Making payments pay

From her vantage point on the executive board at the European Central Bank, Gertrude Tumpel-Gugerell has noted the radical changes in the world of payments that herald “unlimited possibilities” for “strong business opportunities”. Or in other words, the opportunity to make big money.

Already, the world’s most powerful financial operators – including Visa, MasterCard, Barclaycard and HSBC – have begun developing revolutionary new technologies around their retail payments processes, designed to greatly enhance the customer experience. Chief among these is the use of short-range wireless technology – commonly referred to as near field communications (NFC) – which is being embedded in credit and debit cards, creating a ‘contactless’ payment system.

Several operators, including Visa, MasterCard and Barclaycard, have successfully trialled this technology which, instead of requiring signatures or PINs, allows customers to simply wave their card over a point-of-sale terminal.

Taking this model one step further, Transport for London announced in January 2007, that – in conjunction with Visa and Barclaycard – it plans to combine the Oyster card travel pass, which uses NFC technology, with a dual payment facility, allowing users to make small purchases in retail outlets.

According to the consortium, this added feature will enhance the user experience by allowing Oyster card holders to buy themselves a coffee and a paper before boarding the Tube, without having to fiddle around looking for change. Such choice, or ‘value-added services’, around the payment mechanism plays a vitally important role in encouraging customer adoption of new technologies, says Patrick Gauthier, senior vice president of innovation at Visa, ensuring “the consumer is more satisfied and will therefore have a stronger relationship with their provider”.

But if choice is the key to mass adoption then it is not the credit card but the mobile phone which promises to truly revolutionise the payments marketplace, offering, as Gauthier notes, a “totally different user experience”.

Visa is already testing the water, introducing a contactless payment system that can be embedded in mobile handsets. However, Visa sees this development purely as the launch pad for a multitude of new, and highly profitable, services.

“If the only thing the mobile handset achieves is to replace the card,” Gauthier notes, “then we’ve just made the entire game a little bit more complicated and a little bit more expensive.” However, he continues, “the handset has other ways for the consumers to make choices” through its screen and processing capabilities. For example, users might check their account balance using their mobile, before deciding to upgrade to the bigger plasma-screen TV on sale – and then pay for it using the authentication device on the handset.

To dominate the mobile payment market, however, financial services providers will rely on partnering with handset makers. To this end, Visa has already made a strategic investment in a little known mobile device management company, mFormation, whose intuitive sense of mobile configuration and enhanced service monitoring capabilities, greatly impressed Gauthier.

Realising the full potential of mobile functionality will still take some time, he concedes, but he remains confident that for Visa – which has armed itself with a raft of other innovative technology partners – “the long view is full of promise”.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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