MasterCard made a couple of interesting presentations to the Smart Card Club in London yesterday. Bruno Carpreau was explaining the OneSmart MasterCard Paypass product. This combines EMV with a contactless interface: the cards will work at any PayPass terminal in the US (operating in magnetic stripe mode) as well as any EMV terminal elsewhere (they also have magnetic stripes on for backward compatibility). Chris Reddish was explaining the range of MasterCard prepaid products and was generally very positive about the European prepaid market, predicting it to be around 80-85 billion euros in 2008. I gave a bullish talk on the combination of contactless and prepaid at the same event.
Technorati Tags: contactless, prepay
Bruno said that 86% of European POS payments are still cash and this is the market that MasterCard are targeting with the contactless products. Some retail In convenience stores, cards are only 14%. In bars, they are only 4%. Most commonly, these cash payments fall (by volume) into the 2.5 euro to 10 euro range. He also said that Tesco calculated that each second saved from the checkout queue in the UK saves them a million pounds per annum. In McDonalds in the US, every 4 seconds saved at checkout would increase turnover by 1%. These are big numbers, and explain why European retailers are so interested in contactless.
Chris said that MasterCard has carried out market research that confirmed my long-held suspicion that people do like the idea of prepaid cards even if they already have credit and debit cards. As in the US, prepaid cards (ie, electronic near-cash) complement the existing card portfolio: people like budgeting and seem to appreciate the ability to have prepaid cards in addition to credit and debit cards. This reinforced the point that prepaid products aren’t for the unbanked, poor persons etc. Chris was also kind enough to share a useful case study, which was The Swiss Banker’s Travel Cash Card: a traveller’s cheque replacement with a maximum value of 10,000 euros (which I assume is the same as the suspicious transaction report limit), that can be used with a PIN (it’s a Cirrus card) to withdraw money from ATMs but is not linked to a bank account. Since lost and stolen cards can be blocked, customers seem quite happy to carry these cards around instead of carrying cash.
It reminded me of my personal experience with cash at Swiss banks: I genuinely did see, with my own eyes, a Swiss bank (in Zurich) refuse the deposit of a large amount of cash. A couple of years ago, I went into a bank to draw some money out on my MasterCard. The woman in front of me had a plastic carrier bag that was full of cash (euros). I can’t imagine how much money was in there but it must have been thousands and thousands of euros. The cashier refused to accept it: I couldn’t understand why but I assume it was something to do with money laundering rules. Anyway, Swiss banks get a bad press sometimes so I thought I’d redress the balance.
The range of MasterCard EMV low value payment products is quite considerable – contact or contactless, prepaid or direct debit, explicit or implicit load, cardsharing with debit or credit or standalone. Do you think that range of options is a good thing or does it muddy the product proposition? I’m particularly confused by the explicit load option as that potentially reproduces one of the big disadvantages of electronic purses.
I can quite see why MasterCard etc want to push cash replacement but I’m not entirely convinced by some of the economic arguments they put forward for it. I’ve got a feature coming up in the next European Card Review about this very topic.
Contactless talk is very bullish in the US as well. VISA, MC, AMEX have all introduced contactless payment products. However, I rarely if ever see them used at retailers. In fact, when I do happen to see a contactless POS terminal, I usually ask the retailer if anyone uses the contactles to pay and the answers is always : “not really, we might get one customer a day”. One grocery store in the US actually took their Contactless POS terminals out advising that no one ever used it. I know these comments are not statistically valid but I am quite certain that the cost of Contactless is still more than its current benefits.
So I question when (if ever) are the card issuers and retail (POS) merchants going to actually realize the benefits of this technology???
Does John’s comments remind anyone of the Mondex trial in NY many years ago? Ah – nostalgia.