Smart Cards, Smart Phones and a Cashless Society

Super Fast Shopping with the ‘Scan & Go’ Smart-card Payment System

October 19, 2010

UK Trade & Investment - That quick trip to the supermarket to buy milk, bread and a few of the essentials of life is about to become a lot faster with contactless payment.

In the past, shoppers have had to spend time paying with cash, or tapping in a pin-code to use a credit or debit card. But not any more — thanks to a partnership between Barclaycard and the Co-operative Food group to install contactless paying technology in the United Kingdom.

The Co-operative (Co-op) will become the UK’s first major grocery retailer to introduce its smart-card payment system in its stores nationwide after joining forces with Barclaycard. This type of quick, easy payment allows customers to make purchases of £15 or less, without the need to enter a pin code or insert their card into a payment terminal.

After the ‘scan-and-go’ card has been held over the contactless terminal, the secure transaction uses the tried and tested chip and pin technology to add the purchase to the customer’s credit card bill or debit it from their current account.

The roll-out will begin with testing in 100 Co-op food stores in 2011 after an agreement was signed with Barclaycard in partnership with Visa. If the trial is successful, the Co-op group will roll out the smart terminals to most of its food stores in time for the 2012 Olympics — being billed as a contactless event at which visitors are expected to experience the convenience of scan-and-go payment on transport and other low-value purchases.

Contactless payment — already commonplace and proving popular in the United States and Asia — is ideal for transactions where customers want to pay for goods and leave as quickly as possible — such as at supermarkets and fuel stations.

The roll out of such a scheme in the UK began in 2007 and now there are nine million contactless-enabled cards in circulation.

A Barclaycard spokeswoman said:

“With these sort of transactions, speed is of the essence. When contactless technology was introduced, the limit was £10. It is now £15. We would expect this limit to gradually increase. In the United States it is now US$50.”

Sean Toal, the Co-op’s commercial director of food retail, said:

“This is a great opportunity for the Co-operative to work in partnership with Barclaycard to become the first major food retailer in the UK to roll out this unique payment method.

“It has received an excellent reception from both customers and retailers where it has been launched overseas and is ideal for our store portfolio.”

Contactless payment is expected to increase customer through-put because research has shown that many people will leave a shop without buying if they see a long queue to pay.

Barclays and Barclaycard say they are leading the way in introducing the speedier system, helping retailers reduce queuing and cut the cost of such transactions.

In line with its history of providing customers with innovative payment systems, Barclaycard also intends to make payment by mobile phone available to the mass market by 2012.

Barclays and Barclaycard are the leading providers of contactless bases in the UK with 25,000 live terminals, accepting payment throughout the country for retailers including Prêt A Manger, Subway, Yo! Sushi, and Eat.

The Co-operative Group stands apart from other major retailers in the UK by being a business that is owned not by shareholders but by more than five million consumers. With core interests in food, financial services, travel, pharmacy, funerals and farms, it has an annual turnover of £14 billion, employs 123,000 staff and operates 5,000 retail trading outlets handling 20 million weekly transactions.

The Co-op is the fifth largest food retailer and is one of the largest, most diversified financial mutual businesses. In the UK, the group is the number-one provider of funeral services, the third largest retail pharmacy chain, a leading travel retailer, and the largest farmer.

Cash Is No Longer King — Hail Contactless Payment

April 14, 2010

The Times - Coins and notes will be used in less than half of all transactions within five years, it has been predicted, after payments made by cash fell from 73 per cent to 59 per cent over the past decade.

The Payments Council said that cash was “king no more” after a study of payment trends between 1999 and 2009 found debit card spending was now the most popular — quadrupling to £264 billion last year.

Debit card payments are even dwarfing credit card usage, while the cheque continued its decline, and at a faster pace than expected.

The council said it predicted in 1999 that just over one billion cheques would be used by individuals in 2009, but the figure fell to 577 million.

It is planned to phase out cheques completely by October 2018, although the council said that even if no action was taken, cheque transactions would more than halve to 248 million in that time, making up only 0.8 per cent of all personal payments made.

“By 2050, when today’s new workers have retired, cheques look set to be a historical curiosity,” it said.

The future instead looks set to be contactless cards, which allow people to pay for goods worth up to £15 without having to use a PIN.

There are eight million cards in the UK that allow contactless payment, but the council estimates that this will grow to 30 million by 2012.

And mobile phones are likely to be used eventually for payments, with an iPhone application already making this possible.

“By 2050, contactless could well be the norm, but it is unlikely to be on a plastic card and could very well be on a mobile phone,” the report from the council said.

Although cash is now being used less, it remains the most important method of payment for one-off and small transactions. Today’s study showed that about 21 billion consumer payments were in cash, but the vast majority of these — 80 per cent — were below £10. Almost a third of money spent on goods and services was made by cash, but only 11 per cent of financial spending used notes and coins.

For regular commitments, such as bills, cash has plummeted from 19 per cent of all payments by value in 1999 to 9 per cent.

“Paying for things is more secure and more convenient now we don’t have to keep replenishing the stock of paper and metal we drag around,” the council said.

While cash and cheques are less popular, debit cards have dominated the way Britons pay, with more than six billion purchases in 2009. Since the launch of debit cards in the late 1980s, the council said their use has soared and there were just under 80 million cards in issue last year, up from 46 million in 1999. By 2018, spending on debit cards is forecast to almost double again from the £264 billion seen last year to £477 billion — meaning that they will be used for about one in four of all transactions.

Credit card payments are, meanwhile, even slightly falling when inflation is taken into account, the report showed.

“This reflects both consumers opting for cheaper secured borrowing, particularly in the late 2000s, and credit card issuers increasingly operating tight lending criteria,” according to the report.

Outstanding credit card balances in January 2010 were £61.5 billion, down from £64.8 billion at the end of 2004.

The council said the last decade also saw internet banking put firmly on the map. Ten years ago online banking did not exist, but there are now 22 million UK adults operating their accounts over the web. Seven out of ten younger users bank online, although only a third of over 65s use internet banking, the report found.

The launch of “faster payments” between banks helped the rise of internet banking, meaning that small amounts of money can be moved instantly 24 hours a day.

The council said that individuals now make about 10 million more one-off internet and phone payments a month than before the system was launched.

Keeping in Touch with Developments in Contactless Payments

September 29, 2010

MIS Asia - Another month, another torrent of news releases proudly trumpeting the latest product releases, technology trials, and strategic partnerships related to the provision of contactless payments. Given the sheer number of announcements that are issued on an ongoing basis, it is easy to become desensitized to the wall of sound that blares from marketing departments and PR agencies. Fortunately, Ovum is blessed with a finely tuned ear: we can distinguish bum notes just as easily as identifying any prodigious performances. Perhaps unsurprisingly, we have had cause to do both in recent weeks. Here is our take on the positive aspects.

US banks benefit from First Data’s new Asian partner

The more we think about the news of First Data’s partnership with SK C&C of South Korea to offer turnkey NFC-based trusted service manager (TSM) and mobile wallet services to US banking and merchant customers, the more it makes good strategic sense.

SK C&C’s experience and knowledge will be invaluable if First Data is to take a prominent position at the front of the pack in the race towards contactless payments. As an established mobile commerce solutions developer, SK C&C is a specialist in its field, having provided TSM, mobile wallet, and mobile banking technology to SK Telecom for the telco’s T Smart Pay service since 2002. SK C&C is also involved in a deal SK Telecom signed with Japanese mobile operators KDDI and Softbank in July 2010, which will see the three companies cooperate on moving to a standards-based approach for their NFC payment services.

While we recognize that the market nuances of Japan and South Korea set them apart from other nations in certain aspects (the provision of very high-speed wireless data access, for example), First Data — and therefore its banking and merchant clients — will undoubtedly benefit from SK C&C’s technological and operational expertise. Rather than being reliant upon pilot studies, First Data will be able to leverage SK C&C’s knowledge of actual widespread commercial deployments, thus giving the company a potential advantage over its competitors in the payments processing space.

First Data is clearly serious about NFC. Earlier this year it signed a deal with Tyfone for a microSD-based contactless solution, which it will offer to consumers in the US as part of a drive towards NFC-enabled mobile commerce, before eventually going worldwide (assuming all goes according to plan). While it’s still early days, we believe First Data is assembling a strong proposition. But, as with all these things, success is firmly dependent on sustained uptake of NFC payments among consumers. Which brings us neatly to the interim findings of La Caixa’s pilot in Spain.

La Caixa’s NFC pilot results cause an air of optimism

La Caixa, Telefonica, and Visa have been running a contactless payments pilot since May 2010, involving 1,500 bank customers (who have been issued with a Samsung Star Touch handset containing a SIM card capable of making NFC payments via Single Wire Protocol) and 500 merchants in Sitges, Spain.

While the trial is not scheduled to conclude until November this year, the initial top-line results make for interesting reading. For example, 70% of customers rate the service at 8 out of 10 for user satisfaction, with 66% confident that they would make future NFC payments.

As might be expected, 60% of transactions were for €20 or less. But out of the 40% that required PIN authentication (as an additional security measure), the average spend in this category was €60, thereby demonstrating that consumers appear willing to use contactless payments for higher-value transactions.

Although it is a shade too early to declare the pilot a resounding success, the preliminary findings suggest that the players involved should be cautiously optimistic about the potential of NFC payments in Spain. Assuming the final results display similarly encouraging sentiments, the tripartite alliance should use the Sitges experiment as the foundation for the wider deployment of contactless payments and supporting technologies (i.e. handsets and payment terminals).

Banks, mobile operators, and merchants in other countries would do well to take note to see what lessons they can learn. The Netherlands is apposite, after T-Mobile, Vodafone, KPN, ABN Amro, ING, and Rabobank signed a letter of intent to jointly introduce NFC-based payments across the country from 2012. For the joint venture to succeed, learning from the experiences of others will be vital.