Contactless technology at the point of sale could prove to be the tipping point for mobile payments in the UK, writes Michael Dempsey. But concerns around security refuse to go away
An oval containing expanding radio waves meeting an after dinner mint-shaped card clutched in a human hand may indicate the future of retail payments. This is the symbol of the contactless payment facility which Barclaycard, among others, is promoting as a rapid way to deduct small payments from credit and debit cards and mobile phones.
Richard Armstrong, UK head of payments acceptance at Barclaycard, thinks the future of this system is assured. “Consumers prefer cards to cash and they don’t want to carry change around,” he says. The blue oval representing contactless payment is already becoming familiar to consumers, according to Barclaycard’s own research. This suggests that the proportion of the public who recognise the contactless logo rose from 28 per cent to 44 per cent between 2010 and 2011.
The vision of a cashless future with shoppers sailing through newsagents and fast-food outlets, unencumbered by the need to tinker with coins and banknotes, appeals to many retail giants. McDonald’s launched contactless payments in May this year, rolling out 8,000 payment readers across all 1,200 of its UK restaurants.
The burger giant claims that every one of these sites has seen at least one contactless transaction, and says half of all UK contactless payments take place under its roof. But McDonald’s is reluctant to dish out further figures, underlining the question that has dogged the contactless payments world for several years. Is there really a huge public appetite for dispensing with cash in favour of flashing a wallet or mobile phone at a contactless reader?
The technology itself is tried, tested and ubiquitous. The same radio frequency identification (RFID) technology that allows pallets of goods to be tracked via tags through factories, warehouses and into shops works for contactless payments. Near-field communication (NFC) is the key acronym. NFC works at very short range (a few inches) and hence is claimed to be less vulnerable to interception. Nevertheless, security concerns are never far away when NFC is mentioned.
The misconception that NFC is insecure will encourage the contactless payments world to maintain a strong emphasis on security
The fear factor around NFC is that criminals may avail themselves of card readers and sweep cash from their victims as they pass by in any crowded location. The practical limitations of carrying bulky card-skimming equipment suggest this threat may be overstated. But John France, head of European payments at digital payments business eWise, notes that, however secure cashless chips are, they will never truly resemble cash. “The card still has to provide your personal details to the merchant via the NFC signal,” he says. “So it’s not really like cash at all.”
Mr France ticks off the interested parties in the contactless game. “The telecoms companies want to increase the number of transactions crossing their airwaves and the banks want to move more transactions to the credit or debit card model. But in order for contactless to succeed it has to be better for everyone, not just the banks and the telcos.”
Security specialists have given NFC a lot of attention and at Foregenix, a digital forensics and incident response company, the view is that existing cryptographic features within NFC should be sufficient. “I’ve been in the security field for 15 years,” says director Andrew Henwood, “and I’m actually pleased about the misconception that NFC is insecure. It will encourage the contactless payments world to maintain a strong emphasis on security.”
Another potential problem for contactless is summed up neatly but cruelly by Keith Brown, managing director of mobile payment specialist Paythru. “NFC is associated with beer and sandwiches,” he says. Can contactless ever make the breakthrough into large-ticket items? At present NFC is calibrated to take payments of up to £15. But the big prize is public acceptance of contactless transactions for bigger items.
Here, security raises its head again. “With larger payments the retailer puts their brand image on the line,” says Mr Brown. “Retailers have to be able to trust whoever is handling the payment.” An outburst of contactless cash theft associated with a particular restaurant chain could have serious repercussions for the business’s reputation.
Even with security accounted for, the question of how long we have to wait for a mass market in contactless payments remains. WeDo Technologies is a business support company that irons out technical worries for its clients.
Simon Collins, WeDo’s technical director, thinks contactless will bed in over the next five years as readers and contactless chips become common. “This market will not move until we have a large volume of NFC devices out in the market,” he says. But he warns that fraud control is a critical issue, and notes that consumers need to know how data on their precise spending habits will be recorded, stored and possibly used. Back at Barclaycard, Mr Armstrong thinks he can refute any reservation about contactless payments. “We’ve spent a lot of time testing this,” he says. “Clearly security is paramount.”
He points out that the cards have several security features. The payments are restrained by the £15 limit, a series of transactions within a short period will prompt a need to enter a PIN as with a traditional card and, perhaps most importantly of all, “if there is a fraud, the consumer is protected by the same guarantees that apply to a credit or debit card”.
Barclaycard saw 300,000 contactless transactions taking place in the month of October, prompting Mr Armstrong to chart the rise of the NFC regime. “We now have 60,000 retail outlets with contactless terminals in the UK and the number of cards with contactless capability just keeps on growing,” he says. At the last count there were 18 million contactless-enabled cards in British wallets and purses, split equally between credit and debit cards.
Perhaps the most powerful aspect of this technology is that is addictive. Barclaycard has observed that after a cardholder carries out three contactless transactions they are likely to become a frequent user. It appears that after the first few times a wallet is waved at a card reader, the action seems natural and the habit just spreads.
GOING IT ALONE
Fed up of waiting for the mass adoption of near field communication technology, coffee business Starbucks has now rolled out its payment app for the iPhone and iPad in the UK and Ireland using its own custombuilt technology, says Brian Waring, vice president of marketing and category, UK and Ireland.
The company has transactions down to one touch and believes each one will save about ten seconds; something customers clearly won’t notice but the company will in the form of reduced queues. Customers can link their app to their reward card so that there’s a benefit to getting the phone out, says Mr Waring.
“Customers want to be served quickly, but fewer want to use cash,” he adds. “We wanted to find a way for them to pay in the quickest time possible and give them more reasons to choose Starbucks.”