Is Oyster a pearl in payments?

Contactless payment is still evolving as smart cards are set to revolutionise the way we pay, writes Stephen Armstrong

In every technology race, there’s a Hovercraft or a Betamax or a BBC Microcomputer – great ideas, functioning tech, ultimately a dead-end curiosity.

At the start of 2012, the Oyster was looking like the Betamax of payments. First issued in 2003 – in part to cut back on cash stored in buses to reduce robberies – competitive pricing made the contactless smart card a rapid hit with Londoners. By June 2010, 80 per cent of the £2-billion-worth of journeys made on Transport for London (TfL) involved an Oyster. Small, light, functional – it was an obvious love affair.

Recently, however, TfL seemed to lose its love for the Oyster. In November 2011, the organisation declared its intention to accept open-loop payment on its network, effectively allowing contactless credit card payments on all journeys and opening the door to near field communications (NFC) payments by mobile phone.

London major Boris Johnson made it clear he wants TfL to get out of the business of changing money and collecting fares, reducing costs by allowing banks and payment card networks to take an ever growing share of transactions. For banks and payment providers this was good news; Barclaycard OnePulse, a credit card issued by Barclays with Oyster capability, led the charge but others followed including, MasterCard’s PayPass.

“We’re expecting single PayPass wallets to dominate payments in the future,” says James Davlouros, vice president – mobile business development, Europe, at MasterCard. “People won’t want to carry multiple cards around – a single card, possibly simply their mobile, for point of sale and transport, should be better. TfL’s move will prove pivotal in this.”

And yet some analysts aren’t so sure. “You just have to think about how people use their Oyster card,” says Alistair Newton, research vice president at Gartner’s banking division. “It’s kept separate, in its own wallet, while people have maybe two or three credit cards in their actual wallet. If they tap those on the tube gates or bus card reader, you can expect some real confusion as all three cards pay. If you have to take one card out, that slows you right down. And who’s going to want to put their most frequently used card in a separate wallet with photo ID? I’m not sure TfL have thought this through.”

The national roll-out of smart cards could have a fundamental impact on the way the UK pays

NFC-equipped mobile phones, he adds, have problems that hinder their uptake. The NFC chip had been included on handsets, but telecommunications companies insisted it become a SIM feature, to increase revenue. This slows down the time taken to make a payment. TfL requires 500-millisecond transaction times or faster and it’s not clear yet whether SIM cards in NFC phones, running either DESFire, PayPass or payWave, can achieve that.

Just as these details emerged, the UK government granted Oyster a new lease of life – in spring, the transport secretary announced a national roll-out for pre-paid cards, in part to allow greater variation in the fares. The roll-out might allow Oyster’s contactless system to restructure around models followed elsewhere in the world.

Stored-value cards, like Tokyo’s PASMO, Hong Kong’s Octopus and Singapore’s EZ-Link, all operate with radio frequency identification (RFID) technology and have been in use in Asia since the 1990s.

Where, for instance, Octopus differs from Oyster is its retailer relationship. Octopus cards can be used in pharmacies, newsagents, dry cleaning shops – the kind of stores that cluster around transport hubs. The stores have been involved since day one and their main benefit is access to the vast and constantly updated passenger data silos that Hong Kong’s Mass Transit Railway collects. Thus, stores can discover exactly which times of day they’ll have the greatest footfall, literally knowing the number of people likely to pass their door between 2pm and 3pm.

There are problems, explains Jerome Cle, chief executive of SCCP Group, which runs the SWIFF mobile card payment platform. “Card ownership is almost universal but, despite the available network of retailers, usage outside the travel network is not widespread,” he points out. “The technology is not sophisticated or secure enough for consumer needs – there are no detailed transaction records and no mechanism for payment dispute resolution.”

Innovations in pre-paid card technology, however, could overcome many of these flaws, says Howard Berg, director at digital security giant Gemalto. The company is introducing pre-paid option featuring a built-in keypad and display screen, which enables users to enter a PIN and see their balance. “You can straightaway understand how much is on your card,” says Mr Berg. “So at the point of sale, you’re 100 per cent confident that you’ve got the money to cover the transaction.”

With pre-paid smart cards rolling out in hospitals, schools and universities for everything from ID to canteens, there’s the potential, especially for debt-averse consumers, budget-conscious consumers or low-income families, for the national roll-out of smart cards to have a fundamental impact on the way the UK pays. The Oyster could yet prove to be a pearl.


Electronic wallet at heart of challenge

The major players in the payment sector, where mobility already represents a key strategic approach, have made the electronic wallet their chief issue.

“It all began in 2011, with the ISIS Mobile Wallet and the Google NFC Wallet. This was a real detonator, marking the start of the e-wallet era and triggering the wallet war we are now seeing,” says Isabelle Alfano, director of the CARTES show, the world’s leading smart technologies event dedicated to security, payment, identification and mobility.

To spread the use of the e-wallet, the first aim is to transform payment into shopping by proposing new services to consumers: price comparers, alerts about discounts and special offers, options for recharging phone SIM cards, buying train tickets, and so on.

But current developments also raise numerous questions in terms of security and private life.

For the smart security industry, these questions are not so much challenges as new opportunities and a number of technological responses are already appearing, which associate security with personal data protection in e-wallets.

The CARTES 2012 show, from November 6-8, at Paris-Nord Villepinte, features representatives from 143 countries, 450 exhibitors and 140 conference events with international experts.