[Dave Birch] Looking at figures coming from various markets, it looks as if a bullish position on contactless is reasonable.  Statistics from a MasterCard research study on how PayPass is being used show an increased spending of 19 percent per PayPass account, as compared with accounts for which consumers have only been issued magnetic-stripe cards.  The study also shows that consumers with PayPass cards or fobs are using them 29 percent more often than those with non-PayPass cards, and that the average transaction size of a PayPass payment is smaller than for transactions made with magnetic stripe cards which confirms their position as a cash replacement: almost 80 percent of PayPass transactions are for purchases $25 or less.  In the U.S., $25 is the "no signature" boundary, so retailers do not have to require signatures for the transactions anyway, and contactless fits in neatly.  But I am starting to wonder if the same dynamic will work in the EMV environment.  In the U.K., the transaction limit is 10 pounds and contactless is predicted do well:  Datamonitor rate the U.K. as the biggest European market for low-value cash transactions.  One of the key subsectors is service stations, but only around 18% of service station transactions are suitable for contactless payment (Datamonitor research shows that this would increase to around 40% if the ceiling was increased to 20 pounds).  This leads me to suspect that the limit will be raised sooner rather than later.

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For the U.S. as a whole, a Synergistics Research survey found that 9% of 1,000 shoppers polled said they had used a contactless card or fob to make purchases, which represents a more than doubling of the 4% of the respondents who answered yes to similar polls conducted at the ends of 2004 and 2005.  Another survey, by Report Buyer, says that there were about 27 million contactless payment cards (and keyfobs) in use and that there were about 777 million contactless payment transactions in 2006, around 3% of all credit and debit card transactions.  These figures are projected at 2.2 billion transactions on 109 million devices by 2010.

So, does the growing use of contactless and the focus on low-value transactions transactions threaten cash?  I rather think it will, but meanwhile, in a "Turkey’s view of Christmas" YouGov survey, Bank Machine, the UK’s leading independent ATM operator, has revealed 75% of today’s consumers still prefer to use cash for smaller transactions and 81% believe financial institutions are pushing them to use their credit and debits cards more.  I hope the latter claim is true, or a lot of the investment in contactless is going to be wasted.  Nearly two-thirds of transactions under £5 are still paid for in cash and this is not in the interest of the banks, says Bank Machine, as cards encourage consumers to splash their cash more.  Ron Delnevo, managing director of Bank Machine, says that:

At a time when consumer debt in this country is at an all time high, it is completely irresponsible of card issuers to suggest that cash transactions are somehow old fashioned. It is an increasing worry that big institutions and retailers are continually attempting to manipulate the ways in which we spend our money, and subsequently what it is spent on.

Now, it has to be said that Ron has a point — one of the key retailer drivers for contactless low-value payments is that consumers spend more than they do with cash — but is that a reason to continue the hidden subsidies to cash?  I imagine that consumers spend more using notes and coins than they would do if they had to barter livestock, but that’s hardly a moral justification for a return to ancient Babylonian economic order.

As it happens, some e-barter people popped in to see us last year, which led to some discussions about whether barter can work well in a networked economy and thus bypass some other digital money developments.  One line of thinking is that the whole reason that money was invented was that bartering isn’t a particularly efficient means of paying for goods and services and therefore bartering has no role. As Techdirt said,

In the last decade, over and over and over again, we’ve seen companies keep trying to bring back the concept of bartering, as if it were something new and wonderful. In the early days of the web there were a bunch of online bartering sites, and they all died out pretty quickly. A couple years back, the new set showed up, and they seemed just as pointless. One of the higher profile ones was Peerflix, where it didn’t take long for people to realize that when you have to trade DVDs straight up, there are going to be a lot of crappy DVDs available, and not many good ones.

Interestingly, they call this economic phenomenon "the ghost of Gresham’s Law", although I think the "precursor to Gresham’s Law" might be a more accurate homage to our hero Sir Thomas.  On balance, I think I predict that I am more likely to be using a contactless card, with a limit of more than 10 pounds, next year than I am to be bartering home made yoghurt for Volvo parts.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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