[Dave Birch] The arrival of contactless cards in the mass market continues to attract attention. As the first flush of enthusiasm passes, however, the coverage is beginning to fracture into two rather predictable perspectives. On the one hand, speed and convenience. This is particularly attractive to certain merchant categories (eg, fast food) and customers. So, for merchants like Arby’s, where speed is important, the faster transaction time is the dominant factor. American Express say that ExpressPay-enabled transactions can be completed in about one-third the time of a cash transaction and about half the time of a swipe-card transaction, and figures from Visa and MasterCard show similar gains. If anything, the merchants in the U.S.A. are upset that the contactless roll-out is too slow. Less than 2 percent of Visa’s cardholders in the U.S. currently have the technology. MasterCard has distributed 13 million PayPass cards and claims that 46,000 merchants now accept them. The pharmacy chain CVS/Caremark, which has had contactless readers in operation since 2005, says that less than 1 percent of its card transactions are contactless. McDonald’s has been prepared for contactless payment for two years. David Grooms, vice president of IT at McDonald’s USA says

We’re deployed in all of our restaurants in the U.S.

The installation of contactless terminals at merchant is clearly going to grow — and is one of the reasons that the forecasts for mobile payments are so bullish, with Juniper Research predicting that P2P fund transfers and mobile payments in the developing world, together with the commercialisation of NFC based mPayments will generate transactions worth approximately $22bn in 2011 — even in the U.K., where merchants have just been through the process of replacing all of their terminals for chip & PIN. Now, chip & PIN was of course extremely costly to card issuing companies, merchant companies and retail outlets. Indeed, some observers think that the U.S.A. will simply bypass it, moving via contactless to NFC and the next generation of retail payment devices. But even in the U.K., where the roll-out of the first contactless cards is imminent, merchant terminals are appearing. Barclaycard has signed its first 1,000 retail outlets for contactless and will launch its OnePulse combo chip, contactless and Oyster card next month. Elizabeth Chambers, chief marketing officer, Barclaycard, says

Cashless payments are starting to become a reality.

The retail outlets signed for contactless already include Coffee Republic, Threshers, Books Etc, YO! Sushi, Eat and Krispy Kreme. Once again the quick-serve retail (QSR) category is predictably dominant. In the U.S., Arby’s won’t discuss actual numbers, although they do say that the trend is positive, but rather interestingly say that they put the technology in because it was a convenient time to do so, not because it expected to see an immediate benefit. In other words, they were upgrading the company’s in-store point-of-sale (POS) system and decided to add contactless as part of the process. I’m sure this will be the general picture in the mass market outside certain very special cases. U.K. merchant won’t upgrade because of contactless, but when they do upgrade then contactless will be part of the new specification.

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Yes speed and convenience, but on the other hand, contactless cards will be the end of civilization as we know it because of fraud. They will lead to increased street crime, according to the ATM operator Cash Machine, because thieves can use the cards without PINs for transactions under ten pounds. They go on to say that the cardholder “is likely to be asked only every 10-15 transactions to enter their PIN” to verify they are the lawful user of the card. Actually, the cards can only be used nine times without a PIN: the tenth time, the card must be used in a contact mode and the PIN entered. I’m not saying that this is a good idea, or that it won’t annoy the hell out of consumers, but the issuers’ assumption is that a dual interface contact/contactless debit card will be used by consumers in contact mode as well as contactless mode, so the number of times that a contactless transaction will be refused and a contact transaction will be required is statistically only gong to be in 1 in every 150 transactions or something like that. My assumption is that consumers may well stick a contactless card in a pocket or the bottom of a handbag because they want to use it to buy coffee the same way they use an Oyster card to get on the Tube. In which case, they will get annoyed quite quickly.

There’s a different context to all of this in the U.S., where there is no chip & PIN and since all transactions are online the risk analysis around contactless payments is quite different. There’s no need to to sign for every tenth transaction or whatever. There are still security concerns, of course. Javelin Strategy & Research conducted an online nationally-representative survey of some 2200+ consumers in the spring and found that

  • A bit more than half were neutral or positive on the concept of contactless.
  • Among the neutrals-to-positives, the group’s security worries graphs like a perfect bell curve, with about half neutral on contactless as a security threat and the remaining two quarters being evenly split between those that expect contactless to be either “safe” or “unsafe”.
  • Among those that are not yet ready to use contactless, security appear to be the dominant consideration. Which means, of course, that whatever we might think about actual security situation we must get better at communicating it.

They end up by speculating that since consumers prefer the safety of PIN, the perceived advantages of PIN will become more significant on eventual increases in contactless transactions, which is a fair point. On balance, though, I think that despite the worries (remember, there were similar predictions of chaos when chip & PIN was introduced) people will as always opt for convenience over security. Anyway, only a month to go and we’ll see if the Evening Standard front page will be about disgruntled customers, street robberies or nothing much happening!

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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