to enable passengers to use contactless cards and devices to pay for travel. The framework is designed to help transport operators utilise contactless payments on local pay-as-you-go journeys, including single trips or combined travel on more than one type of transport.

In January 2016, the UK’s five main bus operators – Stagecoach, First Bus, Go-Ahead, Arriva, and National Express – announced plans to provide facilities on every bus by 2022. They are also in the process of developing their own contactless ticketing solutions. The rail industry has also stated its plans to support contactless payments by 2025.

Craving acceptance

The number of contactless point-of-sale (POS) terminals in the UK reached 309,706 by December 2015, representing roughly 15.8% of all POS terminals in the country. As of September 2016, there were 419,431 contactless POS terminals, representing a 45.5% annual increase.

MasterCard, in September 2014, announced that European merchants, including UK retailers, must be equipped with contactless terminals by 2020 to be able to accept MasterCard and Maestro cards. While new POS terminals were required to meet the new standard from January 1 2016, existing POS terminals must be replaced by January 1 2020 at the latest.

Merchants accepting contactless payments in the UK are wide and varied. They include Aldi, Boots, Greggs, Marks and Spencer, McDonald’s, Morrisons, Nandos, Starbucks, Subway, Waitrose and WH Smith.

Starbucks launched its own NFC m-payment solution in January 2012, enabling customers to make contactless payments in its stores. It now faces competition from a number of other mobile solutions, including Apple Pay, Android Pay and bPay.

More than 250,000 merchants in the country accept payments through Apple Pay, including Tesco, Waitrose, Starbucks, McDonald’s and Subway.

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