Change on the cards?
Written by Scott Thompson
As the London Olympics looms large, Scott Thompson asks: will 2012 be the year of the contactless card?
A NatWest leaflet arrives in the post. "It's time for a change. Don't let cash slow you down," it says. The leaflet folds out into a snazzy contactless promo, informing me that there's now no need for cash. Oh, and it takes less than a second to pay (apparently).
The contactless camp are making much of the fact that the London Olympics will be a cash free event. The argument goes that contactless will finally take off in the UK as consumers get to experience the many benefits of paying in this way. Certainly, it has been given a boost by Transport for London's announcement that users of London's buses will be able to touch and pay in time for the start of the Games. By year end, the system will also have been rolled out to the tube, Docklands Light Railway and overground network.
Yet it could be argued that, in the context of the global cards and payments industry, the London Olympics is little more than a blip. It's a small sporting occasion being held in east London. One that will hopefully generate some good PR, but ultimately a niche event which will matter little in the grand scheme of things.
“I don’t believe that the Olympics will have any significant positive impact on starting a contactless revolution,” says Huw Thomas, managing director at IT solutions and services provider, PMC. “For one thing there isn’t enough time for anyone who has not yet deployed contactless to get a new solution accredited and deployed. The main reason though is the £15 transaction limit on this mode of payment. This is barely sufficient to buy a couple of sandwiches and drinks for lunch, never mind support a real shopping revolution. The banks have a lot more work to do before contactless will be in a position to be a real game changer in retail payments.”
The NatWest leaflet also makes a big play on the fact that I can use my card to get instant coffee and fast food. McDonald's is one of the few retailers to have truly embraced contactless. Last year, it rolled the system out in all of its 1,200 UK stores and currently accounts for around 50 per cent of transactions in this country. Certainly, not enough retailers are following its lead and even those with terminals installed don't seem that interested. Many of us have been in a sandwich shop and seen a queue of people waiting to pay with cash or debit/credit cards, whilst the contactless terminal sits there unloved. Or in the case of an EAT regularly frequented by your's truly, upside down and broken.
The banks should also shoulder some of the blame. Barclays/Barclaycard has lead the way in this area – almost all its credit and debit cards are now contactless – but others have been less keen. The situation is improving, however. Nationwide is not in the market and currently has no plans for entry, but Royal Bank of Scotland is looking to increase the number of contactless debit and credit cards in issue during 2012, with an initial focus on London and the south east (hence the aforementioned NatWest leaflet).
As for Lloyds Banking Group, it says that it is seeing an increase in take up, with a growing number of High Street outlets set up to accept contactless payments. “Contactless debit cards provide an efficient alternative for customers making small purchases. With the increasing trend towards debit card usage over cash, contactless debit cards provide customers with convenient payment options. We believe it will be an increasingly common method for people to pay,” says Philip Robinson, head of payments at Lloyds Banking Group.
There are currently approximately 1.5 million contactless debit cards in issue across the group (1 million for LTSB and 0.5 million for Halifax and Bank of Scotland). “We are expecting to this to be closer to 2 million cards by the summer. We are issuing to a number of major cities in the UK, including London, Birmingham, Manchester and Glasgow. We have remained focused on these areas so that customers who are issued with a contactless card will be able to use their card at certain retailers locally,” says Robinson.
The prospects for contactless have improved markedly in the last year but there is still some way to go before the 'no need for cash' boast becomes a reality. “There are about 20 million contactless cards issued in the UK and over 70,000 contactless terminals. The business case for deploying contactless is all around faster payment and therefore increased revenue. However, until the banks and card issuers do something about the £15 maximum transaction value their use is limited to stores with a very low average transaction value and will not have the opportunity to become a serious payment method,” says PMC’s Thomas.
“Also the banks are not supporting the roll-out in the same way that they did for chip and PIN. There is no central programme or press office for the roll-out of contactless cards in the UK and this must relegate the success of this programme considerably,” he adds.
The Olympics will come and go but the same old issues will remain - poor user experiences, lack of consumer awareness, retailer apathy, that pesky 15 quid limit and the fact that many people still like and trust cash. In all likelihood, it will take the arrival of NFC-based mobile payments and the ditching of cards to make this particular dream fly.