Making contact … eventually
Heather McKenzie is editor of Daily News at Sibos
Despite security concerns, contactless payments technology continues to be rolled out globally. Visa International recently estimated that the volumes of contactless transactions it will process during 2013 will quadruple. MasterCard’s figures show that since 2012 there has been a 50% increase in the number of contactless cards it has issued.
Visa says 70 million of its contactless cards will be in circulation in Europe by next year. At the end of February 2013, there were 51 million contactless cards in circulation in Europe that could be used at 671,000 terminals available at major retailers.
Jeremy Light, managing director of Accenture Payment Services Europe, Africa and Latin America, reckons contactless cards represent “the most profound change in the cards market”. At present, he doesn’t think many people yet realise how significant contactless cards will prove to be. “They have been around for a long time and volumes are low, but growing, particularly in the past two years,” he says. In the UK, for example, one in seven payment transactions below £20 at Marks & Spencer retail stores have been made via contactless cards; food outlet Pret a Manger, which was a very early adopter of contactless cards, has seen the use of contactless payments grow from 3% to 20% since they were introduced in 2008.
Light predicts that contactless could, within five years, reduce cash payments by 40%. “That will have a huge impact in terms of cost reduction in the cash cycle and cash handling for bank processing centres and large retailers such as supermarkets. Once contactless cards reach mass adoption it will be a small step to mobile payments using NFC technology, he adds. “There is a great deal of innovation occurring in the mobile and cloud arenas. But it is difficult to work out what and who will be successful. The clear trend, however, is towards contactless cards. Mobiles will displace cash because they will be used to make electronic payments, but it will take a while.”
These comments should hearten industry observers such as David Birch, director at IT consultancy Consult Hyperion. As reported by fintechfutures.com (Unlocking the mobile wallet, 19 June) Birch raised concerns during a digital services conference about the lack of progress in mobile wallet use in the UK.
But the number of transactions using Near Field Communication – contactless – either via a card or a mobile phone, remains low.
Elsewhere in Europe, MasterCard has rolled out its contactless system, PayPass and Tap&Go payments to 26 countries – eight of which were added during 2012. Retail acceptance during 2012 almost doubled, says MasterCard, and 255,000 outlets across Europe can accept such payments.
Among the leading countries in terms of contactless cards issued for MasterCard is Poland, where 50% of cards are enabled.
In the Netherlands, two of the largest banks – ING and ABN Amro – recently announced they will issue PayPass contactless payment cards to their customers by mid-2013. MasterCard says this will make the Netherlands the largest PayPass debit card country in Europe.
Of course, you can lead a horse to water but you can’t make it drink. While infrastructure is being deployed to enable contactless payments and eventually mobile contactless payments, some hurdles remain. Foremost among these is security; mainstream media articles about contactless payments focus almost exclusively on security concerns. One UK-based 24-hour news channel reported that “millions of contactless payment cards contain a security loophole that allows vital security information to be stolen …” before mentioning in the final paragraph that the loophole would be closed by the new generation of contactless cards being issued by banks.
Visa addresses security concerns by pointing out that its cards have no power sources to transmit data and work only when a card reader is in proximity with a contactless point of sale terminal.
US-based industry association Smart Card Alliance, has also addressed contactless payment security concerns. Contactless payments devices and the payments processing networks and systems have specifications and security standards “above and beyond” those used in basic RFID applications, says the Alliance. Further, card issuers protect consumers’ personal information and use the same payments networks that are used for magnetic stripe cards.
One concern raised by consumer groups and the media is that contactless payment cards can be read by devices without the consumer knowing. The Card Alliance. It says fraud based on reading information from a contactless payment device has not happened other than in demonstrations of safety concerns. “The cardholder information that is used during a contactless payment transaction is of little to no use in creating fraudulent payment transactions,” says the Alliance. “The security implementation currently used by the different payment brands causes the contactless device-generated transaction information to change every time a reader reads the device.”
Like so many other innovations, contactless is likely to be a slow burn.
