First of all, let’s just reinforce the link between contactless and cash replacement. MasterCard’s figures show that only 4% of PayPass “taps” in Europe are for transactions above $50 and the average transaction value varies by country from around $5 to around $14. At the conference, they also gave a good case study on Carrefour and I recently saw an updated version of this case study from someone else. Carrefour have just issued three million contactless credit cards in eight months and upgraded 22,000 terminals take contactless payments. At the time of writing, they are seeing that over a third of their under €20 euro transactions are already contactless (displacing mainly cash) and that they have migrated 6% of transactions from debit to credit (which is, presumably, more profitable for them since it’s their own credit cards). Having said all that, and noted the Visa figures for the UK,
Several payments executives say consumer interest in the technology is falling off, and they blame the banks’ and card networks’ apathy.[From Has ‘Tap and Go’ Lost Its Touch? – Bank Technology News Article]
I’m not sure I would agree: the “blame” must be more widespread because it seems to me that contactless as POS as it stands is not that exciting. In many of the places where cash replacement would be very attractive (eg, vending machines) there are no contactless terminals and in many of the places where there are contactless terminals (eg, my dry cleaners) they will never be used. In other words, there could be a much better alignment between the terminal deployment strategy and the cash replacement strategy. Other people, though, are suggesting other remedies.
Banks making a concerted push to promote contactless payment technology are focusing on the wrong target and should switch their short-term focus to mobile commerce.[From Analyst Labels M-Commerce Renaissance a Priority by Bank Systems & Technology]
I draw a slightly different conclusion: banks should invest in contactless payments and in mobile payments on the same roadmap, so that in the time the investments are not wasted. What this means in practice is that the banks (and the retailers) should be planning for a new generation of value-added services that will be enabled by the combination of the mobile phone and the contactless interface.
I thought that one noticeable aspect of the conference was the extent to which the action in contactless is dominated by transit, in response to growing recognition that transit is disproportionately important to the take-up of contactless payments. As I’ve noted before
In some markets, it may well be transit rather than payment that is the initial driving application for NFC handset rollout, which means that the payments guys need to work with the transit guys (both at the simple level of auto-topup but also with more complex value-added services, such as transit-based rewards)[From Digital Money: The key role of transit]
Is this the same in the US? In general, probably not. What’s more, whereas it seems to be transit that drives and payments that follow in Europe, some observers think that in the US it will entirely the other way round.
In the U.S., though, transit isn’t as appealing. It’s been difficult in the U.S. for NFC to gain a toehold in the transit market because the number of contactless deployments are limited compared to Europe. “You only have eight or nine major metro areas where there are major contactless infrastructures geared towards transit,” adds Fonseca.
Payments are a different story. “The thing that will drive NFC in the U.S. will be payments because it comes down to the reader infrastructure to support these payments,” Fonseca says. “You have some 400,000 contactless readers that have been installed as opposed to a couple years ago when you only had 30,000. As this continues to grow, you’ll see the opportunity for mobile phone payments take off.”[From NFCNews | Economy, standards stand in the way of NFC]
But in some environments in the US the intelligent use of contactless can still succeed.
Who would have thought your ski pass could also work on transit? An open payments approach has created savings by using student cards, ski resort passes, and employer identification for contactless payments eliminating card issuance costs. UTA accepts all major contactless cards including Visa payWave, MasterCard PayPass, American Express expresspay and, in trial, a new Discover Zip sticker. The Department of Defense has also worked with UTA to evaluate providing government employees with a transit capability on the government employee personal identity verification – PIV card. (Link for more information on government smart card activity).[From Transit Moves Contactless Payment [Smart Card Alliance 2010 Payments Summit] — Payments Views from Glenbrook Partners]
Incidentally, one of the useful statistics that came out at the SMi event was provided by Transport for London, who said that the cost of fare collection is around 14% of the ticket cost, pointing out that there is plenty of room for improvement. If contactless e-payments can cut this to a couple of percent, then everyone is happy (except for the incumbent suppliers of ticket, of course).
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]
I know its boring, but the issue concerning investment in contactless boils down ultimately to the business case for low value payments. The payment schemes have never sorted that out and their promotion of contactless generally requires tinkering with the cards model, robbing Peter to pay Paul as in ‘creating’ interchange levels that help acceptance but remove the business case for issuers. The fundamental issue is that contactless payments, like epurse schems in the past, involve processing and other costs, or shadow accounting systems, similar to contact cards, so the business case for low value payments does not work. Unless that is addressed huge marketing spend will be needed to get contactless ubiquitous and every low value transaction will lose money for somebody. The solution is potentially in end to end transaction aggregration and the removal of per transaction processing costs, as can be seen in the patented aggregation technology developed by Cardis