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


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

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.

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The cost of cash to

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

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

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

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

The state of the UK

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

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

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

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.