London Sticks Its Toe In The Contactless Payment Waters

Written by Evan Schuman
August 15th, 2007

In mid-September, London will launch its first large-scale contactless payment trial, with some 2,000 retailers slated to participate.

Although Europe has more aggressively embraced various wireless technologies than the U.S., it has sharply lagged the U.S.?and certainly parts of Asia?with contactless payment.

?As in many major cities across Europe, millions of people across in London use contactless ticketing on public transport. However, when it comes to contactless payments, challenges remain with regard to business models and partnerships,” said Jonathan Collins, an RFID senior analyst with ABI Research. “Before many European retailers commit to upgrading their POS terminals to accept contactless, they will need to be convinced that the investment is in their interests. Early European rollouts, combined with experience of advanced deployments around the world, will be key.?

Next month’s trial is being coordinated with eight leading U.K. banks?including Barclays and the Bank of Scotland–but it’s not clear which retailers will cooperate, Collins said. “There are still discussions about which (merchants) will come on board,” he said.

As in the U.S., the key draw for retailers is speed and the theoretical ability to process more sales in the same amount of time. The attraction for the banks, though, is even simple: They want to move a lot of small-currency transactions?typically paid for with cash, thus avoiding any credit- or debit-card fees?to plastic. The merchant challenge: can the additional revenue exceed the additional card fees enough to make it worth the cost of the technology changes? In London, that’s what will actually be on trial.

Security fears also will be playing a role in the London experiment, but not for consumers nearly as much as for the banks, which have agreed to cover any fraudulent losses, Collins said. To minimize risk, the trial will have impose a 10-pound (about $19.87 U.S.) spending limit for the contactless cards.


3 Comments | Read London Sticks Its Toe In The Contactless Payment Waters

  1. Lefteris Eleftheriou Says:

    Since cash is king and the business case for contacless payments is uncertain, why not combine the two payment methods? For example, if you want to buy a burger and fries for $5.11, use contactless to pay the 11 cents and pay for the rest in cash.

    Cash transactions are carried out in convenient, whole dollar amounts, and no one has to hassle with counting and sorting petty change, which is really what slows down the cash payment process.

    Merchants are happy because they prefer to deal in cash.
    Consumers are happy because their pockets and purses are not weighed down with heavy change, and they don’t have to go to a separate terminal to re-load the card with value when it runs low.
    And banks are happy because the most the contactless card ever stores is 99 cents in change.

    Once merchants, consumers, and banks are comfortable with this idea of coinless payments, they can gradually raise the amount on the card to replace cash entirely. Think of it as “training wheels” for contactless payments.

  2. Evan Schuman Says:

    Editor’s Note: Interesting thought, but I have trouble seeing the advantage here. First, the advantage of the contactless move is that the customer does not HAVE TO reach into his/her pocket and count out and hand over money. To force the customer to do both takes away much of the advantage of the contactless.
    Secondly, counting coins is a hassle but paper money counting is also a huge drain with many merchants. Not only is it slow and detailed work, but–unlike credit cards–it is incredibly easy for a worker to pocket untraceable cash. It’s also a theft attraction.
    In my opinion, contactless may or not work but a combo method would very likely fail.

  3. Lefteris Eleftheriou Says:

    Despite the best intentions of contactless, I believe there will always be a need for cash, hence the appeal of a combo or coinless method. Whether you save two seconds with a cashless transaction or one second with a coinless one, you are that much closer to getting that burger and fries!


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