[Dave Birch] Annoyed by the fact that the new bus that runs from near my house to the train station still doesn’t take cards so I have to mess bout rummaging round the house to try and find some change in the morning, I was thinking about low-value payments. There’s no public resistance to using cards for small payments.

According to the moneysupermarket.com* research, over half of Brits (56 per cent) are using their debit card to purchase items under GBP10, with an average of 3.2 transactions a week. The research also revealed the average transaction was GBP6.34 meaning UK consumers are funding a whoppingGBP560 million** worth of small purchases on their debit cards; which amounts to just over GBP20 per week and over GBP80 per month for each individual.

[From The Real Cost of Lunch — CHESTER, England, June 29, 2011 /PRNewswire/ —]

In the UK, the willingness to use cards for small payments is not limited to debit cards.

Despite the decline in overall credit card usage found by the BRC, Britons’ spending on ‘small transactions’ still remains high, with almost a quarter of consumers (23 per cent) still funding small purchases on their credit cards. The average spend for these transactions is GBP6.63, and an average number of weekly transactions of 3.4, means the nation’s weekly bill for small transactions on credit cards is over GBP250 million ***.

[From The Real Cost of Lunch — CHESTER, England, June 29, 2011 /PRNewswire/ —]

I’m in this category, since I never ever spend anything on my debit card. I only use it for getting cash out of the ATM. Why would I ever use it instead of my splendid John Lewis MasterCard with 1% cash back in Waitrose vouchers? Unless… my John Lewis card were to become contactless, in which case it would become easier to choose for small transactions.

The rise of contactless cards is likely to fuel the number of small transactions being paid for on credit. The UK Cards Association**** has already seen an increase in contactless card usage from 13.8m transactions in January this year to 15.1m in March, and we can expect to see these figures increase even further as more card providers issue contactless cards and retailers install terminals to accept these type of transactions.

[From The Real Cost of Lunch — CHESTER, England, June 29, 2011 /PRNewswire/ —]

I reckon that usage is still pretty low, but you do at least see the occasional contactless terminal here and there (more on this in a minute). It’s not that people don’t like it — although I would say that there is a pretty solid rump, including most of the people I asked in our local pub who don’t want to use it because of security concerns — but that almost all of them have never used. If you can get them to try it, it’s a start.

85% of contactless users said that they would recommend contactless to their friends and family

[From First Steps Towards Less Cash Society]

So, basically, if you can get people to try cashless then they like it and are happy to tell other people to use it. It’s helpful if you can find places with a bit of a captive audience to try it out on to get the process going. Sporting events, pop festivals, that sort of thing.

Festival-goers quizzed on the experience, said they were quicker (96%) and easier to use (98%) than credit or debit cards, while a resounding 100% said they’d want to use the PayPass prepaid wristbands again to pay at other festivals, concerts and sporting events.

[From Finextra: Contactless wristbands join wellies and camping gear as festival essentials]

There’s another thing here too: while customers seem to like contactless, they like contactless in their phones even more. This tallies with my own experiences around London: if you pay with a card, no-one bats an eyelid but if pay with a phone, someone will ask you how you did it!

“We have found in our research that our participants strongly supported contactless payment as a convenient way to pay, but the MicroSD technology did not meet all of our requirements.

[From Contactless trial fails: ANZ – Business – News – ZDNet Australia]

In other words, people liked mobile proximity payments but they want it to be built in to the phone, not an add on. In fact, as all of our experiences tell us, everyone wants it in the phone. Not only consumers, but merchants too. And we all understand why that is. It’s because contactless by itself doesn’t offer enough to the stakeholders: but contactless in a phone means not only contactless payments, but contactless offers, coupons, loyalty, discounts and all of the other stuff that merchants want to pay for. And the convenience of contactless is a major factor in delivering value-added services.

by holding your phone against something you are expressing your willingness to interact, effectively saying: “I want this”, whether it information, a coupon or to purchase an item. This makes NFC technology much more powerful than any other form of mobile-based activity.

[From Internet Retailing » GUEST OPINION Contactless payment: just the tip of the iceberg for NFC]

We can see this dynamic already in play in the US, where some pretty big chains are announcing their support for contactless technology. A recent example is the sandwich shop chain (and one of my favourites) Subway.

MasterCard Worldwide today announced that SUBWAY(R), the world’s largest submarine sandwich franchise, will accept MasterCard(R)PayPass(TM) contactless payments at more than 7,000 U.S. locations by the end of the first quarter of 2012.

[From SUBWAY(R) Restaurants to Accept Contactless Payments with MasterCard(R)PayPass(TM) | MasterCard Social Media Newsroom]

Great story. So why is Subway doing this? Does it really take too long to buy a sandwich, especially given that you can swipe your trivially-counterfeitable magnetic stripe card and you don’t even have to sign if your sandwich is under $25.

The giant Subway sandwich shop chain has said it will accept contactless payment at more than 7,000 locations in the United States, as it gears up to support the Google Wallet.

[From Subway To Accept Contactless Payment as it Preps for Google Wallet | NFC Times New – Near Field Communication and all contactless technology.]

Bingo. Merchants want mobile. So, for all of these reasons, the state of the contactless rollout is, therefore, really important to many of our clients not because of what it means for the use of contactless cards but because it is about the building of contactless rails for mobile to run on.

The UK’s contactless adoption is progressing well. A string of companies have already committed to contactless terminal rollout all at different stages of adoption. Frequent Announcements are being made with more companies making that all important commitment.

[From BLOG: Contactless Adoption In The UK Progressing Well]

I didn’t think this last week when I came up the escalator at Waterloo. On both sides, from top to bottom, were adverts for contactless payments. When I got to the top, I looked around and couldn’t find a single merchant accepting contactless: not WH Smith, not Marks, not Costa Coffee, not Burger King, not Upper Crust, not South West Trains and not the place that does the nice Japanese chicken curry. Ah yes, a pedant might point out, but there is MacDonalds. And it’s true that the MacDonalds at Waterloo does take contactless but

  • it’s downstairs with Starbucks (which doesn’t take contactless either) and
  • it doesn’t take contactless properly. When you buy, say, a coffee, the contactless terminal doesn’t light up automatically and say “£1.49”. You have to tell the person serving that you want to pay with a card, and then they have to press a button. This is silly. (To be fair, at least the staff their have been trained properly and know what contactless is and how it works).

We have a shared interest with our clients in seeing those contactless rails being laid down, so I want to see the contactless rollout accelerating, but I genuinely don’t understand why my hairdresser and my dry cleaner have contactless terminals (that are never used) but the pub over the road, the vending machine at the station and the park in town don’t. I also don’t understand why the terminals can’t be integrated properly. When you pay with contactless at a local coffee establishment, the barista has to press so many buttons on the register it looks as if they are writing the contactless acceptance code in C++ from scratch.

I’ll readily admit that I don’t understand the merchant acquiring business, but surely contactless should be focused on the places where cash is a pain, cards are too slow and “tap and go” would make a day-to-day difference to the average consumer. I suggest the sandwich lines at Marks & Spencer in Guildford might be a good place to start (but please, please configure the terminals correctly so that you don’t have to ask to pay by contactless).

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers


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