[Dave Birch] Retailers say that cards are more expensive than cash. Therefore, they can’t help noticing comments such as those by Bank of England supremo — much in the news in the U.K. at the moment Mervyn King. Mervyn reportedly said about having cash in circulation that:

such mutual convenience is a public good, and may not correspond to the private interest of commercial banks.

In other words, everyone else is happy with cash but bankers are consipiring against the general welfare by trying to persuade people to use cards. Now, one might reasonably imagine that part of retailers apparent devotion to cash is as a bargaining chip with banks, but their suspicion is genuine enough: they don’t want to held to ransom over payments (which, for some retail categories are already a significant overhead). But are they right (as in that article) to look at contactless payments as being a wheeze to increase retailers bank charges tenfold? The calculation that they are making here (ie, a small shop with 450 cash transactions per week being replaced by contactless) shows the retailer’s costs rising by £200+ per month compared to the current £20 per month they pay for banking cash. I think there are two issues about this calculation: first of all, retailers are right to ask for differential interchange of offline EMV transactions that are replacing low-value cash, so that means the cost wouldn’t be anything like £200. Maybe £50-£80, something like that. Secondly, I can’t help noticing that the retailers are only calculating the cost: they don’t see any upside. They don’t see any benefits to them in reduced cash handling or shorter queues, they’re not being offered any value-added services. As our good friends at Payments News perceptively noted, this sort of thing is a symptom of an the symptoms of an industry (ie, acquiring) that is competing only on price but that should instead be looking to offer something new.

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Is contactless an example of something that’s genuinely new and delivers something to the merchants? Well, the evidence from the marketplace at least indicates that that might be a realistic possibility. Look at this example from Taiwan, where “Watsons Your Personal Store” has reported a 77 percent drop in average queueing time now that they accept contactless payments. Their managing director says that

Visa payWave enables consumers to complete a whole transaction in as little as four seconds, significantly reducing queuing time and increasing consumer satisfaction [and] operational efficiency by reducing the time and cost of processing cash.

So one might expect retailers to appreciate that substituting card payments for cash payments benefits everyone (except the issuer of the notes and coins in circulation, of course, because they lose the seigniorage) and increases the net welfare.

Well, sort of. What these figures show is that contactless technology is a viable — indeed, beneficial — substitute for cash. What they do not show, of course, is that banks are the optimum issuers and that is why there is so much interest in other organisations such as mobile operators and retailers (to pick the obvious examples) becoming issuers of cash-substituting instruments. That said, I was still quite surprised to see that the London newspaper “The Evening Standard” is going to launch its own contactless prepaid “Eros” card to the replace cash for people buying newspapers from their (ie, the Evening Standard’s) sellers. To incentivise use, the paper will be cheaper for contactless buyers than for cash buyers. There’s going to be a trial this week at the London terminus I use, Waterloo, so I shall endeavour to obtain a card and report back. The scheme’s creators (marketing consultancy HH&S and technology company i-movo) believe it to be a world first although they don’t say what at. It’s certainly not the world’s first newspaper to be purchased with stored value card, because I was there on 4th July 1995 in Swindon town centre when Evening Advertiser vendor Mr. Don Stanley (then 72) made the first ever live Mondex sale.


And just to prove it…


One rather obvious question that any thoughtful consumer might ask, though, is why doesn’t the Evening Standard just take Oyster cards in payment — after all, Hong Kong commuters buy their evening paper using their Octopus card — since eveyone on Waterloo station has an Oyster card anyway? Well, Transport for London decided a couple of years ago that they didn’t see a business case in doing this: after all, the Evening Standard can’t sell more than a couple of hundred thousand copies in London every day. Another rather obvious question that the same thoughtful consumer might ask is that since the banks in the U.K. launched contactless payments in London a couple of weeks ago is why didn’t one of the acquirers sign up the Evening Standard? Surely waving your Barclays OnePulse to buy a paper in 500 milliseconds is just what is was designed for. The answer, of course, is that if you’re selling the Evening Standard for Xp, you wouldn’t want to pay a 10p merchant service charge on a debit transaction even if the banks could you offer you a suitable fixed-fee, no screen, rugged terminal (which they can’t). Now if I was one of the acquirers, frankly, I have been tempted to knock up a terminal like this (just use a mobile phone with a bit of POS software on it to start with) and sign up the Standard for a penny a transaction as it would be a simple way of generating a hundred thousand new contactless cardholders in London. But then if I was one of the acquirers, I wouldn’t care less how the issuing side of the bank was doing, would I?

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


  1. Mr. Birch, I thoroughly enjoyed your blog post and I must say that I wholeheartedly agree that contactless does offer something new to the market for card acceptance, though it is more a proxy for mobile payments, and once mobile gains traction, merchants will truly have something to smile on as offering them value. Once mobile is enabled, you have a new channel to deliver loyalty rewards, potentially in real-time text message format, not only encouraging the merchant’s best customers to come back, but also to spend more.
    I thank you also for the link to the mention of my recent report on merchant acquiring, the press release for which (also written by yours truly) was posted by Mr. Loftesness and company over at Payments News. And a wonderful job they do over there, as do you with Digital Money Forum.
    Best Regards,
    David Fish
    Senior Analyst
    Mercator Advisory Group

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