The cards industry has long
been excited about it but consumers are barely aware the technology
exists. Contactless – the tap-and-go that aims to replace small
cash payments – is gaining momentum, but significant hurdles remain
before it becomes part of everyday life, writes Jane
Cooper.
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The industry has
battled with a chicken-and-egg dilemma over whether it is the cards
or the terminals that need to be introduced first. In many markets,
merchants have not introduced contactless terminals because
customers were not asking to use them and customers with the cards
have not used them because of a lack of terminals.
It was hoped that once major banks
started to issue the contactless functionality on millions of their
cards, the balance would be tipped.
The demand from the new cardholders
would, in theory, spur merchants to install the terminals. But in
many markets that has not been the case.
Large issuers have introduced
contactless to their cards, but in a kind of stealth manoeuvre that
has left many consumers unaware that their regular cards can be
used in this way.
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By GlobalDataIt is no longer a lack of cards
that is the problem to contactless taking off in markets such as
the UK and Australia; it is the absence of terminals and most
importantly consumer awareness.
“When issuers put the cards out,
they did not shout about it,” says Steve Beecroft, a contactless
consultant at Consulting Smart.
Beecroft adds that this was
intentional because the terminals were not in place.
Beecroft comments that the US
market is advanced in terms of acceptance and usage on the cards,
but the UK market is gaining momentum and beginning to catch
up.
For example, Barclays and
Barclaycard have so far put 11m contactless-enabled cards into
circulation.
Barclaycard head of payment
acceptance Stuart Neal says: “We are approaching a tipping point in
the number of credit and debit customers making use of their
contactless-enabled cards, and recently announced our onemth
contactless transaction.
“During 2010, the number of
contactless transactions more than doubled, reaching over 191,000 a
month in November. We have also seen an encouraging rise in the
number of live terminals enabled to take contactless payment.
“At the beginning of the year, there were 25,000 terminals –
today there are 42,500.”
The ball is rolling
Although 1m
transactions for 11m cards could be considered quite poor, Beecroft
anticipates that this figure will continue to rise.
Visa Europe considers the UK to be
one of the most advanced markets in Europe in terms of contactless
development, along with Turkey and Poland. Other European markets
have also begun to issue the cards, such Italy. In January 2010
Intesa Sanpaolo, which has more than 11m customers, began the
rollout of its PayPass card.
Another large issuer in Italy,
BancoPosta – the financial services division of Poste Italiane –
has also introduced PayPass to its customers. In 2008 the issuer
began a pilot with 40,000 PayPass cards in connection with the
offering of PostMobile, its virtual network operator.
BancoPosta payments manager
Alessandro Albano says: “During this year our company is planning
to launch many additional initiatives that will involve other
products.”
Usage of contactless is a challenge
for the Italian market.
“The percentage of transactions
made with PayPass cards in Italy hasn’t been too high. In the US
and UK there has been fairly good usage,” adds Albano.
While Italy is trailing in terms of
usage, the hurdles of acceptance and consumer awareness are the
same as in other markets.
When asked if it has been difficult
to persuade consumers and merchants to use the contactless cards,
Albano answered: “Basically the problem is the infrastructure to
accept the transactions – it is too small at the moment.”
The situation is similar in Australia, where issuers have put
the cards into the market but there is a lack of terminals.
Retailers there have yet to be inundated with customers demanding
to use their contactless cards in their stores.
Merchant issues
Industry
observers comment that merchants are happy to accept contactless
payments, and see the benefits of reducing the security risk of
handling cash and speeding up queuing times, but it is the cost
that hinders the merchants’ enthusiasm for the technology.
The gripes of merchants about the
interchange fees for accepting regular payment cards are well
documented. When it comes to the contactless technology, merchants
need to be persuaded to accept the payments.
The ‘honour all cards’ rule –
which, in some markets, means that merchants who accept a payment
brand have to accept all products on that network – does not apply.
PayPass and payWave are considered separate acceptance brands,
which means that MasterCard or Visa merchants are not under any
obligations to accept the contactless payments.
Interchange fees are an issue for
merchants when deciding whether to accept contactless, and
merchants are generally unwilling to pay at a similar level to
regular payment cards.
The networks, which set the
interchange fees, have said that the fees for contactless payments
are lower than for regular payment cards, but this may not be
enough to get the merchants on board.
It is not just the cost of the
interchange fees that is a point of contention for merchants; it is
the cost of installing the terminals.
Russell Zimmerman, executive
director of the Australian Retailers Association, tells Cards
International if merchants own their own terminals, and have
to bear the cost of replacing them, it is more difficult to
persuade them to install the contactless technology.
“As most of the major supermarkets
and larger retail chains own their own terminals, a business case
needed to be built to encourage retailers to install contactless
technology,” Zimmerman says.
“The only way that the major
retailers and chains were likely to be enticed to install
contactless terminals was for the acquiring banks to offer a lower
interchange rate for the acceptance of contactless cards.
“As this was not forthcoming from
either the acquiring banks or the schemes, the rollout of
contactless terminals was very limited.”
Acquiring banks are able to
introduce contactless acceptance to merchants who rent their
point-of-sale equipment, and can install the technology when their
terminals need to be upgraded.
It is typically small businesses
that rent the terminals from the merchant acquirer.
Zimmerman says: “Our larger
retailers such as KMart, Big W, Myer and David Jones have not
installed the contactless terminals as these retailers all own
their own terminals.”
There are signs, however, that
large retailers in Australia are moving toward a large-scale
introduction of the terminals. Zimmerman comments that McDonalds,
the national chain Bunnings Hardware, and Woolworths Australia’s
petrol stations have all started to roll out the terminals.
In other markets the acquirers are also faced with the challenge
of installing the terminals. The influence the acquirer has in
persuading the merchant to accept the payment largely depends on
the size of the merchant, and also the leverage that the retailer
has in making sure that the terminals are actually used.
Banks pushing forward
For banks that have issued a large
number of cards, it is in their interests to work closely with
their acquiring division to make sure that the terminals are in
place.
Both issuers and acquirers are keen
to get the large merchants on board, and it is possible that they
would consider funding the cost of installing the new terminals.
With the terminals installed at the large retailers, the banks
could then push the marketing and boost consumer awareness.
In turn, consumers would then be
more likely to use the cards, and contactless usage will eventually
gain critical mass.
Beecroft points to another factor
that could seriously influence the uptake of contactless. He argues
if the limit on the payments in the UK was raised from £15 ($24) to
£25 ($39), then the larger retailers – for example, the
supermarkets that have the express outlets in cities and town
centres – would be more motivated to install the terminals.
The situation is similar in
Australia. Zimmerman says: “Both MasterCard and Visa have tried to
assist in the uptake by retailers of installing contactless
terminals as they have increased the threshold for the use of
contactless from A$35 [$35] where it first started to an amount of
A$100 [$100] where the threshold now sits.”
Beecroft predicts that the UK will
eventually increase the threshold, which would have the effect on
boosting the incentives for large retailers, increasing the number
of terminals, and giving cardholders the ability to use the cards
that are already in their wallets (even though they may not realise
what the contactless functionality is).
Until the terminals are out there,
the industry cannot do much to promote the awareness of how the
cards can be used. There have been some attempts of the industry to
promote the cards, but there is a general lack of awareness about
them, and how secure they are.
Barclaycard is the only UK issuer
that has promoted contactless technology, although there is still a
long way to go until it is ingrained in the public’s collective
subconscious.
Barclaycard’s Neal says: “We have
come a long way in terms of retailers adopting the technology, but
making cardholders aware of contactless and how to use the cards is
the biggest challenge.
“As a result, we are working with retailers to develop in-store
materials and conducting our own marketing campaign to let those
with contactless-enabled cards know what the technology is, how it
works and how it makes life more straightforward for them.”
Security fears
One hurdle to overcome is security
concerns that consumers have with the cards. The main worries are
that the payments could be intercepted by another device that could
be held in range of the card. Either that, or they worry that if
their card is lost or stolen, someone could spend the funds without
needing to enter a PIN.
The industry is keen to defend the
security on the cards, and argues that cash is less secure.
A Visa spokeswoman says:
“Contactless is a safer way to pay than using cash. Contactless
cards have inbuilt security functionality, such as once the card
has been used a certain number of times, you will be asked to enter
your PIN before it can be used again. In addition, contactless
cards are subject to the same level of consumer protection as all
Visa cards.”
In terms of fraud occurring on the
cards, the threshold of £15 means the fraud is a manageable risk
for the issuer. Beecroft says that all issuers are keen to point
out that the customer will not be liable for the spending on a lost
or stolen card, even if the card is not reported as such at the
time.
Rather than investigate the fraud
involving such small transactions, it is easier for issuers to
reimburse the cardholder, with few questions asked.
Even though the industry is firm in
its stance that contactless is safe and secure, there is still a
consumer perception that it is not.
Beecroft tells CI: “There
is a perception that it is not secure – and perception is a
reality.
“There is a huge amount more that
issuers, and Visa, MasterCard and American Express can do to
improve information to put out about the card and show why it is
secure.”
The pay-off for the industry will
be large if it is successful in overcoming these hurdles. The
market potential for converting cash payments to plastic is huge,
especially as the arena of small payments has not yet been
exploited by the cards industry.
However, for contactless cards to
be widely adopted and become a regular habit for consumers when
paying for a coffee or newspaper, the industry needs to focus on
installing the terminals.
Once the acceptance points are in place, consumers will be able
to respond positively to a marketing drive, eventually overcoming
the chicken-and-egg scenario so contactless can tip over into
everyday usage.
