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January 31, 2010

Pushing the case for contactless

Now that several major banks are issuing payment cards with contactless as a standard feature, merchants are finding it harder to resist implementing the technology

By Verdict Staff

Could 2010 be the year that contactless goes mainstream? Now that several major banks are issuing payment cards with contactless as a standard feature, merchants are finding it harder to resist implementing the technology. But in some sectors, a cautious approach is still called for, as Victoria Conroy reports.


Industry players are receiving mixed messages over the popularity of contactless payment, with some reticent to portray it as a mass-market proposition, and others predicting it will herald the end of cards. But this has not stopped banks across the world launching their own propositions.

The year 2010 is set to be a turning point for many industry players who have high hopes for contactless payment, with several vested interests convinced that this will be the year when contactless truly becomes a mass-market proposition.

Certainly, the way that people pay has undergone a massive transformation over the past five years – debit spending has overtaken credit in many markets, prepaid is asserting itself as a viable payment mechanism, and technology advances have made it possible for some markets to leapfrog cards altogether and use mobile phones as their main transactional tool.

But the wider issue, and the one that has made contactless a strategic priority for several industry players over the last few years, is the continuing battle against cash. It’s no surprise that the industry would like to see cash disappear completely although this is highly unlikely, as cash will always have a place in society. But the costs of cash and changing consumer needs in a technology-driven age are converging to make contactless now seem a truly viable proposition.

The cost of cash to society

The European Commission (EC) has calculated that the total cost to society of all payment methods, including cash, cheques and payment cards, equates to 2 percent to 3 percent of GDP. The EC attributes the vast majority of these costs to cash, which accounts for around two-thirds of the total cost. Similarly a pan-European study by McKinsey & Company estimates that society spends around €200 ($283) per person per year to cover the costs of cash – whereas the Dutch Central Bank calculates a figure of €300 per family per year. Yet cash is still the predominant payment method in Europe, representing an estimated 80 percent of all European retail payments by volume.

Visa Europe is one major player that is positioning contactless as a key strategic priority during 2010 and beyond, as evidenced by its recently-published Future of Everyday Payments in Europe report, which urges merchants, banks and governments to meet consumer payment needs in the digital age.

Visa Europe is looking for more innovation and commitment from industry stakeholders to ensure that digital payments infrastructure is sufficiently equipped to handle the transformation in the way that people pay in the 21st century, and that countries such as the UK can remain competitive in the global economy. And it is contactless that is identified as a major weapon in the battle on cash. By August 2009, nearly 2.5 million contactless-enabled Visa-branded cards had been issued in Europe, a figure that was forecast to rise to 6.6 million cards by the end of 2009.

Dr Steve Perry, commercial director at Visa Europe, said: “The way we bank, shop, travel and access information has already changed dramatically in the last 10 years and the way we pay is still catching up with this. However, we have now reached a tipping point in terms of digital payments in the UK. Debit card spending is already set to overtake cash in 2010, online shopping has maintained double-digit growth even in the recession and mobile payments look set to become a reality in next few years.

“We are, in effect, about to see electronic payments 2.0. The focus is now on allowing people to use digital money anywhere they want and matching their changing lifestyles. Cards will become only one of a number of vehicles for digital money and mobile phones will increasingly be equipped to make payments. Where cards are still used they will be contactless-enabled and include more sophisticated anti-fraud measures.”

According to the report, contactless payment is set to radically change the way people make purchases.

Contactless payment

“Whether this be via a contactless card, of which there will be 10 million in the UK by the end of 2010, or via a mobile phone, contactless payments will speed queuing for consumers and increase sales for retailers… to ensure contactless meets consumer demands, retailers need to start installing contactless infrastructure at points of sale as soon as possible, and ensure their customers and staff are made aware of the new technology and how it can be used,” the report stated.

Contactless set to go mainstream

Over the past few years, many banks worldwide have trialed contactless payment in credit, debit and prepaid cards, across a range of merchant sectors such as retail, fast food, transit and sports and event environments.

In the US and UK, and in some markets in the Asia-Pacific region, contactless is now being incorporated as a standard feature in mass-market credit and debit card portfolios by major banks with the financial clout and resources to support the roll-out and promote consumer awareness, and who can sustain a loss on their investment in the technology while they urge merchants and consumers to give contactless a try.

However, judging from the most recent contactless roll-outs, it appears that banks have more confidence in rolling out the technology in ‘captive consumer’ locations and sectors, such as the transit sectors, where consumers have fewer options to use alternative payment methods – and where cash has been purposefully removed altogether. The thinking is that as contactless becomes established in these sectors, its appeal will then expand into less captive merchant sectors and appear alongside other payment methods. But this is very much dependent on the whims of the particular merchant, as demonstrated by Best Buy’s decision to stop accepting Visa contactless payment at the end of last year (see CI 433).

In the US, consumers have a variety of contactless propositions to choose from, as all the major payment networks – Visa, MasterCard, American Express, and Discover – all have their own contactless products available to mass-market consumers. However, arguably it is MasterCard that has gained the leading edge in recent months. As of the third quarter of 2009, there were over 66 million MasterCard PayPass cards issued worldwide, accepted at over 174,000 merchants.

PayPass is certainly gaining traction, particularly in the transit and transport sectors. In November 2009, MasterCard teamed up with parking system provider Affiliated Computer Services (ACS) to provide contactless payment facilities at Philadelphia International Airport, in conjunction with the Philadelphia Parking Authority. PayPass is now accepted at 34 vehicular exit lanes that serve the airport’s 18,600 parking spaces. Miami Airport is another that has recently implemented PayPass.

The state of the UK market

In the UK, the roll-out of contactless has been pioneered by Barclays and Barclaycard, who combined now have over five million contactless-enabled credit and debit cards issued in the country. Although Barclaycard’s first foray into contactless – the 2007 launch of the OnePulse credit card incorporating Oyster public transit functionality – met with a somewhat muted response, the Barclays group has not shied away from investing considerable resources into furthering its contactless strategy.

The big leap forward came in 2008, following Barclays’ acquisition of the Goldfish card portfolios. Barclays relaunched the range and incorporated contactless functionality as a compulsory feature on several of the more popular cards in the Goldfish range, aimed at getting consumers familiar with the technology, which was followed up by an aggressive push aimed at signing up merchants to accept contactless. Now all platinum, gold and classic Barclaycards include contactless as standard.

As of the end of 2009, quick-service food and beverage retailers such as Caffe Nero and Pret A Manger have implemented contactless across all of their UK outlets, bringing the total number of outlets now accepting contactless payment through Barclaycard to 20,000.

Amer Sajed, CEO of Barclaycard UK, business and international, said: “Five million contactless payment cards issued is a significant milestone on the journey of how people will pay for goods and services in the future. Together with Barclays we continue to roll out contactless technology across our card portfolio as we believe it is the future of payments. Consumer feedback highlights the increasing demand for contactless payment and we expect to see more retailers follow Caffe Nero and Pret A Manger and sign up to contactless in the near future.”

Barclaycard’s latest contactless product launch is a co-branded credit card with telecom operator Orange, and the card is the first step towards both companies’ wider strategy of encouraging contactless mobile payments. Some of the card’s features include budget and spending controls which involve automated and user-controlled SMS alerts being sent to the cardholder. Cardholders will also receive reward points for every £1 ($1.61) spent, along with promotional offers for special sports and entertainment events.

In particular, Barclays is keen to shift its image away from that of a traditional card issuer to one that encompasses all payment form factors. Barclaycard is reinforcing its message with a new advertising campaign that builds on the success of its contactless ‘Waterslide’ campaign which ran heavily in the UK during 2008 and 2009.

The new ‘Rollercoaster’ campaign was initially launched online through video-sharing website YouTube and on social networking site Facebook, and then on TV and online adverts, with the aim of reaching over 10 million people. Following on from the success of the Waterslide iPhone game, Barclaycard will launch a Rollercoaster download game later in the year.

Europe embraces contactless

With contactless propositions now appearing with increasing regularity across Europe, Intesa Sanpaolo of Italy has become the latest big bank to roll out the technology, in what is the country’s first major commercial roll-out of MasterCard PayPass cards. Intesa Sanpaolo is initially deploying contactless in the city of Milan before extending it nationwide in conjunction with upgrading its POS terminal base to accept contactless.

Customers will be able to make contactless transactions of up to €25 in participating merchants, and Intesa Sanpaolo has already signed up 11 major retailers in the quick service restaurant, supermarket and sports sectors to install contactless POS terminals.

Intesa Sanpaolo’s move into contactless was preceded by Banca Popolare di Sondrio in November 2009, when it launched a prepaid contactless Visa card that can be used for ID and access control at two universities in Milan.

Barclay's advertMeanwhile, in Turkey, Bank Asya has launched a range of EMV-enabled prepaid contactless cards, branded as ‘DIT Pratik’. The range builds upon the previous version of the DIT Pratik card which has been used for almost a year in several Turkish cities where the Bank Asya Transportation programme has been launched.

Bank Asya has made several enhancements to the new card range, which has four sub-brands aimed at differing consumer segments. The core product is an allowance card for teenagers called Harclik, along with a school card (Kampus) and a gift card (Hediye). The Harclik card is issued either as an anonymous card or a typical bank card including the cardholder’s name. All cards allow a maximum contactless transaction limit of TKL35 ($23), and cardholders can also earn reward points when they make purchases or reload funds onto the card.

The DIT Pratik range of cards can be obtained from Bank Asya branches and authorised merchants. The driving force of Bank Asya’s contactless strategy is to be the leading player engaged with the technology in the Turkish market, and the bank has confirmed that it will continue to invest in contactless.

Bank Asya was one of the first banks in Europe to commit to contactless, having started issuing contactless DIT credit cards in 2006. The aim was to encourage consumers to carry only one card to use for a range of applications such as shopping, transportation and tollway payments. The success of the project was evidenced by the fact that by 2008, over 500,000 cards had been issued. Bank Asya is planning to enhance the range even further by integrating vertical applications on both the DIT credit cards and DIT Pratik cards.

In Poland, PKO Bank Polski is the latest bank there to embrace contactless. The bank is upgrading over six million Visa debit cards to contactless, with the entire upgrade project set to be completed by the end of 2011. According to the bank, there are expected to be over 20,000 contactless-enabled POS terminals by the end of 2010.

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