[Dave Birch] In a recent post, Aneace observes that if improved speed is the key merchant benefit of contactless (which I’m not sure about: as discussed before, it’s one of a portfolio of benefits) then the use of magnetic stripe cards under $25 (ie, with no signature required) undermines the business case:

Contactless has always been positioned on one single merchant benefit: speed. So waiving the signature for transactions under $25 just kills contactless.

[From Waiving signatures for small purchases torpedoes contactless]

This is true to some extent. But it’s really only true in the U.S., where all transactions are online, and in comparison to similar card transactions. In chip environments, an offline chip-based transaction is going to take a couple of hundred milliseconds. Contactless is very fast, remember, partly because of the technology’s heritage in the transit world, where it is turning full circle: transit companies don’t really want to run ticketing operations at all, so they would be more than happy to have “pay at gate” where bank and other payment cards are used to enter/exit the transit system. This is why pilots and trials in this direction are useful indicators of the way the payment environment might develop. For example,

MasterCard is teaming with The Port Authority of New York and New Jersey and NJ Transit for the eight month trial, which is set to kick off in early 2009. Customers will be able to pay fares on buses and trains between New York City and New Jersey by tapping their contactless device at turnstiles and on fare boxes.

[From Finextra: NY commuters to trial contactless payments on buses and trains]

In the non-transit environment, or I should say non-“closed” environment, the only way to get 200ms transactions is to go offline. But even then, while you’re standing around waiting 10 minutes for your latte, 200ms may be neither here nor there! So in most markets (ie, markets where not all the transactions are online), contactless products will run adequately fast and are a better option than no-signature stripe cards because of the improved security.

There’s a lot of this activity — contactless, transit — in London at the moment. The place has got everything going for it as the perfect test-bed for these kinds of ideas. The transit system is already contactless and the Oyster cards are widely used, so that means that customers are already familiar with tap ‘n go payments, the mobile market is competitive and the population density is high. But that’s not all. What’s just around the corner is the Olympics:

Lloyds TSB has started a multimillion-pound contactless card payments trial in London, ahead of plans to create a totally cash-free environment for the 2012 Olympics. Customers participating in the pilot will be able to hold the card up to a reader to take money out of cash machines or make purchases worth less than £10. The technology will be rolled out across the UK this summer. In 2012, spectators and participants at the London Olympics will be issued with the cards to handle everything from taxi bills and stadium access, to purchasing food and drinks inside the venues.

[From Contactless cards trial begins – 14 Feb 2008 – Computing]

Now, this may be an outdated vision by 2012 because it still focuses on the card as the central consumer device. It may be, however, that by 2012 the mobile phone will already have taken over. I’m not the only thinking this, by the way.

Now the industry is betting that proximity payments will be their future, and if they’re wrong there’ll be a lot of empty space here in Barcelona come 2009.

[From The future of the SIM hangs by a single wire | The Register]

Wouldn’t it be a dream if the public could use their phones to book tickets, enter the events, travel on the Underground and buy a coffee just using their phone. What a showcase!

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

5 comments

  1. Actually, there is an equivalent to sig-waiver in the UK. Drop into a Pret-a-Manger to buy your lunch and you can pay by card, but without entering your PIN (I think the limit is £10). It works reasonably well, but printing the receipt slows it down, of course.
    Not sure how the commercials stack up for merchants, but the advantage here is clearly speed.
    Try it – I got some amusing justification about security and why it’s OK not to enter my PIN.
    Still not as convenient as contactless (should be). And nothing like as convenient as paying for lunch with my phone. Now, that would be cool.

  2. Transit systems are heavily subsidized. There has been fairly heavy lobbying that while gov. subsidy of transit operation isn’t a bad thing … gov. subsidies for payment system implementations aren’t a good thing … especially when there are perfectly good payment systems already available.
    some number of transit systems have been told that there won’t be any more gov. subsidies for payment system implementations/operations
    there have been a couple recent studies claiming that consumers are decidingly NOT flocking to pin-less debit transactions … despite the heavy tv commercials touting the benefits.
    U.S. Consumers Prefer PIN Debit
    http://www.epaynews.com/index.cgi?survey=&ref=browse&f=view&id=1203376639837016673&block=
    Debit users say the PIN is mightier
    http://blogs.consumerreports.org/money/2008/02/debitcards_pins.html
    the are two issues about pin-less debit
    1) studies claim that pin-less debit has 15 times the fraud of pin-debit
    2) even if a card is always used as pin-debit … the card could still be enabled for pin-less operation.
    recent discussion of some problems enabling traditional pin-debit cards for pin-less operation (for a card in ireland that had never been used and therefor there was never possibility of it even being skimmed)
    http://www.garlic.com/~lynn/2008b.html#67

  3. Thanks Lynn, very useful.
    “1) studies claim that pin-less debit has 15 times the fraud of pin-debit”
    Could you point me to one of these as I’m very keen to learn more.

  4. Study: Signature Debit Fraud Runs 15 Times Higher Than on PIN Debit
    http://www.digitaltransactions.net/newsstory.cfm?newsid=738
    long ago and far away, we were called in to work with a small client/server startup that wanted to do payment transactions on their server and they had this technology they called SSL they wanted to use … the result is now frequently referred to as electronic commerce … a recent x-over thread:
    http://www.garlic.com/~lynn/aadsm28.htm#42 Trojan with Everything, to Go!
    in this blog:
    https://financialcryptography.com/mt/archives/001015.html
    we then got dragged into the x9a10 financial standard working group that had been given the requirement to preserve the integrity of the financial infrastructure for all retail payments … which resulted in the x9.59 financial standard
    http://www.garlic.com/~lynn/x959.html#x959
    then we were asked to work with one some of the companies that bid systems for many of the transit systems around the world. we included their requirements when we spec’ed the aads chip strawman
    http://www.garlic.com/~lynn/x959.html#aads
    … i.e. proximity, iso14443 power draw, transit gate elapsed time requirements … but also having much higher integrity (and much lower cost) … and being able to do x9.59 transaction within those specifications.

  5. re:
    http://www.garlic.com/~lynn/aadsm28.htm#43
    http://www.garlic.com/~lynn/aadsm28.htm#44
    note that iso7816 standard was from the 80s with the possibility of portable computing chips but w/o the technology for portable input and output technologies. the solution was to have fixed stations/terminals for input/output for the portable computing devices. this paradigm required an interface standard between the fixed stations and the portable devices.
    going into the early 90s, with the wider availability of portable devices with input/output capability (cellphones and PDAs) … standardized physical interface and form factors became obsolete … i.e. portable equipment could use contact free communication mechanisms and it would be possible to transition to form factor agnostic operation (as mentioned in the early AADS chip strawman discussions)
    part of the issue was that lots of organizations and institutions had sunk billions into the iso7816 paradigm … and were willing to recoup their investment … even at few cents on the dollar.
    this was part of the stuff we looked at in the mid-90s with regard to x9.59 financial standard and form factor agnostic contactless technologies.

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