Swipe dreams


22 November 2010


Contactless payment is taking off in the UK, says Stuart Neal of Barclaycard. The technology offers customers convenience and, with many potential advantages for retailers, could soon reach tipping point. Although it is never easy to introduce a new technology to the market, its backers are confident that once consumers try contactless payment, they will never look back.


Payment terminals that allow customers to hold a card near a sensor to quickly pay for their items are becoming more common in the retail environment. The convenience of these contactless payment systems is immediately obvious for consumers making purchases of £15 or less, as they no longer have to sign or enter their PIN.

Barclays and Barclaycard have been leading the drive to introduce the technology to the UK. They have distributed more than ten million contactless-enabled debit and credit cards, and have been working with early adopters in the retail sector to demonstrate the benefits of the technology. They are also working on enabling contactless payments to be made using mobile phones by 2012.

The success of these efforts is rapidly becoming clear, with the number of contactless transactions starting to rise exponentially. In 2010 so far, more than one million transactions have been made using contactless technology, and there has been a 217% rise in the monthly total of transactions. In September alone, more than 150,000 contactless payments were processed.

"It is not easy to introduce a new technology to the market, but since the end of 2009 there has been a dramatic upturn in the use of contactless payment," says Stuart Neal, head of payment acceptance at Barclaycard. "It took time for the retail side to roll out, but the cards are out there now. We have not yet seen the impact of the first major supermarket rollout with The Co-operative, but that will happen soon."

As it stands, there are 42,500 contactless payment terminals in retail outlets around the UK. The growing number of transactions processed through these terminals may still represent only a small proportion of the total number of card payments made in the UK, but the speed and convenience they provide is convincing customers and retailers of their benefits. Retailers and banks are committing to the technology, and it is estimated that the number of UK holders of contactless cards will reach 12 million by the end of 2010.

Barclays and Barclaycard have been working with a select group of retailers that includes Pret A Manger, Subway, Yo! Sushi and EAT. Although more retailers are expected to embrace the technology in the years ahead, these early adopters have helped card issuers to overcome the biggest hurdle in getting the technology into the market."It was a chicken-and-egg situation," explains Neal. "You need the cards in circulation to get more retailers on board, but you need the retailers involved to get the cards out there.Barclays and Barclaycard see it as the future, so we are pushing it.

"Contactless payment has a number of advantages, some tangible and some intangible. Queues are a massive issue - two-thirds of people have said they will abandon a shopping basket rather than wait in a long queue. Contactless tills help to reduce that. Retailers
also have less cash to manage, less time is spent reloading self-checkout machines and customers without cash in their pocket become more likely to shop, so footfall increases."The convenience may also drive up the spend per visit," he adds.

Urban drive

The implementation of contactless payment has been focused on London, but the time has come to spread the technology to other urban centres around the UK. The ability to roll out the technology nationally has been built on the success of its adoption by the likes of Pret and Caffè Nero, but there is no question that more needs to be done in order for the technology to reach critical mass among consumers.

Neal is confident that there will not only be an increase in the number of retail outlets offering customers the option of using contactless payment, but also that its use will spread to other industry sectors, which could give
the technology far greater traction.

"Contactless payment is a phenomenon in retail, but other industry verticals like transport are very appealing," he says. "Transport for London is looking at it as an alternative to Oyster, a smartcard that removes the need for paper tickets across London's transport network. We believe that for low-value transactions it will become part of everyday life."

Oyster cards offer an interesting example of how a new technology can quickly become familiar to consumers. Furthermore, they have helped the concept of a contactless smartcard to become an accepted means of conducting everyday transactions. First issued in 2003, Oyster cards initially came with a limited number of features, but additional functionality has been introduced since. They have effectively reduced the number of transactions at ticket offices, partly because they allow passengers to make cheaper journeys on the London transport network. By 2010, more than 34 million Oyster cards had been issued, and they were being used for more than 80% of all journeys on services run by Transport for London.

Contactless payment cards like those issued by Barclays and Barclaycard do not offer monetary savings, but offer a great deal in the way of convenience. Once contactless payment by credit or debit card has reached the same level of acceptance as Oyster cards, the evolution of the technology will no doubt accelerate. For instance, the £15 limit on transactions could be increased as customers become more comfortable with the technology. For this to happen, however, it will be important to address any concerns consumers have about the security of contactless payment, which is a high priority for the financial institutions backing it.

"With chip and PIN, a lot has been done to eliminate fraud, and we are not trying to replace that," says Neal. "More work has to be done to protect contactless payment from fraud and financial institutions have to take the initiative. Banks guarantee low-value transactions, as they do with chip and PIN, and it must be remembered that contactless payment is still more secure than cash.
"There is also the possibility that it may leave plastic and eventually go onto mobile phones - we are working with Orange to trial that.It would open up a host of benefits for retailers in terms of customer communications."

Chip and PIN has become so familiar to consumers that it is hard to remember a time when it was not the norm. Contactless payment will not push chip and PIN out of the market, but aims to complement it by providing a faster, easier way to process low-value transactions. Confidence is high that the technology can carve out its own place in the market, quickly and relatively easily.