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May 18, 2007

Visa and MasterCard set European contactless in motion

London is to be the launch pad in autumn 2007, followed by a UK-wide roll-out in early 2008 The news follows last years preliminary plans from both companies to bring contactless payment to the UKs small-value cash payment market, which is estimated to be worth around £250 billion ($494 billion).

By Verdict Staff

Visa Europe and MasterCard have announced plans to establish their respective contactless technologies across Europe. London is to be the launch pad in autumn 2007, followed by a UK-wide roll-out in early 2008. The news follows last year’s preliminary plans from both companies to bring contactless payment to the UK’s small-value cash payment market, which is estimated to be worth around £250 billion ($494 billion).

Organisations that will participate in the first phase are Bank of Scotland, Barclaycard, Citi, euroConex, Halifax, HSBC, Lloyds TSB and Royal Bank of Scotland. According to APACS, the UK payment industry body, over 5 million contactless cards will be issued by the end of 2008 and they will be accepted by at least 100,000 merchants.

Card issuers will replace debit and credit cards to their own timescales; cardholders could have contactless technology added to their existing cards, or they could be offered a new contactless card.

Visa launch

Visa Europe will launch its contactless technology, which for the European market will be named Visa payWave, in autumn 2007 in London, along with its member banks HSBC, HBOS, Lloyds TSB and Barclays.

Barclays is the UK’s largest card issuer with over 11 million cards in circulation. In September 2007, the new Barclaycard Visa credit card will be launched commercially. The card has been developed with UK transport body Transport for London (TfL) and features contactless payWave technology combined with TfL’s transport ticketing application, Oyster.

In May, TfL and TranSys, the consortium that developed the Oyster smart card on behalf of TfL, announced the completion of technical trials of the combined Oyster/Barclaycard.

Visa payWave cards will also be issued by other banks. Visa said that the card will help to make a significant dent in the UK’s small-value cash payment market – 80 percent of purchases are for less than £10.

Mariano Dima, executive vice-president of marketing at Visa Europe, said: “For high-volume retail environments, such as coffee shops, express grocery stores and news-agents, where transaction values are low and speed of service is essential, Visa payWave offers a secure, convenient and quick alternative to cash. Visa payWave is set to revolutionise how we pay in Europe and London is going to be at the forefront.”

John Bushby, general manager of the UK, Republic of Ireland, Nordic and Baltic countries at MasterCard Europe, said: “We are giving Londoners a completely new way to pay for low-value items with the launch of contactless payments. Our experience testing MasterCard and Maestro PayPass among staff at Royal Bank of Scotland’s offices in Edinburgh and London has shown us that consumers love the convenience, simplicity and security of being able to ‘tap and go’ when paying for everyday things such as newspapers, sandwiches and drinks. We are confident that consumers in the UK will be quick to adopt contactless payments as they are faster and more convenient than cash, increasing both the number of cards in issue and, as retailers benefit too, places where they can be used.”

New interchange rate

Visa Europe has also confirmed that it will set a new interchange rate in the UK for contactless transactions in order to encourage merchants to accept them. Visa said in a statement that the new interchange rate would be passed on by Visa acquirers to retailers in the form of lower merchant service charges. MasterCard Worldwide is expected to take similar action. According to industry publication Card Technology, the payment networks have had to reduce interchange in the UK to incentivise merchants to sign up to accept contactless payment, whereas in the US, the payment networks subsidised merchant terminals but did not lower interchange levels.

Card Technology reported that the lower interchange fees for merchants were in part due to banks not charging merchants fixed fees on contactless purchases. Instead, the charges merchants will pay to banks to accept contactless will likely be in the form of percentage fees for each transaction.

Conversely, merchants pay fixed fees on conventional debit transactions, which vary according to the merchant. Fees range from around £0.10 or less per transaction for large retailers to £0.19 per transaction for small merchants, according to estimates. By comparison, a percentage-based fee of 1 percent on a small-value contactless purchase of £5 would amount to only a $0.05 charge.

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