Information Age: News, analysis & insight for IT & business leaders

Banks and retailers are throwing their weight behind contactless payments systems, giving rise to the e-wallet.

Stepping off the Tube at the major financial outpost of London’s Canary Wharf, commuters in recent weeks have been assaulted by a marketing campaign of military proportions. From the underground exit gates to the top of the vertiginous escalators and on to the pedestrian forecourt, every available surface is plastered with advertisements for a new, “revolutionary” technology that promises to transform the world of cash payments: the contactless card.

Though brimming over with hyperbole, the fanfare is not without some justification – and indeed some necessity. For the contactless card aims to fulfil predictions, made by visionaries more than a decade ago, of the widespread use of on-the-go, contactless payments – a vision often touted under the headline ‘The end of cash’.

While chip and PIN technology, which was built on a standard developed by payment system giants Europay, MasterCard and Visa known as EMV, was designed to securely automate high-value transactions, the contactless chip card has been specifically designed to capture many of the 20.7 billion low-value cash transactions that are made every year in the UK – transactions that cannot justify the processing costs of EMV.

Equipped with an in-built chip and antenna, contactless cards use a short-range wireless technology – similar to RFID – to transmit payment information to a contactless-enabled point-of-sale terminal. Unlike RFID, however, contactless chip technology possesses processing power, allowing data in transit to be safely encrypted.

Because the contactless payment is today capped at £10, no authentication is required. In order to debit their accounts, users simply waves their card across a contactless enabled reader, creating an electronic transaction that is considerably slicker and faster than using either chip and PIN or, indeed, cash. According to Visa, for example, it typically takes 162 seconds to purchase a cup of coffee in a normal cash transaction; using its recently launched ‘payWave’ technology, this transaction time is slimmed down to a single second.

A poster-worthy proposition

While some evidence suggests that is truer in theory than in practice, the prospect that contactless technology could effectively digitise large parts of the UK cash economy by serving as a super-fast, hyper-convenient electronic substitute is a highly poster-worthy proposition. In the US market, for example, where 40 million contactless devices are currently in circulation, serviced by 400,000 point-of-sale terminals, the ‘case for cashless’ has more or less been proved.

But we shouldn’t get ahead of ourselves, warns David Rockcliff, head of personal cards at the Royal Bank of Scotland (RBS) which, prompted by the technology’s performance in the US, launched the first UK contactless trial last year using MasterCard’s PayPass technology. “Not everything that works in the US works in the UK,” he counsels. 

Nevertheless, RBS, along with several of its peers, in particular Barclaycard, Visa and MasterCard, are now willing to test the technology in the UK market. This autumn consequently marks the first co-ordinated, large-scale roll-out of contactless cards and their supporting point-of-sale infrastructure in the UK, by a number of major financial services players. The initial push to sign up consumers and retailers, dubbed the ‘London Launch’, aims to issue 200,000 contactless cards by early 2008 – to create what Dave Wentker, vice president of Innovation at Visa International, dubs “critical interest”, if not critical mass.

Continued...